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Economists: Recovery for Arizona still a few years off

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Wednesday, Dec. 5, 2012
By Tian Chen
Cronkite News

PHOENIX – Arizona’s economy could fully recover in three years as long as the so-called fiscal cliff doesn’t kick the nation back into recession, a panel of experts said at an economic forecast luncheon Wednesday.

“We have a long way to go,” said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at Arizona State University’s W.P. Carey School of Business. “It’s going to be several years before we see Arizona in a state of growth that we regard as more normal.”

Among the experts’ predictions for the coming year: Arizona will see more jobs being created, more single-family homes being built and higher retail sales.

McPheters said that by the end of 2012 Arizona will have regained 30 percent of jobs lost during the financial meltdown. The state needs two to four more years to create another 220,000 jobs to achieve full recovery, he said.

Business services, manufacturing, construction and health care will see the most job growth in 2013, McPheters said.

But he and others said their positive outlooks depend on Congress and President Barack Obama reaching an agreement that avoids the automatic spending cuts and tax increases scheduled to take effect in 2013.

Beth Ann Bovino, deputy chief economist at Standard & Poor’s, said the fiscal cliff could result in the biggest contraction of the federal budget in five decades and push the U.S. back into recession.

“It’s a self-inflicted wound,” Bovino said.

If the nation goes over the cliff, McPheters said, Arizona’s economy will go with it.

“Arizona is subject to the national business cycle,” McPheters said. “Any slowdown of the national economy is going to be reflected in Arizona.”

Across-the-board spending cuts would hit the state’s defense industry harder than others in the short run because Arizona ranks ninth nationally in defense contracts, he said.

However, because the cuts are unlikely to affect research and development, Arizona’s innovation-oriented defense industry will be shielded from severe long-term harm, McPheters said.

Elliott D. Pollack, CEO of the Scottsdale-based economic and real estate consulting firm Elliott D. Pollack and Co., said the real estate market has been on a slow track to recovery with the help of job growth, low interest rates and stronger consumer confidence.

However, impeding the recovery is the fact that about 40 percent of Arizona homeowners owe more than their homes are worth, Pollack said.

“We will be crawling our way out instead of sprinting our way out,” he said.

Homebuilders are scrambling for land to feed brisk demand of late, and the price of new homes will continue shooting up in 2013, Pollack said.

However, he said, the real estate market won’t fully recover until 2015 or 2016.