Arizona Economy catches a winter chill: first quarter 2017 economic forecast update

First Quarter 2017 Forecast Update

By George W. Hammond, Ph.D.
Director and Research Professor, EBRC


The Arizona economy slowed during the fourth quarter of 2016, with jobs rising very little over the year. Job growth was down from third quarter performance and slower than growth nationally. New population estimates from the Arizona Office of Economic Opportunity suggest continued slow population increases statewide and in the Phoenix and Tucson metropolitan statistical areas (MSAs). Further, Arizona’s merchandise exports to the world (and to Mexico) declined last year.

Overall, Arizona’s economy continues to expand and prospects for somewhat stronger growth are on the horizon. A modest acceleration of the U.S. economy will help drive stronger growth statewide  during the next two years, but it is important to keep the risks in mind at this point. There is currently a high degree of uncertainty surrounding federal tax, trade, immigration and regulatory policy. Further, there is uncertainty about the ultimate impact of Arizona’s new minimum wage requirements. As this uncertainty gradually clears in coming months and years, we will have a better idea of the possible impacts. Stay tuned.

Arizona Recent Developments

The Arizona Office of Economic Opportunity released population estimates for 2016 late last year. The data for Arizona show continued slow growth, with a net population increase of 77,300 residents in 2016. That translated into 1.1% growth, which was above the national rate of 0.7%, but below the state’s pace in 2015 of 1.4% (Exhibit 1). During the 30 years before the Great Recession, Arizona’s population growth averaged 3.2% per year.

Population gains were sluggish for both the Phoenix MSA and the Tucson MSA. Population increased by 67,500 persons last year in the Phoenix MSA, accounting for 87.3% of state growth. Population growth in the Phoenix MSA decelerated from 1.8% in 2015 to 1.5% last year. That was well above the national pace, but during the 30 years before the Great Recession, the Phoenix MSA averaged much faster population growth of 3.6% per year. In contrast, population gains in the Tucson MSA accelerated slightly last year, rising from 0.2% in 2015 to 0.4% in 2016. Overall, the Tucson MSA added 3,700 residents, which accounted for 4.8% of state gains. Tucson growth remained below the national average and well below average population growth during the 30 years before the Great Recession of 2.4% per year.

Arizona's population is increasing slowly : annual population growth rates for Arizona, Phoenix MSA, and Tucson MSA

International developments continue to impact the state. The U.S. dollar surged upward in the fourth quarter against many currencies. Over the year in December 2016, the dollar was up 1.6% against major currencies and 4.5% against a more broadly based index that includes the currencies of developing countries. This continues a trend that began around the middle of 2014. Indeed, since June 2014, the dollar has risen by 24.8% against major currencies and against the broad index.

When the U.S. dollar appreciates, it puts downward pressure on U.S. exports (and upward pressure on imports), other things the same. U.S. nominal exports of goods declined 7.4% in 2015 and 2.9% in 2016. Arizona exports are exposed to the same pressure. After rising 6.6% in 2015, state exports declined  2.8% last year.

As Exhibit 2 shows, Arizona merchandise exports to Mexico declined 9.2% last year. This is key because Mexico is by far the state’s most important export destination. In 2016, Mexico accounted for 37.8% of Arizona merchandise exports. Canada was the next largest destination, accounting for 9.4% of state exports.  Thus, state exports to NAFTA countries accounted for 47.2% of the total. Arizona exports go all over the world,  29.8% go to Asia, 17.7% to Europe, and 5.3% to all other countries combined. State exports to Canada, Europe, and the rest of the world also fell last year. Asia was the only export destination to post growth, driven largely by a surge in exports to South Korea.

One key reason why Arizona’s exports to Mexico fell last year was the major appreciation of the U.S. dollar versus the Mexican peso. Indeed, from June 2014 to December 2016, the dollar rose 57.8% against the peso. In contrast, the U.S. dollar increased 23.2% against the Canadian dollar. 

With the major rise of the dollar versus the peso, it makes sense that state exports would be adversely affected. However, state export performance was uneven across industries. Exports of computers and electronic components, as well as transportation equipment, increased. These are the state’s two largest export sectors. Playing an important role in the overall decline was a major drop in mineral and ore exports (down 30.9%). Exports of non-electrical machinery and chemicals also declined last year.

Recent political events have put further upward pressure on the U.S. dollar versus the Mexican peso. In the immediate aftermath of the election, the exchange rate hovered between 20.0 and 22.0 pesos per dollar (it has recently begun to descend). The impact of recent statements by the new administration on NAFTA, immigration, and trade policy in general have increased uncertainty on both sides of the border. While the imposition of a unilateral tariff on Mexican goods crossing the border would hurt Arizona exports (due to likely tariff retaliation or boycotts), this differs from proposals to impose a border adjustment. The border adjustment is part of a proposed overhaul of the U.S. tax system that would also affect U.S. export performance and the value of the U.S. dollar. Some economists expect the overall plan to have little impact on the trade deficit. The devil is in the details, however, and we will have to keep a close eye on how federal tax and trade policy evolve.

Arizona Merchandise Exports to Mexico declined last year

 

Arizona Outlook

The state outlook depends in part on future national economic performance. The national forecast calls for continued growth, which accelerates in the near term and then tapers off as time passes and demographic forces slow gains.

The forecast calls for real GDP growth to accelerate from 1.6% in 2016 to 2.3% in 2017 and again to 2.6% in 2018. Stronger growth in 2017 is related to easing of the inventory correction and stronger energy sector investment. A policy-related boost to growth is expected in 2017-2018, as tax cuts, increased government spending, and deregulation spur gains. Thereafter, real GDP growth decelerates to just below 2.0% per year by 2026. In contrast, job growth gradually decelerates as the aging of the baby boom generation drives down labor force gains.

One key force driving economic growth is productivity. U.S. productivity gains have been  sluggish since the end of the Great Recession. The forecast calls for productivity to accelerate in the near term, rising to rates similar to past history. If this does not occur, then the U.S. economy will post slower real GDP growth and likely faster inflation.

On the international front, the U.S. dollar is expected to rise by an additional 5.3% in 2017, against a broad market basket of currencies, before stabilizing in 2018 and then gradually depreciating during the next three years.

Continued national growth sets the stage for Arizona gains during the forecast. The state is forecast to continue adding jobs, residents, and income at pace above the national average. However, growth is expected to remain well below averages rates during the 30 years before the Great Recession.

As Exhibit 3 shows, job growth is forecast to rise from 1.8% in 2016 to 2.4% this year, then to 2.8% in 2018. From 2018 through the end of the forecast period, job growth gradually decelerates, reflecting the impact of the current demographic shift (large numbers of baby boomers retiring).

Arizona outlook summary first quarter 2017

 

Personal income follows the same basic trend as employment, although the strong acceleration in 2017 is driven in part by the large increase in the state-mandated minimum wage. The minimum wage rose from $8.05/hour in 2016 to $10.00/hour in 2017. It is scheduled to rise to $10.50/hour in 2018, then to $11.00/hour in 2019, and finally to $12.00/hour in 2020. Thereafter it rises with inflation. The broader impacts of the minimum wage increase on employment, profits, and prices are uncertain at this point. Past research (on much smaller changes to the minimum wage) suggest modest negative employment impacts and modest increases in price levels.

Forecast data for Arizona, Phoenix MSA, and Tucson MSA.

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This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Sierra Vista has some of the best housing affordability in the nation, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI). It ranked 11th in the nation in the 4th quarter 2016 Housing Opportunity Index released February 16. Nationally, 59.9% of homes sold in the 4th quarter were affordable for the U.S. median family income. Nearly all Arizona metropolitan areas had a higher share of households affordable to the median income in their area than the U.S.: Sierra Vista-Douglas, 89.2%; Yuma, 79.5%; Lake Havasu City-Kingman, 76.9%; Tucson, 76.1%; Phoenix-Mesa-Scottsdale, 65.4%; and Prescott 53.4%. Flagstaff data were not available for the 4th quarter.

Arizona home prices rose 7.4% between the 4th quarter 2015 and 4th quarter 2016 according to the Federal Housing Finance Authority House Price Index. This was higher than the nation at 6.2% and tenth highest appreciation among the states. Oregon had the highest home price appreciation at 11% followed closely by Colorado (10.6%), Florida (10.4%), and Washington (10.2%). Three states actually had a decline in prices, West Virginia falling the most at -3.4%. Metro area home prices tracked with the All-transactions Home Price Index (which includes both purchase and refinance mortgages) are included in the report. Changes in Arizona metro home prices over the year: Prescott, 6.9%; Phoenix, 6.7%; Tucson, 5.7%; Yuma, 5.5%; Lake Havasu City-Kingman, 4.6%; Flagstaff, 4.6%; and Sierra Vista-Douglas, -1.2%.

There were 4,003 initial unemployment claims in Arizona for the week ending February 11, down 297 from the week prior. The four-week moving average, which smooths out volatility, was also lower at 4,113 compared to 4,281 the week before. Continued claims for Arizona were 5.5% lower than the same time a year ago. Unemployment benefit claims nationally were 241,000 on a seasonally adjusted basis for the week ending February 18, up slightly from the week before. The four-week moving average, however, dropped to 241,000, which continues to be the lowest level since the early 1970’s.  

The Consumer Price Index rose 0.6% in January based on the February 15 Bureau of Labor Statistics release.  This was the biggest monthly seasonally adjusted increase since February 2013 and was due primarily to gasoline price increases. Higher prices for clothing, airfare, and new vehicles factored in as well. Food prices were unchanged for the month. The annual inflation rate was 2.5% for January.

Producer prices increased 0.6% in January on a seasonally adjusted basis according to the February 14 Bureau of Labor Statistics release.  Final demand goods rose 1.0% over the month and final demand services rose 0.3%. The unadjusted 12-month change in producer prices was 1.6%.

Hands and calculator photo courtesy Shutterstock.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


The U.S. trade deficit decreased in December, according to the U.S. International Trade in Goods and Services release on February 7th. The trade deficit in December was $44.3 billion, down $1.5 billion from the month before. Exports increased by $5.0 billion while imports increased only $3.6 billion. Although the deficit decreased during December, now that we have a full year of data for 2016 we can see that the trade gap increased 0.4% over the year. 


Source: U.S. Bureau of Economic Analysis, Net Exports of Goods and Services [NETEXP]

The U.S. added 227,000 nonfarm payroll jobs in January. The January Employment Situation report indicated that the sectors with the most job gains were retail trade, construction and financial activities. The unemployment rate for the nation was 4.8%.  

Real Gross domestic product (GDP) by state increased at an annual rate of 2.8% for Arizona in the third quarter 2016. GDP increased the most in South Dakota at 7.1% and New Mexico GDP had a decrease of 0.1% for the third quarter, placing it last among all states. Both wholesale trade and finance and insurance were leading contributors to economic growth for Arizona and the nation during the third quarter according to the February 2nd Bureau of Economic Analysis release.

real gross domestic product by state 2016 third quarter

There were 3,944 initial unemployment claims in Arizona the week ending January 21, down 733 from the week prior. The four-week moving average was 4,082, topping 4,000 for the first time since the beginning of November. Continued claims for Arizona were 6.8% lower than the same time a year ago. Nationally, filings for unemployment benefits were 246,000 on a seasonally adjusted basis for the week ending January 28, making 100 consecutive weeks that unemployment claims have been below 300,000. The four-week moving average was 248,000.  

Phoenix home prices rose 5.2% over the year in November. This was again lower than the national figure of 5.6%, according to the January 31st release from S&P CoreLogic Case-Schiller Home Price Indices. Phoenix 12-month price changes have been slightly lower than the nation for several months. Seattle and Portland continue to have the highest over the year home price increases with 10.4% and 10.1%, respectively, followed by 8.7% for Denver. The 20-city composite over the year change for November was 5.3%.  

Real GDP for the United States increased at an annual rate of 1.9% in the fourth quarter of 2016 according to the advance estimate released by the Bureau of Economic Analysis on January 27. GDP rose 3.5% in the third quarter 2016. Revised fourth quarter GDP estimates (based on more complete data sources) will be released February 28 and March 30.

Hands and calculator photo courtesy Shutterstock.

New data on visitor travel to Arizona - AZMEX team adds new data on nonimmigrant visas issued

By Alan Hoogasian
Research Economist


According to 2014 estimates, approximately 10M Mexican visitor parties travel to Arizona annually and spend an average of $247 per trip. This spending generates an annual impact of $2.5B and supports about 30,000 jobs throughout the state. One major factor affecting Mexican visitor travel to the state is U.S. Department of Homeland Security policy on nonimmigrant visas. These policies govern the number of visas that can be issued and the privileges that each visas carries. B-type visas are issued for tourism and business travel and are valid for a period of up to 10 years. These visas allow Mexican nationals to petition for entry to the United States. For example, the districts of Nogales and Hermosillo in Sonora have issued 1.3M nonimmigrant visas over the past 10 years. This means that there are about 1.3M eligible visitors who may make frequent trips to Arizona. For Mexico as a whole in 2015, Mexico City and Monterrey issued the most nonimmigrant visas, as the figure below shows:

Figure 1 . Nonimmigrant visas issued at districts in Mexico border states and Mexico City.

 

In an effort to provide Arizonans and other community stakeholders with data and information on nonimmigrant visas issued, the Arizona Mexico Economic Indicators team has designed a new webpage: Nonimmigrant visas issued. Here you will find information about what type of B visas are available, how they differ, and how visa issuing districts in Mexico Border States compare. You will also find an array of features such as charts and a table from which the data can be downloaded, plus a brand new interactive map tool . Check out the new AZMEX visas page.  Also stay tuned to the Arizona-Mexico Economic Indicators website for upcoming research on the relationship between the State of Arizona and Mexico’s automotive industry.

Title photo courtesy of Pexels.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


The Arizona employment report released January 19 indicated that job growth in the state was 1.2% for December. This was the second month in a row – the only two months out of the year – that over-the-year job growth in Arizona did not exceed that of the U.S. Prescott had the highest over-the-year growth rate in the state for December with 5.0%. Other metros in Arizona had growth rates a bit lower than that: 1.4% in Phoenix, 0.8% in Flagstaff, 0.4% in Tucson, 0.3% in Sierra Vista-Douglas, -0.5% in Yuma, and -0.6%% in Lake Havasu City-Kingman. Industries growing the most over the last year in Arizona were education and health services followed by leisure and hospitality. Government, natural resources and mining, manufacturing, information, and other services all lost jobs over the last 12 months.  The unemployment rate for the state was 4.8% in December, slightly above the U.S. rate of 4.7%.

There were 4,551 initial unemployment claims in Arizona the week ending January 7. The four-week moving average was 3,687, which has remained under 4,000 for the last two months. Continued claims for Arizona were 6.4% lower than the same time a year ago. Nationally, filings for unemployment benefits dropped 15,000 to a seasonally adjusted 234,000 for the week ending January 14. The four-week average decreased to 246,750 –its lowest level since November 1973.  

The Consumer Price Index increased 0.3% in December on a seasonally adjusted basis, with shelter and gasoline prices being the main reason for the rise in the overall index. The annual inflation rate rose 2.1% in December. This is the first time since mid-2014 that the inflation rate reached two percent.

Producer prices rose 0.3%, seasonally adjusted, in December. Final demand goods rose 0.7% while final demand services increased just 0.1%. The change in producer prices over 12 months was 1.6%, unadjusted. 

The U.S. added 156,000 nonfarm payroll jobs in December. The December Employment Situation report indicated that health care and social assistance was the sector with the most job gains. The unemployment rate for the nation was 4.7%.  

The U.S. trade deficit increased in November to $45.2 billion, up $2.9 billion from October. Exports decreased $0.4 billion over the month while imports increased $2.4 billion. Year-to-date the deficit was down 1.1% from the same period in 2015.

Bankruptcies in Arizona were down 10.2% in 2016 compared to 2015, the sixth straight year of decreasing bankruptcy filings for Arizona. Chapter 7 (business or individual liquidation) declined 12.6% in 2016, while Chapter 11 (business reorganization) declined by 39.5%. Chapter 13 (individual debt adjustment) increased by 7.3%, the first time since 2010 with an annual increase in Chapter 13 filings. The Phoenix office, handling Apache, Coconino, Gila, Maricopa, Navajo, and Yavapai counties, decreased the most in overall bankruptcies from one year to the next with a drop of 12.0%.

The Tucson office (Cochise, Graham, Greenlee, Pima, Pinal, and Santa Cruz) was down 5.7% and the Yuma office (La Paz, Mohave, and Yuma) decreased 3.2%. The only county to have a larger number of bankruptcies filed in 2016 than the previous year was Yuma by just three filings.

Hands and calculator photo courtesy Shutterstock.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


states ranked by percent of population under 18 years of ageThe Census Bureau released 2016 population estimates and voting age estimates for the nation and states on December 20th. According to the Census, Arizona’s population grew 1.6% between 2015 and 2016. States in the West and the South lead population changes with Utah having the highest percent change in population over the year. Utah also had the highest percentage of population under the age of 18 at 30.2%. The percent of the population under 18 in Arizona was 23.5% in 2016, placing it 16th among all states. Arizona has steadily moved down in the ranking of states with the largest percentage of children (see Not as Young as We Used to Be). The percentage for U.S. was 22.8% (or conversely, there were 77.2% of the population18 and over).

The Arizona Office of Economic Opportunity released July 1, 2016 population estimates on December 15. The population estimate for 2016 was 6,835,518. Maricopa County has the largest population in the state with 4,137,076 while at 10,433 Greenlee County has the smallest.  Pima County population was 1,013,103.

The Milken Institute released their 2016 Best-Performing Cities report in mid-December. This annual report ranks cities based on a method that looks at growth in jobs, wages, salaries, and technology output for both the near term (current year) and long term (five years). They divide the report into large and small city rankings, which really represent metropolitan areas. This year the best performing large metro was San Jose-Sunnyvale-Santa Clara, California and the highest ranking small metro was Bend-Redmond, Oregon. Most Arizona metros moved up in rankings compared to the 2015 report. Out of 200 large metros, Phoenix moved up 16 places to 46 in 2016 and Tucson rose 20 places to rank 155 this year. In small metros, Flagstaff tumbled down nearly 40 places to rank 81 in 2016 compared to 42 in 2015, while Prescott moved up 40 places to now rank 33rd. Other Arizona metro areas in the 201 “small city” rankings moved up or stayed relatively stable – Lake Havasu City-Kingman ranked 131, Yuma 146, and Sierra Vista 198.

The Consumer Price Index increased 0.2% in November, primarily due to increases in shelter and gasoline costs. The annual inflation rate rose 1.7% for the month.

Arizona job growth was 1.1% year-over-year in November. This was the first time this year that the state’s job growth did not exceed that of the U.S., which posted 1.6%. Education & health services and leisure & hospitality sectors had the most growth over the year while government, manufacturing, and other services lost jobs. Unemployment moved down to 5.0% in November from 5.2% in October. over the year.

Personal income in Arizona increased by 1.0% from the second quarter to the third quarter 2016 according to the December 20 Bureau of Economic Analysis release. Personal income grew in every state with rates ranging from 0.4% in Oklahoma to 1.4% in South Dakota.

Real Gross Domestic Product increased at an annual rate of 3.5% in the third quarter 2016 according to the December 22 Bureau of Economic Analysis release. Real GDP had increased 1.4% in the second quarter 2016.

Hands and calculator photo courtesy Shutterstock.

Register today for the Economic Outlook 2016 Luncheon!

Browse the PowerPoint presentation from our annual Economic Outlook 2016 Luncheon held  in Tucson on December 9th, 2016. Presenters, Eller’s George W. Hammond, Ph.D., Director and Research Professor, Economic and Business Research Center, and Chase Chief Economist Anthony Chan, Ph.D. offer for insight into what’s in store for Arizona’s economy next year and beyond in a regional, national, and international context.

Tucson gains strength. Will it last?

The Tucson economy picked up the pace during the past year, with improved job growth. There is renewed optimism for the future, but will we hit escape velocity or are we already losing steam?

During the past two years, the U.S. dollar has gained strength against most currencies. It is at an all-time high against the Mexican peso and has also risen significantly against the Canadian dollar, our two most important export markets. The strong dollar appears to be putting downward pressure on state exports this year. When will the dollar come back down?

Find out at this annual must-attend event.

We will also offer in-depth analysis on:

  • Prospects for the strong U.S. dollar and its effect on exports and tourism
  • Possible momentum in Tucson’s residential construction
  • The outlook for monetary policy and interest rates
  • What a new presidential administration will mean for fiscal policy
  • What’s ahead for gas prices, consumer spending, and stock prices

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Home prices in Arizona rose 6.7% over the year according to the 3rd quarter 2016 Federal Housing Finance Agency report released November 23. This was higher than the nation at 6.1% appreciation.  Annual appreciation for Arizona metropolitan areas based on the all-transactions index (which includes purchase and refinance mortgages) was as follows: Flagstaff 6.9%, Phoenix 6.6%, Prescott 6.5%, Lake Havasu City-Kingman 5.9%, Tucson 5.4%, Sierra Vista-Douglas 3.5%, and Yuma 3.1%. 

The U.S. added 178,000 nonfarm jobs in November, the bulk of which occurred in professional and business services and health care. The unemployment rate for the nation dropped to 4.6% for the month after staying steady at 4.9%-5.0% for most of the year. 

There were 1,084 bankruptcies filed in Arizona during November. Year-to-date bankruptcies are down 10.5% in the state.

Phoenix home prices rose 5.3% over the year in September. This was just below the national figure of 5.5%, according to the November 29th release from S&P CoreLogic Case-Schiller Home Price Indices. The September U.S. national index surpassed the peak set in July 2006. Portland and Seattle continue to have the highest over the year home price increases.   

Real Gross Domestic Product increased at an annual rate of 3.2% in the third quarter 2016 according to the November 29 release. This is based on more complete source data than the advance estimate which put the GDP at 2.9% growth. The bump up in growth was attributed to a larger than previously estimated increase in personal consumption expenditures. In the second quarter 2016, real GDP increased 1.4%.

Arizona unemployment moved down to 5.2% in October from 5.5% in September. This is down nearly a full percentage point from this time last year when the state’s unemployment rate was 6.1%. Annual job growth for the state was 1.8% in October with 49,600 jobs added over the year. Education and health services was the sector with the most growth over the year while government, manufacturing, and other services lost jobs.per capita personal income 2015 Arizona and counties

Yuma County had the largest increase in per capita personal income between 2014 and 2015 at 6.8%. Per capita personal income increased 3.1% in Arizona using personal income data from the November 17 Bureau of Economic Analysis release and Arizona Office of Economic Opportunity population estimates.  Maricopa County had the highest per capita personal income in the state at $43,037 followed by Coconino at $40,292 and Pima at $38,561. Arizona per capita personal income for 2015 was $39,561. 

 

Hands and calculator photo courtesy Shutterstock.

Arizona passes through summer showers - fourth quarter 2016 forecast update

Fourth Quarter 2016 Forecast Update

By George W. Hammond, Ph.D.
Director and Research Professor, EBRC


download PDFThe Arizona economy slowed during the summer, with job growth falling back to the national rate. Further, new personal income estimates suggest slower growth early in the year. While Arizona continues to expand at a solid pace, 2016 no longer appears to be the breakout year. Nonetheless, the odds still favor continued growth in the U.S. and Arizona economies this year and next.

The outlook for Arizona calls for solid gains in jobs, income, and population. While growth rates are expected to far exceed the nation, they are not headed back to historical averages. Job gains will likely be concentrated in service-providing industries, like professional and business services; education and health services; trade, transportation, and utilities; and leisure and hospitality.

Arizona’s two largest metropolitan areas have also experienced a summer lull, but are expected to rebound later this year and in 2017. As usual, the Phoenix MSA is forecast to expand at a rapid pace. The Tucson MSA is expected to capitalize on recent announcements of new jobs in the aerospace sector to generate improved gains during the forecast.

Arizona Recent Developments

The Arizona economy continued to add jobs during the summer, although the pace slowed. Over the year, Arizona added 44,400 jobs for a 1.7% growth rate. That matched the national rate, but fell short of the pace set in the second quarter of 2.1%. Using monthly data, Exhibit 1 shows that state job growth dipped slightly below the national pace in September. Keep in mind that the employment data referenced here result from EBRC’s benchmark and differ from those currently published by the U.S. Bureau of Labor Statistics (BLS).

Arizona and U.S. Job Gains Slowed During the Summer Over-the-Year Job Growth Arizona and the U. S.

One key indicator to track these days is growth in wages per worker. The preliminary data for the first quarter of 2016 suggested that we may have seen the beginning of a stronger recovery in wages. A downward revision to wages and salaries in the first quarter now suggests that we may still be waiting. Over the year growth in wages per worker was below 2.0% for both the first and second quarters of this year. Keep in mind that annual growth in wages per worker was in the 4.5% per year range during the 2004-2007 period.

The U.S. dollar has risen substantially against most currencies since mid-2014. We can get a sense of what this might mean for Arizona’s exports using a real effective exchange rate for Arizona that is published by the Federal Reserve Bank of Dallas. This exchange rate weights changes in U.S. dollar bilateral exchange rates using state-specific merchandise export shares, adjusted for relative inflation rates. This is the exchange rate that really matters for Arizona’s exports to the world (Exhibit 2).

Note that Arizona’s real effective exchange rate is at an all-time high (at least since 1988). Further, it has risen 22.2% since mid-2014. A rising dollar tends to put downward pressure on exports (and upward pressure on imports), other things the same.

Exhibit 2: Arizona’s Real Effective U.S. Dollar Exchange Rate - Federal Reserve Bank of Dallas

After weakening briefly during the spring, the U.S. dollar is again hitting new highs against the Mexican peso. On average during September, one U.S. dollar bought 19.24 pesos, which was 48.1% higher than in June 2014. The U.S. dollar is also up significantly against the Canadian dollar, having risen by 21.0% since mid-2014. Mexico and Canada are Arizona’s two largest merchandise export destinations.

The strength of the dollar is beginning to weigh on Arizona’s merchandise export performance. Through July 2016, Arizona’s exports to Mexico have fallen 13.2%, compared to the same period last year. The bulk of the decline originated in non-manufacturing goods, primarily minerals and ores. Exports of commodities tend to be especially volatile and mineral and ore exports are coming off very strong performance in 2014-2015. Manufacturing exports are also down so far this year, but by a modest amount.

The strong dollar may also be affecting Mexican visitors to the state. Legal northbound border crossings from Mexico through Arizona’s border ports of entry have slowed since mid-2014 for personal vehicles, personal vehicle passengers, and buses. Interestingly, pedestrian crossings have accelerated recently.

Arizona Outlook

The Arizona outlook depends in part on the national economy. IHS Economics projects that U.S. real GDP growth will hit just 1.4% in 2016, down from 2.6% last year. Gains accelerate next year to 2.2% and hold steady at that rate through 2019. Sluggish growth in 2016 reflects an inventory draw down, slower consumption spending, weak nonresidential fixed investment (especially in the energy sector), slower gains in residential investment (housing), and weak export performance. Slightly stronger gains are expected in 2017, as rising oil prices spur renewed investment in the energy sector and a gradually falling dollar spurs stronger export gains.

As Exhibit 3 shows, accelerating real GDP growth is expected to be accompanied by slower job growth. The ongoing retirement of the baby boom generation is expected to weigh on job gains during the forecast period. Note that during the past five years, real GDP and job gains have been unusually similar, which reflects the very slow productivity growth the U.S. has experienced since the end of the Great Recession. This is a shift from the typical pattern, in which real GDP gains outpace job growth by a substantial margin. As the exhibit shows, the forecast assumes that the normal pattern re-emerges. This is a crucial assumption.

Exhibit 3: U.S. Real GDP Growth Accelerates Modestly, While Job Gains Slow - Forecast from IHS Economics, October 2016

Continued global and national growth sets the stage for Arizona to continue to add jobs, residents, and inflation-adjusted income. As Exhibit 4 shows, the forecast calls for job growth to decelerate slightly this year, before picking up steam again in 2017 and 2018. After a brief acceleration in the near term, job growth in the state gradually softens as the retirement of the baby boom generation increasingly impacts economic growth. Nonetheless, Arizona’s job growth is expected to outpace the national rate during the next 10 years.

Exhibit 4: Arizona Outlook Summary

Arizona’s income growth accelerates as job growth gains momentum. Wages rise more rapidly in the near term, as the state unemployment rate continues to fall. This sets the stage for continue gains in household spending, including spending on taxable goods. Keep in mind that the strong increase in retail sales in 2015 was driven in part by a change in tax law that shifted some revenues from contracting into retail sales.

Population rises during the forecast, driven primarily by net migration, as U.S. residential mobility improves during the forecast. Faster population growth, in turn, boosts housing permits and construction employment.

Overall, Arizona’s growth is on track for solid performance: above the national rate in most cases, but slower than our historical averages.

Forecast data for Arizona, Phoenix MSA, and Tucson MSA.

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Contact George Hammond about the benefits of becoming a Forecasting Project sponsor!

Image of courtesy of  Shutterstock. 

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Arizona’s over the year job growth was 2.3% in September according to the most recent Arizona employment report released October 20th. The private sector accounted for all of the gains in employment over the year in September, with education and health services leading the way. Job growth in Arizona metropolitan areas: Prescott 6.1%, Phoenix 2.5%, Tucson 2.1%, Yuma 2.1%, Flagstaff 0.9%, Sierra Vista-Douglas, 0.3%, and Lake Havasu City-Kingman -0.2. The unemployment rate for the state dropped to 5.5% from 5.8% in August.

Arizona metro job growth rates

U.S. employment increased by 161,000 in October according to the November 4th Bureau of Labor Statistics release. September employment numbers were revised up (to 191,000 from 156,000) as were August figures (to 176,000 from 167,000). Health care, professional and business services, and financial activities were the industries with the largest gains in employment over the month. The unemployment rate returned to 4.9% after ticking up slightly to 5.0% in September.

The U.S. trade deficit trended down for the third month in a row in September, moving down to $36.4 billion from $40.5 billion in August. Exports were $1.0 billion higher over the month at $189.2 billion while imports decreased $3.0 billion to $225.6 billion in September. Year-to-date, the goods and services deficit was down 2.5% compared the to the same point last year. 

Real Gross Domestic Product increased at an annual rate of 2.9% in the third quarter 2016 based on the advanced estimate released October 28th. In the second quarter, real GDP increased 1.4%. Another estimate for the third quarter based on more complete source data will be released November 29th.

Phoenix home prices rose 5.2% over the year in August, just below the nation at 5.3%, according to the S&P CoreLogic Case-Schiller Home Price Indices released October 25th. Home prices increased the most in the Pacific Northwest, as both Portland and Seattle had over the year appreciation of 11.7% and 11.4%, respectively. New York home prices changed the least at 1.7%.

The Consumer Price Index increased 0.3% over the month for September. Higher prices for gasoline and shelter contributed to the overall increase of the index, while prices for food were unchanged for the third month in a row. The annual inflation rate was 1.5% for the month.

There were 1,247 bankruptcies filed in Arizona during October. This was 12.6% fewer than this time last year. Year-to-date bankruptcies are down 10.4% in the state. The Phoenix office has had fewer than 1,000 bankruptcies per month in eight of the last ten months, a reverse of what there was in 2015.   

Hands and calculator photo courtesy Shutterstock.