This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Real GDP grew at an annual rate of 1.4% in the first quarter 2017, according to the most recent estimate released by the Bureau of Economic Analysis (BEA) on June 29. This was an upward revision from earlier estimates, with personal consumption expenditures and exports increasing more than previously estimated. Real GDP increased 2.1% in the fourth quarter 2106. The BEA will release the annual update of the national income and product accounts on July 28, which will include revised GDP figures for first quarter 2014 to first quarter 2017. 

Phoenix home prices moved above the U.S. in April after placing just below the nation for several months. The June 27 S&P CoreLogic Case-Shiller Home Price Indices release reported the annual gain in home prices in Phoenix was 5.7% and 5.5% for the nation in April. Seattle and Portland continue to have the highest year-over-year gains in home prices, with 12.9%, and 9.3%, respectively for April. Denver had the third highest home price gain in March, while Dallas took the third position in April.  

State personal income in Arizona grew at 1.0% in the first quarter of 2017, the same rate as the average for the nation, according to the Bureau of Economic Analysis June 27 release. Personal income grew fastest in Idaho at 1.6% while Nebraska had a 0.1% decline in personal income. 

The Census Bureau released 2016 population estimates by age, sex, race and Hispanic origin for states and counties on June 22. Every state had either the same or an increased median age compared to the year before. Arizona’s median age in 2016 was 37.6, which was just below that of the nation at 37.9. Maine had the highest median age at 44.6 while at 30.8, Utah had the lowest. The Census Bureau cites the baby boomer generation for the increase in the median age, with the prediction that it will continue to increase in the years to come. Median age in Arizona counties ranged from 31 in Coconino to 55.9 in La Paz. In fact, three counties had median age above 50 – La Paz, Yavapai at 53.3 and 51.1 for Mohave.

Prices for goods and services in Arizona were lower than that of the U.S. in 2015 according the June 22 Bureau of Economic Analysis Real Personal Income for State and Metropolitan Areas release, which includes regional price parity data. With the U.S. equaling 100, the regional price parity data demonstrate the costs of goods and services in the states and metro areas compared to the nation. Arizona was 96.2 for all items, placing it 3.8% below the nation for the cost of living.  Arizona metropolitan areas were generally less expensive to live in compared to the nation: Flagstaff 98.6, Lake Havasu City-Kingman 93.0, Phoenix 97.2, Prescott 95.2, Sierra Vista-Douglas 89.7, Tucson 97.0, and Yuma 92.9.

Arizona job growth was 1.8% in May year-over-year. This was higher than the national growth of 1.5% for May. The unemployment rate ticked up slightly to 5.1% for the month. The May employment report released by the Arizona Office of Economic Opportunity on June 15 listed leisure and hospitality as the sector with the most over the year growth, adding 17,100 jobs followed by education and health services with a 11,200 gain. Natural resources & mining and other services were the only two sectors to lose jobs over the year. May job growth varied in Arizona metro areas: Flagstaff 1.1%, Lake Havasu City-Kingman 1.7%, Phoenix 2.4%, Prescott 1.9%, Sierra Vista -0.3%, Tucson -0.1%, and Yuma 3.4%.  

The Consumer Price Index decreased 0.1% in May on a seasonally adjusted basis according to the June 14 Bureau of Labor Statistics release. A deceleration of energy prices was a factor in the lower index for the month. The food index rose, as did the index for all items, less food and energy. The annual inflation rate was 1.9% for May.

Per student spending increased in every state during 2015, except for Arizona, which declined 0.5%. The U.S. Census Bureau Public Education Finances 2015 report was released June 14, reported that per student spending in fiscal year 2015 was $11,392 nationally, a 3.5% increase over FY2014. Arizona’s per pupil spending in fiscal year 2015 was $7,489. This wasn’t the lowest in the U.S. – that was Utah at $6,575, while the highest was New York at $21,206.

Producer prices were unchanged in May, seasonally adjusted, according to the June 13 Bureau of Labor Statistics release. Final demand goods had a 0.5 decrease over the month while final demand services increased 0.3%. The unadjusted 12-month change in producer prices for May was 2.4%.

Employment increased in 280 of the 344 largest counties in the United States between December 2015 and December 2016 according to the fourth quarter 2016 County Employment and Wages (QCEW) release from BLS. While employment increased during this time, wages decreased. The U.S. average weekly wage declined 1.5% over the year in 2016. Both Maricopa and Pima counties followed the national trend – increasing 2.4% and 1.3% respectively in employment, and decreasing 2.3% and 3.4% respectively in wages. 

The U.S. trade deficit increased in April to $47.6 billion according to the joint Bureau of Economic Analysis/Census Bureau report released June 2.  The March figure has been revised upwards to $45.3 billion.  Exports slipped down to $191.0 billion in April ($0.5 billion less than March) while imports were $1.9 billion higher than the month previous. Year-to-date, the deficit of goods and services was 13.4% larger than the same period last year. 

Total nonfarm employment in the U.S. increased by 138,000 in May according to the Bureau of Labor Statistics release on June 2. Sectors with the most jobs gains were education and health services (particularly health care) and professional and business services. The unemployment rate dropped slightly to 4.3%.

Buckeye, Arizona was one of the fastest-growing cities in the U.S. for 2016, according to the Census Bureau. It had the seventh largest percent growth in the nation for the July 1, 2016 population estimates for cities and towns, released on May 25. Texas towns claimed four of the top five spots of cites with the largest population growth between 2015 and 2016. Phoenix traded places with Philadelphia, moving up to the 5th populous city in the nation on July 1, 2016 compared to 6th on July 1, 2015.

Arizona home prices rose 6.7% for the first quarter of 2017 compared to the same period in 2016 according to the Federal Housing Financial Agency Home Price Index May 24 release. Prices rose 6.0% nationally. Metropolitan area home price data are available in the FHFA release using the all-transactions index, which includes both purchase and refinancing mortgages.  One-year price changes for Arizona metros for the first quarter 2017 were: 8.9% for Flagstaff, 5.7% for Lake Havasu City-Kingman, 8.0% for Phoenix, 8.9% for Prescott, 5.4% for Sierra Vista-Douglas, also 5.4% for Tucson, and 2.1% for Yuma.

There were 1,360 bankruptcies filed in Arizona during May, down 3.4% from the same time last year. The Phoenix office (Apache, Coconino, Gila, Maricopa, Navajo, and Yavapai) had 952 filings, the Tucson office (Cochise, Graham, Greenlee, Pima, Pinal, and Santa Cruz) had 341 and the Yuma office (La Paz, Mohave, and Yuma) was at 67. Year-to-date bankruptcies for the state are down 1.4% compared to last year.

Hands and calculator photo courtesy Shutterstock.

Arizona’s Economy Finding a Second Wind? Second Quarter 2017 Economic Forecast Update

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


download PDF

The Arizona economy coasted into 2017, with modest forward momentum. State job gains decelerated late last year and slower growth has persisted into early 2017. Nonetheless, the state continues to outpace the nation in job creation. In better news, the state’s unemployment rate declined again last year, and is now back to a level last seen just before the Great Recession. Tightening labor markets are translating into faster wage and income growth and that should eventually boost retail sales. Overall, the outlook calls for the state to accelerate modestly in the near term, before growth slows as demographic forces (baby boom retirements) take hold.

 Arizona Recent Developments

Official benchmark employment data for 2016 have been released by the U.S. Bureau of Labor Statistics (BLS). The data show that Arizona posted another year of solid gains, adding 68,300 net new jobs. That translated into 2.6% growth, close to the state’s 2.5% growth rate in 2015, but well above the national rate of 1.7%. The Phoenix metropolitan statistical area (MSA) added 60,200 jobs last year, which generated 3.1% growth. That was slightly slower than the 3.2% pace in 2015. In contrast, job growth in the Tucson MSA accelerated significantly last year, from 0.8% in 2015 to 1.3% in 2016. Most of the job gains in Arizona were in Phoenix, which accounted for 88.1% of the state total. Tucson added 4,700 jobs, which accounted for 6.9%.

Statewide, job gains last year were concentrated in professional and business services; education and health services; leisure and hospitality; trade, transportation, and utilities; and financial activities (Exhibit 1). These five sectors together accounted for 84.5% of state job growth. The only sector to lose jobs last year was natural resources and mining. This was caused by declines in copper production driven by low prices.

exhibit 1: Nearly All Sectors in Arizona Added Jobs Last Year: Job Gains From 2015 to 2016 and Wages by Industry

As Exhibit 1 shows, the state added 6,600 construction jobs last year and employment in this sector has increased by 23,500 since hitting bottom in 2011 (annual basis). Nonetheless, construction employment remained more than 100,000 jobs below its pre-recession peak in 2006. Recent gains in construction jobs have been driven in part by increased residential construction activity. Arizona housing permits increased by 23.1% in 2016, with single-family permits up 11.4% and multi-family permits up 62.5%. Activity increased in the Phoenix MSA last year, with total permits rising 27.6%. That was fueled by both single-family (up 10.9%) and multi-family (up 75.6%) permits. Housing permits in the Tucson MSA rose by 1.6% last year, with single-family activity up 8.7% and multi-family activity down 77.2%.

According to the latest data from the U.S. Bureau of Economic Analysis (BEA), state personal income increased by 4.3% last year. With 1.1% population growth, as measured by the Arizona Office of Economic Opportunity, that translated into an increase in per capita income of 3.1%. Arizona’s rate of increase last year was slightly above the national pace of 2.9%, but well above the national rate of inflation of 1.3%, measured by the national CPIU. That indicates a rising standard of living in Arizona.

Nonetheless, Arizona’s per capita income remained well below the national average. Indeed, the percentage gap in 2016 was 17.7%, down slightly from 17.9% in 2015, but well above the gap 10 years ago of 10.1%.

Arizona’s merchandise exports to Mexico continued to fall in early 2017, with the value of exports down 8.3% over the year in the first quarter. Pedestrian and personal vehicle passenger border crossings from Mexico to the U.S. through Arizona border ports rose last year, but at a slow pace. These trends were likely impacted in important ways by the major appreciation in the U.S. dollar versus the peso since mid-2014.

Arizona Outlook

The state outlook depends in part on future national economic performance. The national baseline forecast calls for the U.S. economy to continue to expand during the next decade. It also calls for a modest acceleration in the near term, with real GDP, our broadest measure of economic activity, expected to speed up from 1.6% growth last year to 2.6% growth by 2018. As Exhibit 2 shows, growth slows thereafter to the 2.0% per year range, as demographic forces (baby boomer retirement) weigh on the labor force.

exhibit 2: U.S. Real GDP Growth Accelerates in the Near Term While the Labor Market Tightens - Real GDP & the Unemployment Rate IHS Markit, April 2017

Continued steady improvement in the U.S. economy lays a solid foundation for gains in Arizona during the forecast. However, while Arizona is forecast to continue to outpace the nation in job, population, and income growth, it is not likely to return to growth rates that were common during the 30 years before the Great Recession. Exhibit 3 summarizes the current forecast for the state. Arizona’s job growth is expected to decelerate modestly this year, with the rate falling from 2.6% last year to 2.4% in 2017. Job gains accelerate in 2018, with faster U.S. growth, before gradually declining to the 2.0% per year range during the remainder of the forecast.

exhibit 3: Arizona economic outlook summary 2016-2019

Sustained job growth means faster population gains, as Arizona draws migrants from other states. Overall, population growth is forecast to rise from 1.1% last year to 1.7% by 2018.

Income gains accelerate in the near term, with growth rising from 4.3% last year to 5.7% in 2017 and 6.1% in 2018. The large increase in 2017 is driven in part by the increase in the state minimum wage from $8.05/hour to $10.00/hour in 2017 and by tighter labor market conditions more generally. Note that the forecast calls for Arizona’s unemployment rate to fall from 5.2% in 2016 to 4.2% by 2019. Stronger income growth is forecast to eventually translate into faster sales growth.

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

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Breakfast with the Economists 2017: Mid-Year Economic Update

Browse the PowerPoint presentation from Breakfast with the Economists presented at the Westin La Paloma in Tucson, Arizona, on Wednesday, May 31st, 2017.

Breakfast with the Economists - Mid-Year Economic Outlook 2017

Breakfast with the Economists – Mid-Year Economic Outlook 2017

George W. Hammond, Ph.D., Director and Research Professor, Eller Economic and Business Research Center, and Gary Wagner, Ph.D., Vice President and Senior Regional Officer, Federal Reserve Bank of Cleveland,serve up analysis and insights on the economic outlook for the Arizona and Tucson economies, as well as the nation…

Tucson’s job growth accelerated last year, hitting its fastest pace in four years. While that is great news, overall economic gains remain slow compared to the state and the nation. Nationally, uncertainty has ratcheted up in recent months, with the new federal administration taking strong stands on trade, immigration, taxes, and regulatory policy. In addition, the state of Arizona has begun a series of substantial increases in the minimum wage. What do these changes mean for national, state, and local growth? 

The U.S. dollar rocketed up against the Mexican peso after the election, hitting a new all-time high. The strong dollar has contributed to reduced state merchandise exports and perhaps less Mexican visitor spending in Arizona. Where is the U.S. dollar/peso exchange rate headed next and what will it mean for our economy? 

Housing construction rebounded last year, driven in part by modest population gains. Housing prices continued to rise at a solid pace. Will Tucson population growth accelerate next year? Or is reduced residential mobility here to stay? 

The Federal Reserve has begun to raise interest rates. Where are rates headed next and what will that mean for the economy and your business? 

Presenters
 

George Hammond
George W. Hammond, Ph.D.
Director and Research Professor, Economic and Business Research Center
  

Gary Wagner
Gary Wagner, Ph.D.
Vice President and Senior Regional Officer, Cincinnati Branch, Federal Reserve Bank of Cleveland    

Sponsored by

JPMorgan Chase & Co.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Arizona job growth continues to top the U.S., as April year over year job growth for Arizona was 1.9% and 1.4% for the nation. The unemployment rate was stable at 5.0%. The April employment report released by the Arizona Office of Economic Opportunity on May 18 listed leisure and hospitality as the sector with the most over the year growth, adding 17,200 jobs. Eight of the eleven sectors reported employment gains, while natural resources & mining, information, and other services all lost jobs. Over the year job growth varied in Arizona metro areas: Flagstaff 0.8%, Lake Havasu City-Kingman 1.4%, Phoenix 2.5%, Prescott 2.2%, Sierra Vista 0.0%, Tucson 0.2%, and Yuma 3.1%.  

The Consumer Price Index increase 0.2% in April on a seasonally adjusted basis according to the May 12 Bureau of Labor Statistics release. Energy and food prices, particularly fruits and vegetables, contributed to the increase in the CPI for the month as did higher tobacco prices.  The annual inflation rate was 2.2% for April.

Producer prices were up 0.5% in April, seasonally adjusted, according to the May 11 Bureau of Labor Statistics release. Final demand goods and final demand services both increased over the month at 0.5% and 0.4%, respectively. The unadjusted 12-month change in producer prices for April was 2.5%.

Housing affordability was better in most Arizona metropolitan areas than the U.S. during the first quarter 2017 according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) released May 11. Nationally, 60.3% of new and existing homes sold in the first quarter were affordable for families earning the U.S. median income. The share of homes affordable for the median family income of each metro area in Arizona ranked by affordability: Sierra Vista-Douglas 86.6, Tucson 79.2, Yuma 79.0, Lake Havasu City-Kingman 69.2, Phoenix 67.9, and Prescott 49.2. A figure for Flagstaff was not available for the first quarter 2017.

Real gross domestic product by state increased in every state during the fourth quarter 2016. Real GDP grew at a seasonally adjusted annual rate of 1.0% in Arizona, far below Texas at 3.4% which had the highest percent change, but well above the lowest shared by Kansas and Mississippi at 0.1%. Arizona’s third quarter 2016 real GDP had a substantial upward revision, moving to 8.2% from the 2.8% originally recorded, while the first and second quarter figures were revised somewhat downward.

Arizona bankruptcies were up 2.6% over the year in April. Filings typically spike in March or April and level off slightly through the rest of the year. There were 1,445 bankruptcies in Arizona during April and 1,493 in March. For April, the Phoenix office (Apache, Coconino, Gila, Maricopa, Navajo, and Yavapai) had 1,023 filings, the Tucson office (Cochise, Graham, Greenlee, Pima, Pinal, and Santa Cruz) had 358 and the Yuma office (La Paz, Mohave, and Yuma) was at 64. Year-to-date bankruptcies for the state are still down slightly (-0.9%) compared with this time last year.

Total nonfarm employment in the U.S. increased by 211,000 in April after adding only 79,000 in March. Industries with the most jobs gains were leisure and hospitality, health care and social assistance, financial activities, and mining. The May 5 Bureau of Labor Statistics release also indicated that the unemployment rate was little changed at 4.4%.

The U.S. trade deficit was down slightly in March to $43.7 billion from $43.8 billion in February according to the joint Bureau of Economic Analysis/Census Bureau report released May 4. Both exports and imports were $1.7 billion lower than the month previous. The deficit of goods and services year-to-date was 7.5% higher than the same period last year. 

Hands and calculator photo courtesy Shutterstock.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Real GDP grew at an annual rate of 0.7% in the first quarter 2017. Real GDP had grown at a rate of 2.1% in the fourth quarter 2016. The advance estimate for first quarter GDP was released by the Bureau of Economic Analysis on April 28. Another estimate based on more complete data will be released May 26.

Phoenix home prices rose 5.3% year-over-year in February according to the S&P Corelogic Case-Shiller Indices released April 25. This was below the national rate of 5.8%. The metro area with the highest one-year change continued to be Seattle at 12.2% (which has been in the top 2 since January 2016), while New York prices rose the least at 4.1%.

There were 6,757 initial unemployment claims in Arizona for the week ending April 8, an increase of over 2,000 from the week before, as is typical for the first part of April. The four-week moving average, which smooths out volatility, was also higher at 4,761 compared to 4,008 the week before. Continued claims for Arizona were 6.7% lower than the same time a year ago. Unemployment benefit claims nationally were 244,000 on a seasonally adjusted basis for the week ending April 15, up 10,000 from the week before. The four-week moving average, however, dropped to 243,000.  

Arizona job growth was at 2.1% in March, adding 56,000 jobs over the year. Nationally, annual job growth for March was 1.5%. The industry growing the fastest in Arizona over the last 12 months was leisure and hospitality, while mining, information, government, and other services all lost jobs. The unemployment rate for the state was 5.0% in March, down slightly from 5.1% in February.  Phoenix lead Arizona metros in job growth for the month with an over the year increase of 2.7%, followed by Yuma at 2.1%, Prescott at 1.8%, Lake Havasu City-Kingman at 1.3%, Flagstaff at 0.8%, and 0.6% for both Tucson and Sierra Vista-Douglas. These figures were released April 20 by the Arizona Office of Economic Opportunity.

The 2015 County Business Patterns report was released April 20.  When compared to 2014, Arizona added 1,918 establishments (single business location), an increase of 1.4%, and the number of paid employees increased 2.4%. This was similar to the nation which had increases of 1.3% in establishments and 2.5% in employees. Maricopa County added the most establishments and employees in the state, not surprising given the size difference between Maricopa and the rest of the counties in the state. Navajo County added the largest percentage of establishments (2.3%) and Coconino added the largest percentage of employees (5.3%). Greenlee County lost the largest percent of both establishments (-4.2%) and employees (-42.5) in 2015.    

The Consumer Price Index decreased 0.3% in March on a seasonally adjusted basis according to the April 14 Bureau of Labor Statistics release. While food prices rose over the month, energy prices (gasoline in particular) took a nosedive, making that the biggest factor in the decline for March. The index for all items less food and energy fell for the first time since January 2010. The annual inflation rate was 2.4% for March.

Producer prices decreased 0.1% in March, seasonally adjusted, based on the April 13 Bureau of Labor Statistics release. Final demand goods and final demand services both fell 0.1% over the month. The unadjusted 12-month change in producer prices for March was 2.3%, making that the largest increase since March 2012.

U.S. nonfarm payroll employment increased only 98,000 in March according to the April 7 Bureau of Labor Statistics release. This was the smallest monthly increase since May 2016 and was well below the most recent three-month average of 178,000 (both January and February job numbers were revised slightly downward). Sectors adding the most jobs were professional and business services as well as mining, while retail trade lost jobs. The unemployment rate dropped to 4.5% in March from 4.7% in February.

The U.S. trade deficit lowered in February, down $4.6 billion to $43.6 billion, according to the April 4 release. Both exports and imports decreased over the month, but imports decreased $4.3 billion compared to the $0.4 billion decrease in exports. Year-to-date, the deficit in goods and services was 3.1% higher than the same period in 2016.

Hands and calculator photo courtesy Shutterstock.

This Week June 5, 2015

by Valorie H. Rice
Senior Specialist, Business Information


Real GDP grew at an annual rate of 2.1% in the fourth quarter 2016, moving up from the original estimate of 1.9% as personal consumption expenditures increasing more than previously estimated. Real GDP had increased 3.5% in the third quarter 2016. The 2016 annual level for real GDP increased 1.6% compared to 2.6% in 2015.

Arizona’s personal income rose 4.3% in 2016 according to the March 28 Bureau of Economic Analysis release. This was the 11th fastest growth in the nation. It was also higher than the U.S. rate of 3.6%. Per capita personal income in Arizona, using Arizona Office of Economic Opportunity population estimates, was $40,805 in 2016.  The state’s income growth in the fourth quarter 2016 hit 0.9%, down from 1.8% in the third quarter, but equal to the U.S. rate.

Phoenix home prices rose 5.1% over the year in January. The national figure of 5.9% set a 31-month high for year-over-year home price gains according to the March 28 release from S&P CoreLogic Case-Schiller Home Price Indices. The Phoenix 12-month price change has stayed around 5.0% since last June (was 4.9% in December). Seattle had the highest over the year price change in January at 11.3%, while New York prices increased only 3.2%.

Job growth was 2.0% for Arizona in February according to the Arizona employment report released March 23. Industries growing the most over the year were leisure and hospitality followed by education and health services. Natural resources and mining, information, and other services all lost jobs over the last 12 months.  Over-the-year growth rates for Arizona metros in February were 3.8% in Lake Havasu City-Kingman, 2.9% in Yuma, 2.5% in Phoenix,  2.0% in Prescott, 1.1% in Flagstaff, 0.5% in Tucson, and 0.0% in Sierra Vista-Douglas. The unemployment rate for the state bumped up to 5.0% in February compared to the U.S. rate of 4.7%. Annual benchmarking revisions were released with the January jobs report released in early March. Employment for the state had a slight downward for 2015 while there was a minor upward revision for 2016.

The U.S. added 235,000 nonfarm payroll jobs in February according to the March 10 Bureau of Labor Statistics Employment Situation release. The sectors with the most job gains were construction, private educational services, manufacturing, health care and mining. The unemployment rate for the nation was 4.7%, a slight change from 4.8% in January.  

The U.S. trade deficit increased in January, according to the U.S. International Trade in Goods and Services release on March 7. The trade deficit in January was $48.5 billion, up $4.2 billion from December. Exports increased by $1.1 billion while imports increased $5.3 billion over the month. Compared with the same time last year, the deficit of goods and services increased 11.8%, or $5.1 billion. 

The Bureau of Labor Statistics released its annual Employment Situation of Veterans report on March 22. The unemployment rate for all veterans in the U.S. was 4.3% in 2016, an improvement over the 4.6% unemployment rate in 2015. In Arizona, veterans had an unemployment rate of 3.9% in 2016, far below that of non-veterans at 5.1% for the year.

Consumer prices increased 0.1% in February on a seasonally adjusted basis. The slight increase in the CPI for the month was attributed to food, shelter, and recreation costs as gasoline prices had gone done for the month. Food had the largest uptick in prices since September 2015. The annual inflation rate rose 2.7% in February. 

Producer prices rose 0.3% in February on a seasonally adjusted basis. Prices for final demand goods increased 0.3% while final demand services rose 0.4% for the month.

There were 945 bankruptcy filings in Arizona for the first month of 2017 and 882 for February. There typically has been a drop in bankruptcies during January, and this year was no exception; however, the numbers tend to bounce back up in February. This year they did not as February figures were not only lower than the month before, but were 14.5% lower than the same month a year ago. Year to date, filings were down 3.2%, though this varied depending on which type of bankruptcy. Chapter 11 filings, which allows for reorganization of a business or corporation, actually had a large increase.

There were 3,746 initial unemployment claims in Arizona for the week ending March 11, down slightly from the week prior. The four-week moving average, which smooths out volatility, was also lower at 6,667 compared to 3,732 the week before. Continued claims for Arizona were 5.4% lower than the same time a year ago. Unemployment benefit claims nationally were 261,000 on a seasonally adjusted basis for the week ending March 18. The four-week moving average rose to 246,500.  

Hands and calculator photo courtesy Shutterstock.

Arizona, Mexico, and North America's Auto Alley

By Vera Pavlakovich-Kochi, Ph.D.
Senior Regional Scientist and Associate Professor of Geography


Understanding Arizona’s position with respect to Mexico’s automotive industry has become very important in light of current proposed changes to NAFTA and the U.S.-Mexico trade relationship. The automotive industry became the backbone of Mexico’s manufacturing sector in the 21st century, and more importantly, made Mexico a key partner in the now highly integrated North American vehicle production system. While not an “auto-manufacturing” state, Arizona has nevertheless become integrated into this system and experienced recent rapid growth in this high-value economic sector.

NAFTA as a Major Stimulus of Regional Integration

Cross-border integration in the automotive industry between the U.S, Canada, and Mexico started long before NAFTA was inaugurated in 1994. All three major U.S. car manufacturers, the Detroit-based “Big Three” – General Motors, Chrysler, and Ford Motor Company – had established car assembly plants in Mexico by 1980s.1  Chrysler opened its first car assembly plant in Toluca, State of Mexico, in 1968,2  and General Motors established its first modern car assembly plant in Ramos Arizpe, Coahuila, in 1981.3   Also in 1981, Ford Motor Company opened its first two plants in Mexico: one in Chihuahua, the capital of the border state of Chihuahua, and the other in Toluca, in central Mexico. Then in 1986, Ford built its plant in Hermosillo, Sonora. The latter, obviously due to its proximity, is of primary importance to Arizona’s economy.

Since the mid-1960s, the maquiladora program in Mexico in combination with special provisions in the U.S. tariff system allowed for duty-free import/export of U.S. manufactured parts assembled in Mexico and subsequently returned to parent companies in the U.S. Although the U.S. owned car assembly plants were not officially part of Mexico’s maquiladora sector, they enjoyed similar benefits. These companies also greatly benefited from the maquiladora sector as an important supplier of parts and components. In 2006, the maquiladora sector and the auto industry in Mexico were combined with other export-oriented businesses to form a single program known under acronym IMMEX (Industria Manufacturera, Maquiladora y Servicios de Exportación).

NAFTA profoundly stimulated the automotive industry in Mexico, both car assembly and parts manufacturing plants. The Rule of Origin, one of the original six NAFTA provisions, in particular became attractive to Asian and European car manufacturers interested in access to the U.S. market by locating car assembly plants in Mexico. According to Rule of Origin, parts and components manufactured in Mexico (or in the U.S. or Canada for that matter) qualify as duty-free import/exports within NAFTA countries.

The latest surge in Mexico’s auto industry, however, is attributed largely to the economic downturn of 2008-2009 in the U.S. and the restructuring of the Big Three in lieu of declining sales volume and competition from foreign car makers. According to Thomas Kleir and James Rubenstein – two experts on the North American auto industry 4   – lower Mexican labor costs more than offset the additional costs of shipping finished cars to the north. In addition, U.S. auto makers can access other markets due to trade agreements that Mexico signed with numerous countries.

In this first piece, Arizona’s location is examined relative to Mexico’s automotive industry hubs. This, to a large degree, affects the volume and dollar value of automotive manufacturing products shipped to and from Mexico through Arizona’s border ports of entry.

Geography of the North American “Auto Alley”

Most of the North American motor vehicle industry is highly clustered in a region known as “auto alley.” 5   This north-south oriented auto region stretches from southern Ontario in Canada through the interior of the U.S. between the Great Lakes and the Gulf of Mexico. Although with less intensity, it extends south across the border and connects with central Mexico.

Car manufacturing in the U.S., including both the domestic and foreign owned companies, is concentrated in 13 out of the 48 contagious states (listed in order by number of plants): Michigan, Ohio, Alabama, Illinois, Kentucky, Tennessee, Indiana, Mississippi, Missouri, South Carolina, Texas, Georgia, and Kansas. The concentration in Michigan and adjacent states (including Ontario in Canada) reflects the industry’s historic base and the dominance of Detroit’s Big Three automakers – General Motors, Chrysler, and Ford Motor Company. Locations in Southern states of the U.S. reflect newer plants, mostly foreign-owned, attracted by lower labor costs, non-unionized labor, government incentives, as well as the proximity to Mexico (Figure 1a).

In Mexico, car manufacturing plants are concentrated in central Mexican states followed by locations in border states. Mexico’s locations reflect a combination of factors considered by foreign car manufacturers. The northern border states are favored because of their proximity to U.S. with regard to both automotive part suppliers and the U.S. market for finished cars. Supply of a skilled and stable labor force, and access to the Mexican domestic market favors Mexico’s central states near Mexico City, the country’s largest consumer market (Figure 1b).

Figure 1a: North American Car Manufacturing Plants, U.S. and Canada (2015)

Source:  AZMEX based on Auto News (2015) &  Asociacion Mexicana de la Industria Automotoriz, A.C. (2015)

Figure 1b: North American Car Manufacturing Plants, Mexico (2015)

Source:  AZMEX based on Auto News (2015) & Asociacion Mexicana de la Industria Automotoriz, A.C. (2015)

In terms of number of assembly plants, the Big Three car manufacturing companies still dominate the North American auto industry. As of 2015, General Motors, Chrysler, and Ford Motor Company operated 43 plants, of which 27 car and truck assembly plants are located in the U.S., 11 in Mexico, and 5 in Canada.6

In addition to the U.S. automakers, major Asian and European car manufacturers now have a significant presence in the North American region. As of 2015, in the U.S. there were 18 car assembly plants operated by Asian (Honda, Nissan, Toyota, and Hyndai-Kia) and European companies (Mercedes-Benz and Volkswagen). In Mexico, Asian and European companies operated a total of 11 car assembly plants.

Auto parts suppliers – a critical component of the auto alley

Of the top 100 auto parts suppliers to North American auto industry almost two thirds are headquartered in Michigan, six in adjacent Ontario in Canada, and the remaining one quarter in other U.S. states with car assembly plants (Ohio, Illinois, Kentucky, Indiana, Tennessee, Georgia, South Carolina, and Texas). Three suppliers in California and one in Arizona made the top 100 list in 2012. These “outliers” in the Southwest are obviously associated with car assembly plants in our neighboring border states of Baja California Norte, and Sonora. One of the 100 top suppliers was located in Nuevo León, Mexico (Figure 2).7

Figure 2: Headquarter Locations for Top 100 North American Motor Vehicle Parts Suppliers

Source: AZMEX based on Auto News (2013)

Each of these top 100 suppliers has multiple facilities producing motor vehicle parts. Their locations, as revealed in figure 3 , are closely correlated with locations of car assemblers resulting in a high concentration especially in the U.S. portion of auto alley.8

Figure 3: Location of Parts Producing Facilities in Relation to Assembly Plants

Source: Center for Automotive Research

The importance of just-in-time delivery in car manufacturing is a main reason for parts producers to locate close to assembly plants. In Mexico in particular, U.S. and foreign suppliers have located close to car assembly plants in order to minimize challenges presented by transportation infrastructure and/or border crossing delays. A multi-layered supplier tier system has developed where tier one suppliers sell directly to car assembly manufacturers, also known as OEMs (original equipment manufacturers); tier two suppliers sell directly to tier one suppliers, tier three suppliers to tier two, and so on.9

Whereas the automakers and tier one suppliers tend to be among the biggest companies, industry analysts point out that there are myriad small businesses supplying a large and diverse number of products and services in the auto industry’s overall supply chain.

Arizona’s Position

Clearly, in terms of geographic location, Arizona is positioned outside of the North American “auto alley.” For that reason, the Ford Motor Company’s assembly plant in Sonora is a critical asset in the entire Arizona-Sonora region. For Arizona, it presents opportunities for both Arizona’s companies and Arizona’s border ports of entry to participate in and benefit from automotive trade with Mexico.

To learn more about Arizona’s trade with Mexico in automotive products, one of the fastest growing cross-border commodities in last few years, and what might be at stake if new policies disrupt the current commodity flows, read Professor Pavlakovich-Kochi’s other articles on this important topic:

  1. Arizona’s Trade with Mexico in Automotive Parts: How Does Arizona Differ from the Nation?

[1] In fact, both General Motors and Chrysler started car production in Mexico in the 1930s with main purpose of selling on Mexican market.

[2] Toluca Car Assembly (2017) , Wikipedia.org. Retrieved February 24, 2017

[3] Ramos Arizpe Assembly (2017) , Wikipedia.org. Retrieved February 24, 2017

[4] Thomas Klier, a senior economist and research advisor, Federal Reserve Bank of Chicago; James Rubenstein, Professor, Department of Geography, Miami University.

[5] Klier Thomas and James Rubinstein, The Changing Geography of North American Notor Vehicle Production , Cambridge Journal of Regions, Economy and Society , 2010, 3(3): 335-347.

[6] Based on Auto News (2015) in combination with Asociación Mexicana de la Industría Automotoriz, A.C.

[7] Source: Auto News Data Center (2015)

[8] Thomas Klier and James Rubinstein, Configuration of the American and European auto industries – a comparison of trends , Presented at 19 th GERPISA colloquium, 2008.

[9]  Linda Abbruzzese and Curt Cultice,  Export Advice: Doing Business in Mexico’s Automotive Industry , 2016

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

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


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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 even slower than national gains. 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, the Arizona economy continues to expand and the prospects for somewhat stronger growth are on the horizon. A modest acceleration of the U.S. economy will help push Arizona’s gains up 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). Keep in mind that during the 30 years before the Great Recession, Arizona’s population growth averaged 3.2% per year.

Population gains were also positive, but sluggish, for the Phoenix MSA and the Tucson MSA. Population increased by 67,500 last year in the Phoenix MSA, which accounted for 87.3% of state growth. Phoenix MSA population growth 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. Indeed, U.S. nominal exports of goods declined by -7.4% in 2015 and -2.9% in 2016. Arizona exports are exposed to the same pressure. After rising by 6.6% in 2015, state exports declined by 2.8% last year.

As Exhibit 2 shows, Arizona merchandise exports to Mexico declined by -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. Keep in mind that Arizona exports go all over the world, with 29.8% going 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, since June 2014, the dollar has risen by 57.8% against the peso. In contrast, the U.S. dollar is up 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. Indeed, since the election, the exchange rate has hovered between 20.0 and 22.0 pesos per dollar. 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, 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. Many 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 in coming months and years.

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 very 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. Keep in mind that 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.