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.

Breakfast with the Economists 2017: Mid-Year Economic Update

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Wednesday, May 31, 2017
Registration: 6:30 a.m.
Breakfast: 7:00-8:30 a.m.

Westin La Paloma Resort & Spa
3800 East Sunrise Drive
Tucson, Arizona

Cost: $40 per person on or before May 17( $45 after May 17) or $400 for a table of ten on or before May 17 ($450 after May 17)

Register by May 17, 2017 for the early bird rates of $40 per person or $400 for a table of ten.

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Tucson is well positioned to grow next year, but what risks lurk beneath the surface that might cause a downturn? What are the opportunities for faster gains? 

Join us for breakfast with 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, as they offer analysis and insights on what to expect for Arizona and Tucson in the future.

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    

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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


download PDF

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.

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.