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Report: Economic recovery in Phoenix, Tucson trailing region

Slumping housing prices and the prevelance of service-industry jobs contributed to Phoenix and Tucson trailing the rest of the Intermountain West in economic recovery during the second quarter, according to a Brookings Institution report.

The region lagged the rest of the country, but production and export of goods and services grew during the quarter in all of its metropolitan areas except Phoenix and Tucson, according to the Mountain Monitor, a project of the Brookings Institution and the University of Nevada, Las Vegas.

“Phoenix is not really the headquarters of much; there’s no Bausch & Lomb in Tucson,” said Robert Lang, director of Brookings Mountain West at UNLV.

Lang said the Intermountain West is over-reliant on services such as tourism rather than manufacturing and exporting goods.

The report tracked the economic recovery of metropolitan areas in Arizona, Nevada, Utah, Colorado, Idaho and New Mexico. It considered changes in employment, output, unemployment and housing prices from the beginning of the recession through the second quarter of 2011.

While the recovery had generally stalled in the region, Phoenix was toward the bottom, said Kenan Fikri, senior research assistant with the Brookings Metropolitan Policy Program.

“Phoenix really fell far behind, similar to Las Vegas, but Las Vegas has been able to turn around more strongly than Phoenix,” Fikri said.

He said Phoenix was stuck in doldrums in contrast to other areas, such as New England benefiting from manufacturing, Oregon from the technology rebound, California from Silicon Valley and Texas from oil and natural gas.

Fikri said Tucson has failed to translate its optics industry into a high-tech economic driver, while the lack of a major airport also makes it hard for it to attract big corporations.

Marshall Vest an economist with the University of Arizona’s Eller College of Management, said the state lacks as many high-technology jobs as it had before the technology bubble burst in the ’90s. Manufacturing doesn’t account for a large portion of the state’s jobs, he added.

“Money flowed into housing rather than the technology industry during that last decade,” Vest said. ”It would be nice to see a reversal in that.”

Vest said Arizona won’t experience much improvement in employment until industries related to growth such as technology expand and the housing market improves.

The report said Phoenix and Tucson were among four metropolitan areas in the region that ranked among top five nationally with the steepest declines in housing prices comparing the second quarter to the year before. Prices fell 18.7 percent in Phoenix and 15.2 percent in Tucson. Phoenix had a larger relative stock of foreclosed properties than any other metropolitan area, the report said.

Lee McPheters, director of the Economic Outlook Center at Arizona State University’s W.P. Carey School of Business, said he was more optimistic about Phoenix and Tucson.

Employment grew slowly, but there were no declines, and as of July Phoenix has added 22,000 jobs over the past 12 months and is growing at about 1.4 percent, he said in an emailed response to a reporter’s questions.

“That is not spectacular, but the U.S. as a whole is growing at about 1 percent, so Phoenix is doing better than the national average,” McPheters said.

He said Phoenix also leads all large metro areas in the rate of increase of health care jobs, an important and recession-resistant industry. From July 2010 to July 2011, health care jobs were up 6.9 percent in the metropolitan area.

Vest said Arizona will continue to battle for a few more years, adding that many will be disappointed at the slow growth.

“There’s not much that state policymakers can do about it,” he said. “It’s a matter of realizing that we need to be patient and we need to hang on as best we can.”

Key findings:

• Housing prices in Phoenix and Tucson declined 49.9 percent and 42.9 percent since peaking in 2006.
• Public sector job cuts hit eight of 10 Mountain metros over the second quarter, falling by 1.3 percent in Phoenix and 2.6 percent in Tucson in the second quarter of 2011.
• In the second quarter of 2011, the Tucson and Phoenix economies remained 4 percent 7.3 percent smaller than before the recession.
• Output in all Intermountain West metropolitan areas grew in the second quarter of 2011 except Tucson and Phoenix.

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