The worst economic recession since the Great Depression has hit a three-state area known for its population growth – Arizona, Nevada and southern California – harder than the rest of the country.
This region – the “Economic Bermuda Triangle” of Maricopa County; Las Vegas, Nevada; and Riverside, California – led the nation in the pace of job losses and housing foreclosures, the two measures by which consumers view the health of the economy.
The national economic recovery will pull Arizona out of its recession, but there are no forces that would cause the state to recover on its own. Arizona has a long history of roaring back from recession, but it takes years because of the depth of the recession and because the state is a growth area.
Places that attract many people are subject to over-speculation in the real-estate market and, therefore, are whipsawed when the speculation bubble bursts. Arizona needs diversification along with the economic strengths we have now. Our state needs to be more resilient. We are known for sunshine and growth, and we’ll always be a people-magnet.
But, Arizona also needs to be known for having a skilled work force and jobs that demand skills in industries that are less prone to real- estate cycles, which means appropriate funding of education at all levels.
Arizona has the weakest labor market of any of the 50 states and is losing jobs faster than anywhere else. Five of the 10 worst states are in the fast-growing Southwest. The state has lost 334,600 jobs, of which 100,000 were in construction, an industry that brought us up and is now pulling us down.
Phoenix has lost more jobs than Detroit and is the worst of all major U.S. cities regarding the rate of jobs lost in the past 12 months.
And the city and state figures don’t show the full scale of the problem because unemployment figures don’t include out-migration, discouraged workers who are no longer seeking jobs, and those who are now working part-time or have been furloughed. Compounding the situation even further, the state’s commercial real-estate problems are just starting and Arizona will reach double-digit unemployment.
The same Bermuda Triangle areas are facing the worst market conditions. Las Vegas is worst in loss of home value, followed by Riverside, Calif., and Phoenix, where the foreclosure rate increased by more than 50 percent and one out of every 25 homes was in foreclosure in the first half of 2009.
What the state and the nation have going for them is the nature of economic cycles. Economic downturns are followed by recoveries, but those recoveries could be “V” shaped (quick), “U” shaped (slow), or “W” shaped (the first recovery is followed by another downturn).
It’s predicted that home prices will not stabilize and there will be no job growth until 2011. Major job growth will not come until 2013, and unemployment will not drop back to 6 percent until 2014.
Population growth will help, and the low housing prices we have now will help that growth. But contrary to general belief, young professionals, families and entrepreneurs – not retirees – account for most of Arizona’s in-migration. With that in mind, creating a diverse, skill-based economy will help attract them in even greater numbers. It also will encourage native-born Arizonans to acquire skills that will allow them to compete for more lucrative job opportunities.
The economic downturn is a wake-up call for Arizona. For the better part of the last 20 years, we had it pretty easy. People moved here in droves, driving demand for new housing and the retail activity that accompanies growth. The region prospered, but purely growth- accommodating jobs were not sustainable. It’s time to chart a course of action for developing an economic base that is founded on more resilient knowledge-based pursuits. That won’t be easy, but it may be our only defense in buffering against the natural ebb and flow of our real-estate cycle that Sunbelt states inevitably endure.
– Dennis Hoffman is director of the L. William Seidman Research Institute at ASU’s W. P. Carey School of Business and a university economist.
– Lee McPheters is director of the JPMorgan Chase Economic Outlook Center at ASU and a research professor of economics.