Thursday, June 17, 2010

Report: Phoenix lags other big cities in economic recovery

by Austen Sherman The Arizona Republic Jun. 17, 2010 12:00 AM

Read the full economic report

After a recession, the nation's Mountain West usually makes employment gains faster than the rest of the nation, analysts say.

That's not the case this time.

According to a new report, the region's slow economic recovery actually has weakened in some ways in the early months of 2010.

Metro Phoenix, along with Las Vegas and Boise, Idaho, remain behind the nation in the economic recovery, according to a June study produced by Brookings Mountain West.

Brookings' Mountain Monitor report identifies a number of indicators of economic success and compares data for the region's major metropolitan areas, as well as the average of the top 100 metropolitans in the United States.

While Ogden, Utah, Albuquerque and Colorado Springs appear to be back on their feet, for example, the Valley's real-estate-based economy is struggling to rebound.

"What is more troubling for the West is this is the first major recession in which areas like Phoenix did not power out of the economic trouble quicker than the rest of the country," said Mark Muro, fellow and policy director of the Metropolitan Policy Program at Brookings Institution.

Brookings Mountain West is a partnership between the Washington, D.C.-based Brookings Institution and the University of Nevada-Las Vegas. The Mountain Mirror report covers Arizona, New Mexico, Nevada, Colorado, Utah and Idaho.

In employment, economic growth and housing, both the region and Arizona lag, according to the study, which incorporates economic reports through March. Phoenix and Boise are among the hardest-hit metro areas in the nation for job loss, with employers slow to resume hiring. Home prices declined in every metro area in the region, and the number of lender-owned properties remains on the rise.

At first glance, the metro Phoenix data looks strong, with its total economic output ranking above the national average for the first quarter of the year. Its GMP, or gross metropolitan product, was up 1.2 percent from the fourth quarter of 2009. However, Phoenix ranks near the bottom nationally in overall loss of economic output since its GMP peaked in the fourth quarter of 2007.

But a major problem, the metro area's inability to create new jobs, remains. Since its employment numbers peaked in the third quarter of 2007, metro Phoenix has lost 11.9 percent of its jobs, ranking eighth-worst out 100 metro areas nationally.

"Jobs are the big struggle nationally and in Arizona," said Dennis Hoffman, economics professor and director of the L. William Seidman Research Institute at Arizona State University. "The real challenge with job creation stems from the fact that businesses have learned to get by with fewer people."

Many of the reasons for the slow recovery have been well-documented. With an economy based largely on growth and real estate, the Valley was left with little else when the housing bubble burst, followed by the financial meltdown. Real-estate and construction jobs disappeared, followed by jobs at businesses that fed off the industry.

"You had this really traumatic real-estate explosion, and the collateral damage of people's homes being underwater really hurt their ability to spend," Muro said.

Until the housing market rebounds, Hoffman said Phoenix won't see the job growth that it had enjoyed in years past. That rebound, he said, could be three to five years away.

Even though growth may be lagging, some Phoenix residents say they sense a noticeable improvement over the past six months. People and businesses are growing a bit more confident when it comes to spending, even if it's happening slowly, they said.

"It's getting better. I can tell by the amount of work I've been doing," said Lou Gandron, a heating, ventilation and air-conditioning technician for Southwest Trane. "I think we are walking out of it. We fell into it, and we are going to have to walk out."

"It is coming along very slow," said Kay Gordon, a Phoenix businesswoman. She said her employer had three weeklong furloughs over the past two years and had laid off 30 people, 15 in March.

Others have doubts.

"The recovery people talk about is in their dreams," said Jeffery Robinson of Phoenix. "People aren't out there buying. More and more businesses are folding."

Other states and regions, such as Colorado and Texas and much of the Midwest, have rebounded more quickly than metro Phoenix for a variety of reasons. Colorado was able to survive on a high percentage of employment coming from the government, positions that typically do not vanish during a recession. Texas' economy is much more diversified, with well-developed clean-energy and information-technology industries. The Midwest, with its farming and manufacturing focus, also has a heavy presence in the export market, another area of stabilization during the recession.

Muro also suggested that Arizona's relatively lower level of education is slowing its recovery. Colorado, with a better-educated workforce, was able to rebound more quickly as its laid-off employees were more successful at adapting.

How can Arizona reverse the trend?

The housing market continues to be relatively depressed, and the number of foreclosure properties in the Valley increased more than six times the national average during the first quarter.

Muro said that the way out is "clearly not back in to the real-estate-driven, speculative model."

He believes the Phoenix area needs to move forward to a different kind of economy. The more diversity it has, the more durability an economy will have in an economic downturn, he said.

"It (Phoenix) needs to . . . invest in education, innovation and really work to build export markets," Muro said. "The developing countries of Asia are growing. Where domestic consumption is muted, you need to go where the growth is going to come from."

Hoffman said economic-development officials also are attempting to attract and grow new companies. But, he said, so is every other metro area. The competition is tough, and it is made tougher by the lack of confidence outsiders have in the Phoenix economy. "We can engage in it, but it's just hard to predict that you are going to have massive job creation from new technologies and getting businesses here in the short term," Hoffman said.

He advocates taking a strategic, long-term approach, investing in what will be needed five to 20 years from now.

For example, he suggests leveraging the money the state has received from the federal government and building new infrastructure, including roads, water-delivery systems and renewable energy. That could put people to work today and reduce unemployment, while "putting an infrastructure in place that would be growth-enhancing in the future," he said.

Of course, the regional economy also relies on the national and global economy headed in the right direction.

Muro, citing the slow-to-grow employment figures and economic problems in Europe, fears the possibility of a double-dip recession.

Hoffman was slightly more optimistic. "There is a little sign of life. We have to put together a few more months of pretty good numbers and then we might be able to turn the corner."

Report: Phoenix lags other big cities in economic recovery

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