Nonfarm employment is continuing its slow, subpar growth in 2014, according to the Arizona Department of Administration. The Department expects a “mild acceleration in 2015.”
In comparison to the employment forecast released in November 2013, Nonfarm employment growth has been forecast to be slightly slower in 2014. An over-the-year gain of 53,500 Nonfarm jobs is expected in 2014 and 60,400 in 2015.
According to the report, in 2014 “Phoenix is expected to grow faster than the state at 2.5%. However, the projected growth rates for Tucson (1.2%) and the Balance of State (1.3%) are slower than the statewide and Phoenix rates. The expected Nonfarm job gains in 2014 for the Phoenix metropolitan area are 44,600 jobs, for the Tucson metropolitan area are 4,400 jobs, and for the rest of the are 4,500 jobs.
● Nonfarm employment growth rate for Arizona in 2015 is expected to be 2.4 %.
● Phoenix is forecast to continue growing at a faster pace (2.6%) than Tucson (1.8%), and Balance of State (1.7%).
● For 2015 the job gains forecast for Phoenix MSA are 48,000 jobs, Tucson MSA are 6,400 jobs, and Balance of State are 6,000 jobs.
With last summer’s news that Davis Monthan Air Force base is a likely candidate for closure due to the Air Force’s decision to mothball the A-10, the report finding that, “Arizona’s reliance on federal government outlays due to its dependence on defense-related industries followed by a reduction in both civilian and military program spending has made the state particularly vulnerable. Various economic sectors have felt the trickle-down effect with projects coming to an end and no new projects in the pipeline.”
Should Davis Monthan close, it would result in a $1.6 billion hit to the already struggling economy in southern Arizona.
The Department found, “Although the economic fundamentals continue to improve, the Arizona economy continues to have some aftereffects of various policies that were enacted post-recession: sequestration cuts in 2011 followed by a continuing resolution that went into effect in March 2013; payroll tax increase to the default 6.2 percent in January 2013; the October 2013 partial shutdown of the federal government and continued conflict over the federal debt ceiling. The combined effect of many of these decisions has resulted in economic uncertainty and made investment planning more problematic, thus creating an environment not conducive to strong growth.”
Findings:
Following factors supporting Arizona’s economic growth continue to persist.
• Continued improvement in real Gross Domestic Product (GDP), real personal income at the state and national levels, employment, and retail sales.
• Continued employment gains in the private sector, increasing private domestic investment, gradual increase in the index of industrial production and rate of capacity utilization, high levels of corporate profit, and a gradual resurgence in private residential construction permits.
• Continued gradual climb in household net worth resulting from paying down of debts and accumulation of assets either through cash savings or through their homes. U.S. exports are also increasing.
• Residential real estate markets in the state of Arizona and the metropolitan area of Phoenix are showing improvement. Home prices in Arizona are improving but are still way off peak 11. In private residential real estate, a majority of the growth recently has been in the construction of multi-family structures, or apartments. Construction and sales of single family, private residences, though gradually increasing, are well below their most recent peaks of the housing bubble. 12 Commercial real estate is gradually improving with lower vacancy rates, higher rental rates and lower rates of default and delinquency in mortgage loans. Industrial real estate sectors are also improving with increasing levels of construction activity across the nation for the building of warehouses and distribution centers to support online commerce.
• While revolving consumer credit levels have remained flat, an expansion of non-revolving consumer credit since 2011 has served as an impetus to expanding economic activity. Consumer sentiment and consumer spending have shown signs of improvement, but the rate of growth has been slowing down.15 Banks are gradually making new consumer loans and increasing the quality of existing loans. Bank delinquency and default rates on consumer credit are declining.16
Some factors that could further dampen the growth of the local economy are given below. However, the positive factors listed above outweigh the uncertainties in the sections described below in support of our forecast:
• Constrained budgets persist for a large majority of households. Despite some job growth and lowering in the unemployment rate, many consumers in the US continue to face employment insecurity, lower wages and benefits, debt, and rising prices for essentials that limits the amount of funds available for discretionary spending. Real per capita disposable income in the US is contracting as well as median household income in the US and AZ. Because of slow employment and income growth in this recovery, the share of gross domestic income to wage and salary accruals has continued to fall to near historic lows. Even the share of gross domestic income paid as compensation to employees continues to fall to a level near the early 1950’s.19 Personal savings rate is growing limiting the amount they spend on goods and services.
• The residential real estate market has improved. However, with Dodd-Frank rules, the underwriting standards have become more stringent and require higher down payment, higher FICO score, lower debt to income ratios, increasing lockout period after a foreclosure and considerably more paperwork. Increased government scrutiny may limit the entry of new firms into the mortgage market. Rising interest rates could serve as a deterrent to some prospective buyers.
• Although real business investment continues to grow, the rate of growth has slowed as a consequence of demand uncertainty.