Arizona’s economy, led by the metro Phoenix juggernaut, should grow at a solid pace in 2022 following all of the drama of the past two years, and housing prices will avoid a crash despite recent price surges.
Those were two key forecasts from the annual economic outlook luncheon Wednesday hosted by the W.P. Carey School of Business at Arizona State University. The national economy also seems destined to remain on its recent expansion track, though speakers at the presentation disagreed sharply over the direction of inflation.
Arizona and especially the Phoenix area appear in good economic shape heading into the new year. Metro Phoenix already has recouped all jobs lost in the brief but sharp pandemic recession of early 2020, and Arizona as a whole only needs to generate another 6,000 or so jobs to hit that mark, said Lee McPheters, an ASU economist.
“Arizona will be one of the first states to replace all of the lost jobs,” he said, noting that metro Phoenix has created more jobs than 35 states. Plus, Arizona retail sales are on pace to surge 20% in 2021 and another 5% or so next year, McPheters said, and statewide personal income could increase another 5.5% this year following a 10.3% surge in 2020.
While inflation has risen, too, average wages here have increased more dramatically.
“The long-term outlook (for Arizona) is very positive,” McPheters said.
Arizona ahead of the nation
The U.S. overall still hasn’t replaced all jobs lost in the recession but is poised to do so relatively soon, said Gus Faucher, chief economist at PNC Financial Services and another speaker at the annual forecast event.
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The new expansion phase, now in its 20th month, is bolstered by still-low interest rates, increases in housing income, strong consumer demand and other factors. Also, Faucher noted, businesses need to rebuild inventory levels depleted by supply chain constraints. That, too, will spur economic growth.
The nation still needs to generate 4 million jobs to get back to pre-pandemic levels, of the 22 million positions lost early in 2020, he said.
Despite recent price spikes for used cars, dairy products and a range of other items, Faucher said he expects inflation to moderate, citing bond-market expectations that inflation over the next five years will ease into a range of between 2% and 3%. Pressures should ease as supply chain bottlenecks gradually dissipate, he added.
Summers: Inflation threats linger
But that viewpoint was disputed by Harvard economist Lawrence Summers, who cited inflation as the economic threat about which he’s most worried.
The Harvard president emeritus and former Secretary of the Treasury and director of the National Economic Council described an economy that’s growing well but is in danger of overheating, driven by strong consumer demand, too-lenient Federal Reserve policies and more.
It’s like a “bathtub in danger of overflowing,” said Summers, who said he and his wife recently purchased a winter home in Scottsdale.
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Summers also described what he considers unjustifiably low interest rates and predicted the central bank will need to “adjust rapidly” with a series of perhaps four rate hikes. “Financial conditions are looser than they have been in the last 30 years,” he said.
Fiscal policy in the form of expanded unemployment benefits, stimulus payments and other programs were excessive and contributed to rising inflation rates, he said, though many of those programs have lapsed or are winding down.
Phoenix-area home prices have risen 33% on average over the past year, McPheters said, but despite such a rapid increase, he’s not predicting a bust in the market as happened roughly a dozen years ago.
In fact, at an average recent price of $475,000, according to Zillow, single-family homes in metro Phoenix are still bargains compared to those in many California cities and places such as Denver and Seattle.
Rather than a Phoenix housing slump ahead, McPheters said he expects slower rates of price increases in the range of 4.5% to 6% annually.
Factors favoring Arizona’s continued economic expansion include a pro-business climate, available warehouse and industrial space, a strong local workforce and new infrastructure projects, McPheters said. Threats include COVID-19 risks, lingering supply chain bottlenecks and decreasing housing affordability.
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AUTHOR: Russ Wiles