Leading Experts Say Tucson’s Economy Is Struggling for Growth

UA Eller Economist George Hammond and Chase Chief Economist Anthony Chan shared predictions at Dec. 11 Economic Outlook Luncheon
University of Arizona Eller College of Management Dec. 11, 2015
Dr. George Hammond - UA Eller College

Dr. George Hammond

Tucson’s economy is on track to grow this year, but gains are likely to be slow again. That was one of the key takeaways from today’s University of Arizona Eller College of Management annual Economic Outlook Luncheon at the Westin La Paloma Resort in Tucson. More than 500 people packed the room to hear presenters George W. Hammond, director and research professor at Eller’s Economic and Business Research Center, and Anthony Chan, Chase chief economist, share their predictions regarding job growth, the housing sector, the stock market, interest rates and more.

Hammond shared that the local economy added just 1,800 jobs last year, for a 0.5 percent growth rate, and the forecast calls for 1,100 additional jobs, or 0.3 percent growth, in 2015. Furthermore, population growth was 1.1 percent in 2014, but that is expected to decelerate to 0.2 percent in 2015.

“Most of the job gains during the next two years are expected in service-providing sectors, especially in professional and business services, leisure and hospitality, education and health services, and trade, transportation, and utilities,” Hammond said. “Job losses are expected in government, manufacturing, and natural resources and mining.”

While the Tucson economy is forecast to expand, growth rates are expected to be below the state rate. For instance, state job growth is expected to hit 2.6 percent in 2017, with population growth at 1.8 percent.

Federal fiscal drag has contributed to slow gains in the Tucson economy during the past three years.

“This matters for Tucson because federal government activity is a big share of the local economy. In 2013, federal civilian and military activity accounted for 7.8 percent of Tucson’s gross domestic product. That’s much bigger than the national share of 3.6 percent,” Hammond said, adding that Tucson also has been affected by state and local fiscal drag with state budget cuts affecting the University of Arizona and local government. State and local government activity accounted for 14.5 percent of Tucson GDP in 2013, compared to 9.0 percent for the nation.

While export growth continues to be a bright spot in the state economy, the dollar has appreciated significantly against the Mexican peso and the Canadian dollar. Hammond shared that Mexico and Canada are Arizona’s top two export destinations, jointly accounting for roughly half of state exports last year. From June 2014 to October 2015, the dollar rose by 27.5 percent versus the peso and 20.7 percent versus the Canadian dollar.

“If the dollar remains elevated during the next two years, it will put downward pressure on Arizona export growth and foreign tourist spending in the state,” he said.

Gasoline prices have rebounded modestly from the lows of early 2015, but remain well below 2014 levels. This is contributing to increased consumer spending and saving.

Hammond said the forecast calls for the Tucson economy to gradually gain momentum during the next two years, with job growth reaching 1.6 percent by 2017. Population is also forecast to increase, with growth hitting 0.9 percent by 2017. Per capita personal income is forecast to rise by 3.3 percent in 2016 and 3.7 percent in 2017, above the expected rate of inflation of 1.8 percent in 2016 and 2.4 percent in 2017.

Anthony Chan spoke to the audience about the global economy and financial markets, stating that the U.S. economy is expected to continue its sluggish recovery in 2016. “Given that the U.S. has been gradually eliminating much of the slack in labor market conditions, the Federal Reserve should soon begin its path towards normalization,” Chan said. “The only risk in the United States that we must pay attention to at this time is weak productivity growth.”

On the global front, Chan said the additional 33 percent of quantitative easing recently announced by the European Central Bank should provide sufficient support to keep the European recovery going. “Additional support from the Central Bank of Japan should also help in 2016 as will continued support on the fiscal and monetary side in China. The biggest challenge the global economy continues to face is the threat of an acceleration of deflationary pressures,” he said.

Hammond closed his presentation reiterating that economic growth in Tucson is expected to improve modestly during the next two years as fiscal drag diminishes and as residential mobility across the U.S. improves. “Arizona is still a very attractive migration destination for those moving around the U.S.,” Hammond said. “If more people begin moving across state lines, Arizona and Tucson will attract a large share of those migrants. This will boost population gains and residential construction activity. Housing permits in Tucson are forecast to rise from 3,901 in 2015 to 4,502 by 2017.”

For more information or to view Dr. Hammond’s slide presentation, visit Eller’s Economic and Business Research website, ebr.eller.arizona.edu.

The Economic and Business Research Center at the UA Eller College of Management provides the Arizona community of business and public-sector decision makers with applied research and information on economic, demographic, and business trends in Arizona.

The Eller College of Management at the University of Arizona is internationally recognized for pioneering research, innovative curriculum, distinguished faculty, excellence in entrepreneurship, and social responsibility. U.S. News & World Report ranks the Eller undergraduate program #12 among public business schools and two of its programs are among the top 20 — MIS and Entrepreneurship. U.S. News & World Report ranks the Eller MIS undergraduate program #4 and its graduate program #3 in the U.S.   The Eller College of Management supports more than 5,800 undergraduate and 750 graduate students on the UA campus in beautiful Tucson, Arizona, as well as a satellite campus at the Phoenix biomedical campus downtown.

 

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