University of Arizona economist Marshall Vest looked around the room at the Arizona Inn before delivering an economic update last week. "Does anyone know a good joke? We need to lighten things up a bit."
No one offered, so Vest continued.
 Source: UA Eller College of Managment |
"The economy is losing momentum," he said. "Business confidence is plunging, housing is still in a recession – and could be for a while still – and the labor market is deteriorating."
That summarizes the update report Vest delivered to about 120 people attending the Compass Bank-sponsored luncehon Sept. 26.
As part of his message, Vest released the latest Business Leaders Confidence Index, showing it fell 8 points. The index, released at the start of each quarter, measures business leaders’ expectations for the next three months.
Statewide, the confidence index is 42.5, down from 50.5 going into the third quarter. The index for Tucson is at 42.1, down from 50.0.
"We have red flags here," Vest said. "In this scale, 50 is a neutral dividing line, if the index is above 50 things are getting better, if it is below 50 things are getting worse. At 42.5, the economy is very near a recession."
Retail sales have gone from growing to declining, he said. Retail sales are down 3 percent with restaurant and bar down 5 percent.
Also, productivity is down and unit labor costs are up, so, many of the business leaders who participate in the index are expecting smaller profits.
Taken by components, business leaders, both in Tucson and statewide are not optimistic in any one of six categories: sales, profits, hiring, capital expenditures, state outlook and national outlook. They were least pessimistic about their own sales and most pessimistic about the national outlook.
"Anyone have a joke?" Vest asked a second time.
He moved to the housing industry where he believes a housing recession has been prolonged and no foreseeable end at this time.
"We had just an inventory problem with housing before," Vest said. "Now with the credit crunch we have an even bigger problem in housing that will take longer to turn around. The asset bubble has burst."
The biggest problem of a lingering housing recession, he said is that it was the housing boom that really fueled growth for several years in Arizona.
"Housing accounted for 25 percent of all new jobs in Arizona," Vest said. "Tucson is selling 13,000 homes annually and there is an eight month supply of housing on the market."
All those factors in housing are leading to price declines.
Vest said he sees Tucson’s low unemployment rate of 3.7 percent, moving upward. Statewide, he said he expects initial unemployment claims to reach 200,000 for the first time since 2005.
"Our non farm job growth is now down below 2 percent," he said. It is the lowest it has been since 2003. "If that number passes below zero, we will be in a recession."
While he didn’t come right out and say it, Vest told the audience "As an economist, rule No. 1 is never forecast a recession. But this is as close as we’ll get without saying it."
He did offer a silver lining.
"On the bright side, the population is still growing. People are still coming here and that helps," he said.
Comments
Bdytko wrote on Oct 9, 2007 7:30 AM: