So desperate is "the Valley" for good economic news that the Information Center published a story on the big circulation day of Sunday quoting the Coincident Economic Activity Index of the St. Louis Fed. It reminds me of the old contest we had when I was a young reporter in San Diego: How few words could you write to alienate a reader (the winner: Otay Water District). In any event, this measure allegedly "shows Arizona's economy probably hit bottom in December." Then it quotes U of A economist Marshall Vest, a very nice man who was utterly wrong about the state's economy in the run-up to the collapse, writing that the national recovery is "proceeding nicely." (!) The story adds, "But Arizona's recovery is lagging behind other parts of the country, though conditions are looking better." OK, then.
The mandarins of economic knowledge in Arizona, prodded by their masters in the Real Estate Industrial Complex, have been predicting a bottom for more than two years. Now every little blip or sideways shudder is even more urgently flung out with incense and sparklers as a sign of "the bottom," or better yet, "recovery." Most of these yearnings are realized in extremely limited snapshots of real-estate activity, a problem in itself. Even the St. Louis index only looks at four metrics, concerning employment, hours worked, wages and salaries. And for every pebble of "good news" comes a landslide of less "positive" stories. In Forbes' list of "America's Recovery Capitals," even Vegas is given a sense of potential; Phoenix is nowhere. With Business Insider's slide show of "12 Cities Where Home Sellers Are Being Forced to Cut Prices Like Mad," both Mesa and Phoenix make the rogue's gallery.
Boosterism and denial aside, the reality is that Phoenix's economy is not recovering in any meaningful sense of the word. The idle rich did very well in this recession — a historic anomaly — so to the extent that north Scottsdale and Paradise Valley are a B-List destination for these critters part of the year, there's your "good news." Otherwise, the situation is harsh. I do not wish this on Phoenix. I wish it were not so. I wish I were 25 and had a squash player's body. But unless Phoenicians face up to their reality, whether they wish it that way or not, a real recovery will be even longer in coming, narrow in its benefits and short-lived.
Since World War II, Phoenix operated by its own blessed economic cycle. When the national economy contracted, the Phoenix economy did less so. That usually meant it merely grew slower. This could still be painful, especially if you weren't in real estate or construction (or in the advanced sectors the region once had in relative abundance), but it tended to outperform the nation. People kept coming. The perpetual-motion machine of "growth" seemed unstoppable. This made the 1991 S&L recession a shock. It was nothing compared with now; Arizona was embarking on its fastest decade of population growth in its history. But many playerz were hurt. Barron's made sport of us! The Central Corridor was forever abandoned by the leasing boyz. Yet the real lesson was lost: The collapse of a financial bubble had exposed the region's dangerous over-exposure to real estate and population growth. Similarly, the 2001 recession stunned the local economy just enough for Janet Napolitano to pull off a razor-thin victory. But again the real lesson was ignored: What entrepreneurial technology sector the state had built in the '90s was largely clear-cut; the cluster strategy had failed. It was easy to ignore because the world's speculative wealth was moving from dot-coms into real estate. The playerz never had it better.
Even with this new "boom," median household income in the metro area actually fell from 2000 to 2006. Per-capita income also declined through much of the 2000s, rising slightly in 2006 before plummeting; it never matched the national average, much less that of similar-sized metropolitan areas. A 2006 study by the Economic Policy Institute showed Arizona had some of the worst income inequality in the nation. Then the Great Recession, and it was focused on Phoenix's last remaining strength: Real estate. The Arizona Republic did a courageous series mid-decade on the region's dependence on real-estate related jobs; using sophisticated measurements, it found that one in three jobs were tied to real estate, construction, leasing, mortgages and house remodeling. I think that actually understated the danger. It didn't get into retailing and other service jobs that were built on business plans expecting 100,000 new residents a year. No wonder this is the worst recession Phoenix has seen since the 1890s, when the very survival of the town was in question.
The data for Phoenix's emergence from the recession is not comforting. According to the Brookings Institution's in-depth report on metro economies, Phoenix's ratio of bank-owned properties per-1000 worsened significantly from December through March (95th poorest performance out of 100 metros). Inflation-adjusted house prices fell 42 percent from the first quarter of 2007 through the same period this year (91st worst out of 100). That drop was 20 percent from the first quarter of 2009 to the first quarter of 2010, but twice the metro average and 97th worst. And this is playing by the booster's rules, i.e. you measure economic health through real estate.
Of the 100 largest metro areas, Phoenix was one of the poorest performers — in gross metro product, employment, unemployment rate and housing prices since the start of the recession.
Phoenix faces numerous obstacles to real recovery. Many of these are large national and even global forces. Among them: The likelihood of years of high unemployment with many people never being able to find work again and others never being able to regain their old earnings power. This plays into retirement plans and means, which will have a shattering effect on many Arizona "active living communities" built and planned.
The commercial real-estate crisis hasn't gone away and metro Phoenix will be further hurt as it rumbles along. The national "austerity" meme and the state's fiscal crisis may seem like manna from heaven for the Grover Norquist brigades. In reality, it is a further drag on the economy, from state employee layoffs to the inability to make investments critical to competitiveness.
Americans are moving less, a trend likely to continue with a recovery that doesn't benefit most average people. We are a much poorer nation after Wall Street's frauds. The leverage, easy federal credit and bank swindles that enabled the massive housing industry will not return in our lifetimes. All this is catastrophic for the growth machine. Speaking of real economic growth: Don't expect much in America this decade outside of the Wall Street playerz and the wallets of the rich. This is a situation unprecedented in our history. Real growth will come from Asia, and the American cities with links to the east will have the best chance of prospering. Inward-looking Phoenix and Arizona aren't even at that dance.
Then we must face the self-inflicted and localized impediments to recovery. That's the topic for the next post.
"incense and sparklers" . . . vivid, uplifting imagery juxtaposed perfectly.
Posted by: Rate Crimes | June 29, 2010 at 05:13 AM
It is my belief that it is inappropriate and even damaging to apply the term "growth" to what has happened here in the past and will continue for a while in Asia: the type of "growth" that is far too well exemplified by "the Valley".
The "growth" that is coincident with, paralleled by, and even inspired by frontiers and/or population increase is illusory. It is extraction.
Food, soil, water resources, human spirit, and knowledge are examples of the things that can and should be grown. We too often confuse "growth" with the unprecedented ability of our culture to increase entropy while ignoring the consequences.
Thank you for quoting the term "growth", but I hope that we all employ neutral terms such as 'increase' where and when appropropriate.
Posted by: Rate Crimes | June 29, 2010 at 06:17 AM
Motorola used to be the state's largest employer at 25,000 employees. Want to know what the current count is at MOT ??.......350
A conservative estimate is that the loss of those jobs equals a loss of $1,000,000,000 in blue and white collar income.
How does a community replace a loss like that?
Posted by: azrebel | June 29, 2010 at 12:21 PM
"How does a community replace a loss like that?"
Apparently, with repo men.
Posted by: Rate Crimes | June 29, 2010 at 07:21 PM
Well done. Very nicely documented, and I found the pre-recession survey of Arizona median household income (2000 to 2006) to be especially interesting and provocative.
Just to play devil's advocate, however, note that median household income decreased nationally (slightly) over this same six year period, and that Arizona's decline in median household income is "not statistically significant":
http://www.chn.org/pdf/2008/CPSmedincome.pdf
This is as opposed to such states as Alaska, Delaware, Illinois, Kentucky, Michigan, Minnesota, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, and Texas, all of which suffered statistically significant decreases in median household income over that period.
Incidentally, the Arizona Republic reports the creation of its new "Commerce Authority" and reveals its goal: "steal away" aerospace manufacturing jobs from other states.
http://www.azcentral.com/business/articles/2010/06/30/20100630arizona-commerce-authority-creation.html
A subsequent article notes that "sports and real-estate mogul Jerry Colangelo will co-chair the future Arizona Commerce Authority [with Gov. Brewer], and Roy Vallee, CEO of Avnet, and Don Brandt, CEO of APS, will be board members."
http://www.azcentral.com/community/chandler/articles/2010/06/30/20100630colangelo-chandler-commerce.html
Of course, even if the new body comes up with some good ideas and strategies, will the notoriously reactionary and troglodytic Arizona Legislature put them into practice? Or only the tax cuts? :)
Posted by: Emil Pulsifer | June 30, 2010 at 06:25 PM
Sorry, I forgot the link to the "steal aerospace jobs" article, which was actually an op-ed piece by Doug MacEachern. (Now, now, no cat-calls: MacEachern penned an interesting piece worth reading. For a change.)
http://www.azcentral.com/arizonarepublic/viewpoints/articles/2010/06/27/20100627maceachern-arizona-defense-jobs.html
Posted by: Emil Pulsifer | June 30, 2010 at 06:40 PM