Experts discuss the economic future of 2023

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November 18, 2022

ASU economist predicts Arizona will continue to move in the right direction if the Fed can handle inflation issues

An economist from Arizona State University said the Grand Canyon state has successfully weathered the punch of COVID-19 and record inflation, and a rebound in 2023 is possible. But he may have to brace for a recession if the Federal Reserve system gets too aggressive with its policy.

“What would it mean if somehow the Fed were too strict? It would mean a tough sledge for Arizona, a tough fall for the economy,” said Dennis L. Hoffmanprofessor of economics and director of the L. William Seidman Research Institute at ASU WP Carey School of Business. “It will have hard and laborious impacts.”

Hoffman presented his findings at the 59th Annual Economic Forecast Luncheon Wednesday in downtown Phoenix, sponsored by the WP Carey School of Business and PNC Bank.

“For nearly six decades, this luncheon has drawn business and government leaders to hear a panel of distinguished speakers, economists, project business conditions for the year ahead,” said the WP School Dean. Carey Ohad Kadan, who made his first lunch appearance since join the school in July.

WP Carey School of Business Dean Ohad Kadan speaks at the 59th Annual ASU/PNC Bank Economic Forecast Luncheon Nov. 16 at the Sheraton in downtown Phoenix. Photo by Charlie Leight/ASU News

In addition to Hoffman, speakers included Daniel J. Brady, senior vice president and chief investment strategist for PNC Asset Management Group, and Federal Reserve System Governor Christopher Waller.

Hoffman said Arizona recovered from the pandemic downturn before most states because its economy is strong and diverse. The health care, manufacturing, transportation/warehousing and science/technology sectors are among the strongest in the country, and the unemployment rate is near a 40-year low.

Prior to COVID-19, Arizona topped all U.S. states in job creation and is gaining momentum to reclaim those jobs, according to Hoffman. However, recent job growth in the state has been slower than the national average and will add more than 100,000 jobs in 2022, including 86,000 in the Phoenix metro area.

Hoffman said Arizona has supported the pandemic and continued inflation because of its business-friendly attitude and keeping it as open as possible during the worst of COVID-19.

“We’ve embraced business and recovered jobs faster than most countries,” Hoffman said. “I would say we are still several hundred thousand jobs below trend. And it will take a long time to catch up. »

But Hoffman said the Fed’s aggressive policy could trigger a national recession, leading to higher unemployment rates, reduced job growth and slower residential construction. However, Hoffman believes in the current strength of the Arizona and Phoenix economies; the effect should be milder compared to other states.

He attributes this to the five industries in Arizona that have ranked among the fastest growing in the country:

  • Health care, which added more than 15,000 jobs over the past year, rose 3.9% and ranked second in the country.
  • Manufacturing added more than 10,000 jobs in the state, grew 5.7% and ranked fifth in the nation.
  • Transportation/warehousing created more than 12,000 jobs and jumped 9.4%. He is ranked fifth in the nation.
  • Science/technology has become a hub, adding about 13,000 jobs and is up 7.6%, ranking eighth in the country.
  • Retail added 12,100 jobs to Arizonans, ranking 10th in the United States

Hoffman paid tribute to the manufacturing industry, which came as a welcome surprise in the wake of the pandemic.

“Manufacturing is a fantastic story,” Hoffman said, predicting the number of jobs will quickly climb to 15,000. “A lot of us thought manufacturing would be hard to bring back to Arizona. creating a welcoming business climate.

man speaking at lectern in front of audience

ASU Professor Dennis Hoffman speaks at the 59th Annual ASU/PNC Bank Economic Forecast Luncheon on November 16. Photo by Charlie Leight/ASU News

The Phoenix metro area was responsible for approximately 112,000 new jobs in 2022, a growth of 3.8%. These cities followed: Flagstaff (4,770 or 7.6%), Prescott (2,890 or 4.4%), Yuma (2,400 or 4.2%), Lake Havasu (2,070 or 3.9%), Tucson (12,500 or 3.3%) and Sierra Vista (450 or 1.3%).

While job growth will see a sharp decline in 2023, the state’s population will also slow, but not by much, according to Hoffman. He said Arizona ranks as the fourth fastest growing state and the top three locations for national movers, behind only Florida and Texas.

Income levels, affordable housing, inflation and Fed rate hikes will affect exactly how many people will come to Arizona in 2023, as the state is 50% less affordable than it was five years ago.

“It’s simple. When you double the mortgage rate, the cost of financing a home goes up dramatically,” Hoffman said. out of reach for them, so it’s a concern.”

Home sales have “dropped dramatically” according to Hoffman, costing the state about $1 billion a month in revenue.

“That’s a lot of revenue for people in the real estate community,” Hoffman said.

Hoffman said concerns about climate change, lack of water, women’s rights, education issues and border crisis issues could play a role in attracting innovative workers, especially those in manufacturing. technology, who can live and work anywhere. His biggest concern is the Fed, whose policies could slow many markets and could stall Arizona in 2024 or 2025, Hoffman said.

Some of those worries were allayed by Waller, who said the Fed’s primary goal was to fight inflation, not create economic problems for states.

“The slowdown in economic growth is necessary to bring inflation back to our 2% target,” Waller said. “This slowdown in activity is a sign that the measures taken by the Federal Reserve this year to reduce inflation are working.”

Waller said that by raising interest rates, the Fed can reduce household spending and investment, which has created a supply bottleneck.

“The slowdown in home sales will reduce demand for goods that complement the purchase of a new home and demand for goods, such as new carpets, new furniture, new lawn mowers, etc.,” said Waller. “This will put downward pressure on these prices. Our objective is to control demand and supply for a better balance.

Hoffman said Arizona would prevail in tough times because of its attitude toward business and trade.

“Frankly, we have long-term economic advantages in this state. It’s a very growth-friendly economic framework,” Hoffman said. “It’s a state where we’ve traditionally embraced business. We understand that business brings prosperity to the vast majority of people.

Top photo courtesy of Pixabay

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