GREATER PHOENIX BLUE CHIP • SEPTEMBER 2000

VOLUME 12 • NUMBER 3 • SEPTEMBER 2000
........................................................................................... PAGE 1

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B HINSUS
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L U E • C H I P • E C O N O M I C • F O R E C A S T
.........................................................................................................................................................

Arizona's software industry is ﬂourishing
The software industry has been one of
the most rapidly growing industries in
Arizona, as well as the U.S. as a whole.
Indeed, software is one of the most promising prospects for Arizona’s economy.
In 1998, there were nearly 2,400 software companies in Arizona representing
more than 28,000 workers directly involved
in products and services, according to The
Changing Face of the Software Cluster
in Arizona, written by Collaborative
Economics for the Arizona Department
of Commerce. These software companies
develop, market or distribute products for
business, scientiﬁc or personal use. The
software products are designed for a wide
variety of operating systems and hardware
including consumer electronics, personal
computers, workstations, mini-computers
and mainframe computers.
In addition to the 28,000 jobs in new and
existing software companies, an additional
44,700 workers are employed in companies

other than the software cluster which are
directly related to software development
activities. These jobs span the entire gamut
of industry in Arizona (Table 1).
In addition to the 72,800 software-related

jobs, the concentration of other hightechnology jobs in Arizona, particularly in
component manufacturing and aerospace,
will continue to attract the type of worker
with the potential to generate ideas that

Table 1
Software-Related Employment
All Industries in Arizona - 1998
Employment
1998
Software Related Jobs Across All Industries ..................................... 50,330
Less: Share Working in Software Cluster .......................................... (5,600)
Subtotal....................................................................................... ........ 44,730
Software Cluster Employment.............................................................
Total Software-Related Employment, All Industries ......................

28,073
72,803

Source: Table 7, The Changing Face of the Software Cluster in Arizona. Regional
Financial Associates; Arizona Department of Economic Security; Collaborative
Economics.

Greater Phoenix economic outlook remains positive
The outlook for the greater Phoenix area
remains good. The rate of employment
growth through the ﬁrst half of the year is
almost identical to the rate for all of 1999,
and population growth has remained
at unusually high levels. It would be
hard to point to any real black clouds on
the horizon but the panel clearly sees a
moderation of the rate of growth over the
forecast horizon.
It is clear that the metro area continues to
attract large numbers of people, according
to Tom Rex of the Center for Business
Research in the College of Business
at ASU. Quarterly net migration into
Maricopa County has been at 10,000 or
more since the second quarter of 1992. The
population of Maricopa County reached

2,966,000 in the second quarter of 2000.
Maricopa County accounted for 68 percent
of the increase in state population during
the second quarter, and 60 percent of total
state population.
The population growth has contributed to
the continued strong employment growth.
It appears that employment growth in the
Greater Phoenix area would be even higher
except for supply constraints. The evidence
for supply constraints is anecdotal because
it is difﬁcult if not impossible to prove with
the available employment data. The rapid
pace of population growth has provided a
steady stream of people into the job market,
and has created more jobs in people-related
sectors such as services.
Population growth probably will

continue at a fairly rapid pace as long as
consumer conﬁdence nationwide remains
high. People are more likely to relocate
when they feel conﬁdent in the economy
in general, and they are more likely to
move here as long as job opportunities
exist. Confident new residents (as well
as existing ones) are likely to continue
spending at a respectable rate.
Panel members have tended to be
conservative in their forecasts during much
of the current expansion. The pace in the
metro area so far this year is ahead of the
consensus forecast in most respects. Even
so, the consensus forecasts for both 2000
and 2001 would be considered favorable
just about anywhere in the country.
— T.C.

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

...........................................................................................

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2000

GREATER PHOENIX ECONOMIC FORECAST FOR 2000
AVERAGE RATE
FOR 2000

ANNUAL PERCENT CHANGE 2000 FROM 1999
Population
3.0
2.9
2.9
2.9
2.8L
3.0
3.0
3.0
2.8L
3.0
3.1H
3.1H
2.9
3.0

SOURCE
Arizona Public Service
ASU – Economic Outlook Center
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
U of A, Eller College
VisionEcon
2000 Consensus

Personal
Income
8.1
6.5
6.5
8.2
6.5
6.6
8.0
6.8
6.2L
6.8
6.6
8.3H
6.6
7.0

Retail
Sales
7.8
5.2L
6.0
7.0
5.6
8.0
7.5
7.3
5.8
6.1
6.1
10.1H
7.6
6.9

Wage &
Salary
Empl.
4.5
2.7L
3.8
4.2
3.6
4.0
3.8
3.7
3.5
4.0
4.1
4.6H
3.6
3.8

Manufacturing
Empl.
0.8
1.0
2.4
2.5
2.0
1.0
0.7L
1.8
1.7
2.0
1.3
2.8H
1.9
1.8

Construction
Empl.
3.1
(1.0)
2.5
4.0H
(5.0)L
3.0
(3.0)
(2.0)
0.0
1.0
3.0
3.6
2.0
0.7

Services
Empl.
5.9
6.0
4.8
6.4H
4.4L
5.7
6.0
4.4L
4.6
4.6
6.0
5.8
4.5
5.3

National
CPI
2.9
2.5
2.4
2.7
2.3L
2.5
3.2
3.2
2.5
2.3L
3.3H
3.3H
3.2
2.8

Unemployment
Rate
2.8
3.0
3.1
—
3.5
2.9
3.2
3.8H
3.5
3.3
2.8L
—
3.3
3.2

GREATER PHOENIX ECONOMIC FORECAST FOR 2001
AVERAGE RATE
FOR 2001

ANNUAL PERCENT CHANGE 2001 FROM 2000

SOURCE
Arizona Public Service
ASU – Economic Outlook Center
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
University of AZ, Eller College
VisionEcon
2001 Consensus

Population
2.9H
2.7
2.8
2.7
2.6L
2.8
2.9H
2.8
2.7
2.9H
2.9H
2.9H
2.8
2.8

Personal
Income
6.8
6.0
6.0
7.5H
6.3
5.9
7.0
6.6
6.0
6.6
6.3
7.4
6.2
6.5

Retail
Sales
6.0
4.3
5.2
6.2
5.3
5.0
6.0
6.4
5.5
5.6
5.4
3.6L
7.9H
5.5

Wage &
Salary
Empl.
3.5
2.9L
3.4
4.0H
3.2
3.0
3.7
3.3
3.2
3.6
3.6
3.4
3.3
3.4

Manufacturing
Empl.
0.2
1.5
1.8
2.4H
1.0L
1.5
1.0L
1.8
1.3
1.8
1.3
1.7
1.5
1.6

Construction
Empl.
(2.5)
(4.0)
(3.5)
2.3H
(5.0)
(10.0)L
(5.0)
(4.0)
(5.0)
0.0
0.0
(2.9)
1.5
(3.0)

Services
Empl.
4.0
5.0
4.2
5.7H
4.2
4.5
5.5
3.9
4.5
4.2
4.0
4.8
3.5L
4.5

National
CPI
2.4
2.7H
2.3
2.5
2.5
2.7H
2.6
2.4
2.4
2.3
2.2L
2.4
2.2L
2.4

Services
Empl.
(thousands)
486.2
9.0
446.2
5.2
424.0
7.3

National
CPI
166.6
2.2
163.0
1.6
160.5
2.3

Unemployment
Rate
3.3
3.3
3.8H
—
3.7
3.3
3.5
3.9H
3.9H
3.5
3.1
—
2.8L
3.5

GREATER PHOENIX HISTORICAL DATA

SOURCE
1999
Percent Change
1998
Percent Change
1997
Percent Change
*Estimated

Population
(thousands)
2,882
3.1
2,794
3.3
2,706
3.2

Personal
Income
(millions)
77,162*
7.7
71,646*
7.9
66,400
8.4

Retail
Sales
(millions)
27,825
10.4
25,207
7.9
23,360
7.8

Wage &
Salary
Empl.
(thousands)
1,487.1
4.8
1,418.9
5.6
1,344.2
5.6

Manufacturing
Empl.
(thousands)
161.8
(2.9)
166.7
5.2
158.5
4.7

Construction
Empl.
(thousands)
112.3
7.6
104.4
11.8
93.4
5.5

Unemployment
Rate
2.9
2.7
3.0

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2000

........................................................................................... PAGE 3

Table 2
Arizona Software Cluster Employment

Description
Computers, Peripherals, Software Distribution........................................
Computer and Software Stores ...............................................................
Computer Programming Services ...........................................................
Prepackaged Software ............................................................................
Computer Integrated Systems Design.....................................................
Data Processing and Preparation............................................................
Information Retrieval Services.................................................................
Computer Maintenance and Repair.........................................................
Other........................................................................................................
Total ........................................................................................................

Employment
1998

Employment
Growth
1989 - 1998

Average Annual
Growth Rate
1989 - 1998

8,142
1,556
3,924
3,698
1,959
4,930
177
1,149
2,538
28,073

3,370
994
1,623
3,166
1,252
3,017
120
627
1,763
15,932

6%
12%
6%
24%
12%
11%
13%
9%
14%
12%

Source: Table 1, The Changing Face of the Software Cluster in Arizona. Regional Financial Associates, Collaborative Economics.
may lead to the start of new companies.
GOOD JOBS FOR ARIZONA
These jobs are good for Arizona. Software wages are signiﬁcantly higher than
average. For example, the average wage of
a person employed in the software industry
in 1998 was over $45,000 compared to
average wages of just slightly above
$30,000 for all industries in Arizona.
The software wage in Arizona is below
the U.S. average. This can be explained
by the fact that some of the regions
where software activity is concentrated
are among the highest-cost regions in
the nation (including Silicon Valley
and Boston). On the other hand, the
cost of living in Arizona, especially
for housing, is at or below the national
average.
The nature of Arizona’s economy also
blends well with the software industry. This
is true not only because of the area’s strong
university and junior college systems,
its geographic location (i.e., close to
California) and impressive air transportation network (especially Phoenix Sky
Harbor), but also because of the makeup
of the economy. For example, a recent
labor market analysis of Greater Phoenix
prepared by the Wadley Donovan Group
(WDG) for the Greater Phoenix Economic
Council concludes that a substantial beneﬁt
to the Greater Phoenix area is an annual
net migration of approximately 60,000
new residents. Of the area’s annual net
migration, WDG estimates that between

35,000 to 40,000 are of working age. Net
migration accounts for only about onethird of all of the people who come to the
Valley each year. Thus, the total job pool
is considerably larger than just the 60,000
net migrants in the Phoenix market. The
area has a youthful dynamic that comes

Phoenix an attractive place to live, work
and raise a family are especially important
for the software cluster.
In today’s world, individuals and companies can locate in areas where employees
want to live. Today’s workers don’t want
to be forced to live in an area where the
quality of life is not to their liking. As
a result, an area like Greater Phoenix
"Today’s workers don’t
should, over the long term, do especially
want to be forced to live
well. This is not only because of the
in an area where the quality already existing source of labor for the
software industry but because of the
of life is not to their liking.
ability to attract workers from outside
As a result, an area like
the area.

Greater Phoenix should,
over the long term, do
especially well."

from its growth and young, better-educated
population.
WDG also concludes that it is generally
easier to recruit from other areas of the
country, especially from high cost areas
such as Chicago, Los Angeles, San Jose,
San Francisco, San Diego and Seattle.
WDG concludes that Phoenix’s strong and
diversiﬁed economic base, considerable
cultural and recreational resources, a
dynamic university and college presence,
one of the most affordable housing markets
among the nation’s top areas and expansive
spousal employment opportunities are
major positives. In other words, the same
factors that for decades have made Greater

ATTRACTING TRANSFERS
The WDG study on the Phoenix labor
market also suggests that Phoenix is
an extremely attractive location for
transfers, especially from the Midwest
and the West Coast. People have been
willing to accept lower pay for comparable
job opportunities because of the favorable
cost of living and shorter commute times.
Of those directly involved in software
employment in Arizona, as of 1998 approximately 80 percent of the establishments
and approximately 78 percent of all
employment was in the Greater Phoenix
area. Tucson accounted for approximately
11.5 percent of the companies and 18
percent of the employment in this cluster.
Importantly, in the Phoenix metropolitan
area, the average 1998 software wage was
over $54,000 compared with just over
$30,000 for all industries.

PAGE 4

...........................................................................................

The software industry worldwide is
expected to continue to grow rapidly over
the next several years. Employment in
Arizona’s software industry is mirroring
national growth trends and has more than
doubled between 1989 and 1998. This sector
added 16,000 jobs over that period and
had a compound annual growth rate of
nearly 12 percent compared with 7 percent
nationally and the state’s overall growth rate
of approximately 4 percent (Table 2).
The largest part of the industry is in
computers, peripherals and software distribution. However, the most rapidly growing
areas between 1989 and 1998 were in
prepackaged software, information retrieval
services, computer and software stores, and
computer-integrated systems design. The
number of software business establishments
grew by more than 1,500 to nearly 2,400
by 1998. This reﬂects a large number of
new, small ﬁrms. The average establishment
size has actually decreased for the industry
overall. Firms dealing primarily in prepackaged software, however, have grown in size
(Table 3).
Software is primarily an export-related
industry. In other words, through a variety of
distribution channels, products are primarily
shipped out of the state. This is important
because these jobs tend to have greater
ripple effects because the demand comes
from outside the state and, therefore, brings
new money into the state. Given the high
wage levels, this is especially important

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2000

Table 3
Distribution of Software Firm by Size of Firm in Arizona
Number
of Employees
1-4
5-9
10 - 19
20 - 49
50 - 99
100 - 249
250 or more

Percent of Statewide
Software Employment
11%
9%
12%
15%
14%
15%
24%

% Growth in Number
of Establishments
(1994-1998)
70%
69%
59%
33%
29%
4%
200%

Source: Table 3, The Changing Face of the Software Cluster in Arizona, Arizona
Department of Economic Security.
and good news for the economy as whole.
The companies tend to be small and highly
entrepreneurial. Many ultimately will be
acquired, and some may fail.
However, some will do very well and
create large numbers of high-wage jobs in
the state. The workers tend to be highly
productive in terms of value per worker.
While these software companies are not as
productive as those in Silicon Valley, they
tend to be considerably more productive
than the industry as a whole in Arizona.
MORE PRODUCTIVE WORKERS
As for the Greater Phoenix market, according to surveys of employers, workers here

tend to be considerably more productive
than their counterparts in other areas of the
country. Overall, competitive employers
report good to excellent results in recruiting
engineers and technically trained individuals
from other parts of the country.
While trafﬁc congestion is mentioned
as a detractor from the area’s quality of
life, the area’s overall high quality of life
offers employers a recruiting advantage
over employers in many other areas of the
country.
The outlook for the software cluster in the
Greater Phoenix area remains positive.
– E.P.

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Dan Anderson and Donald Wehbey

ECON-LINC
John Lucking

The Maguire Company
Alan Maguire

Arizona Public Service Company
Pete Ewen and Brian Cary

Elliott D. Pollack & Company
Elliott Pollack

Salt River Project
Arlyn Herrera and Karen Wolfe

Arizona State University,
Bank One Economic Outlook Center
Tracy Clark

H.C. Reardon Economics
H.C. Reardon

The University of Arizona, Eller College
of Business & Public Administration
Marshall Vest

Communities Southwest
Steve Pritulsky

Bank One Economic
Outlook Center
Tracy L. Clark, Economics Editor
Elliott Pollack, Topics Editor
Nancy A. Maneely, Editorial Coordinator
Laura Carr, Graphic Designer

Joint Legislative Budget Committee
Kent Ennis
Lancaster Consulting
Dwight Duncan

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an affiliate of the L. William Seidman Research Institute in the
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Debra Roubik