GREATER PHOENIX BLUE CHIP • SEPTEMBER 2003

VOLUME 15 • NUMBER 3 • SEPTEMBER 2003
........................................................................................... PAGE 1

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B
L U E • C H I P • E C O N O M I C • F O R E C A S T
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Road to recovery is slow, but area is a job growth leader
The national recession ended in November 2001, according to the National Bureau
of Economic Research. Twenty-one months
later, it's fair to say this has not been a
magical recovery.
One major indicator of the economy's
health — and the easiest with which to
compare how various parts of the country
are doing — is employment. Here, the
national picture is far from pretty. The
inflection point in employment (the point at
which the economy reached its most rapid
percentage rate of decline) occurred in
March 2002. Yet, as of June 2003, employment nationally was still four-tenths of 1
percent below year-earlier levels.
In comparison, Greater Phoenix looks
somewhat better. The inflection point was
reached in February 2002 and year-overyear employment actually turned positive
in October 2002. Indeed, through June,
employment in Greater Phoenix was up
(Continued on page 3)

ARIZONA NINTH IN JOB GROWTH

Source: Bureau of Labor Statistics

Rise in semiconductor sales seen as encouraging signal
The Greater Phoenix economy continues
to improve, but not at the rate the panel had
hoped for last quarter. Business spending
has not picked up as quickly as expected,
leading to more modest job growth. However, relative to the rest of the nation the
area appears to be doing quite well.
Arizona was ninth in the nation in 2002
with zero job growth, and ninth in June
with 0.64 percent growth. The PhoenixMesa Metropolitan Statistical Area was
fifth in June among large MSAs, with 0.75
percent job growth. It is clear that the
employment situation is much worse in
much of the rest of the country.
Perhaps more disturbing is that almost
all the strength in job growth comes from
the service-producing sectors. The sole
exception on the goods-producing side is

construction, which is both positive and
outperforming expectations — at least
for 2003. It is not surprising that servicerelated employment is doing well, given
the continued strong population growth in
the area. However, the lack of progress in
manufacturing employment robs the area
of one of the major engines of growth that
performed so well in the ’90s.
There is some hope for manufacturing,
and high-tech manufacturing in particular.
The best publicly available proxy for hightech manufacturing demand is semiconductor sales. Sales showed increasing demand
for nine months prior to the period before
the war in Iraq, followed by four months
of down activity and a resumption of an
upward trend since. Worldwide in the
second quarter, chip factories were running

at 85.9 percent of capacity, an increase
over 82.8 percent in the first quarter —
which is an encouraging sign.
As this is being written, Greater Phoenix
is recovering from the great gasoline shortage of 2003. It is reasonable to wonder
about the economic impact of such an
event. Fortunately, at least for the economy
in general, the answer is that the impact
will be short-lived and minimal. However,
for those most dependent on fuel, the
short-term impact will be painful — and
the most significant cost is likely to be in
terms of lost time and productivity rather
than fuel costs. Unfortunately, retailing
and restaurants are also likely to feel a
short-term pinch.
— Tracy Clark

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • SEPTEMBER 2003

GREATER PHOENIX ECONOMIC FORECAST FOR 2003
ANNUAL PERCENT CHANGE 2003 FROM 2002
PopuSOURCE
lation
Arizona Public Service
2.7
ASU – Bank One Economic Outlook Center 2.6
CH2M HILL
2.8
Department of Economic Security
2.4 L
ECON-LINC
2.8
Elliott D. Pollack and Co.
2.6
H.C. Reardon Economics
2.7
Joint Legislative Budget Committee
2.6
Lancaster Consulting
2.5
The Maguire Company
2.8
Protitlement
2.7
Salt River Project
2.8
U of A – Eller College
3.0 H
VisionEcon
3.0 H
Consensus
2.7

Personal
Income
5.4
5.6
5.4
5.6
5.5
5.0
5.1
5.5
5.6
5.6
6.2 H
5.0
3.3 L
6.2 H
5.4

Retail
Sales
4.6
3.5
4.7
5.4
5.5
4.5
5.0
4.5
5.0
5.0
5.4
3.0
2.9 L
6.0 H
4.6

Wage &
Salary
Empl.
1.8
1.3 L
2.5
1.6
2.4
1.8
2.0
2.5
2.6
2.0
2.8
2.0
1.4
3.2 H
2.1

Manufacturing
Empl.
(2.5)
(4.0)
(1.0)
(4.9)
(3.5)
(4.0)
(3.5)
0.0
1.0
1.1
3.5 H
(5.0) L
(4.0)
2.0
(1.8)

AVERAGE RATE FOR 2003

Construction
Empl.
2.8
1.5
(5.0) L
0.1
1.0
2.5
0.0
(1.0)
0.0
0.0
(3.0)
3.0
4.1 H
2.2
0.6

Services
Empl.
3.0
3.5
3.1
2.6
3.8
4.0
3.0
3.5
3.4
3.0
4.2
3.0
1.5 L
4.5 H
3.3

National
CPI
2.3
2.1
2.0
2.4 H
2.3
2.1
2.2
2.2
2.2
2.2
2.4 H
1.7 L
2.2
2.0
2.2

Unemployment
Rate
4.9
5.2 H
4.9
4.9
5.0
4.5 L
4.9
4.5 L
4.5 L
4.7
4.6
5.0
5.0
4.8

GREATER PHOENIX ECONOMIC FORECAST FOR 2004
ANNUAL PERCENT CHANGE 2004 FROM 2003

SOURCE
Arizona Public Service
ASU – Bank One Economic Outlook Center
CH2M HILL
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Protitlement
Salt River Project
U of A – Eller College
VisionEcon
Consensus

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

2.7
2.7
2.7
2.3 L
2.7
2.7
2.7
2.7
2.7
2.8
2.8
3.1 H
2.6
2.8
2.7

6.3
6.2
6.2
6.1
6.2
6.7
6.7
6.2
6.5
6.3
6.8 H
6.8 H
5.5 L
6.7
6.4

5.8
6.0
6.0
6.0
6.0
6.5 H
5.9
5.5
6.2
6.1
6.5 H
6.0
3.9 L
6.1
5.9

3.5
3.0
3.3
2.1 L
3.7
4.0 H
3.6
3.0
3.2
3.3
3.8
3.5
3.1
4.0 H
3.4

2.1
1.5
2.5
(2.6) L
3.0
5.0
3.4
1.5
2.0
2.3
4.1
2.0
7.3 H
2.8
2.6

AVERAGE RATE FOR 2004

Construction
Empl.
1.1
(3.5) L
0.0
0.8
2.0
5.0 H
1.5
0.0
0.0
0.0
1.5
2.0
1.4
3.0
1.1

Services
Empl.

National
CPI

5.0
5.0
3.7
3.0 L
3.3
5.0
5.4
4.0
4.2
4.2
5.5
4.0
3.5
6.0 H
4.4

2.5
2.4
2.4
2.0
2.4
2.7
2.3
2.0
2.5
2.4
2.8
1.5 L
1.5 L
3.6 H
2.4

Unemployment
Rate
4.3
4.5
4.4
4.5
4.4
4.0 L
4.4
4.5
4.0 L
4.2
4.2
4.3
4.8 H
4.3

Data sources for Maricopa County (Greater Phoenix area): population, Arizona Department of Economic Security; personal income, Bureau of Economic Analysis; retail sales, Arizona
Department of Revenue; wage and salary employment, manufacturing employment, construction employment, service employment and unemployment rate,

GREATER PHOENIX HISTORICAL DATA
PopuPersonal
Retail
lation
Income
Sales
SOURCE
(thousands) (millions)
(millions)
2002
3,289
97,329
30,690
Percent Change
3.0
4.4
0.3
2001
3,194
93,227
30,605
Percent Change
3.1
4.6
1.5
2000
3,097
89,128
30,167
Percent Change
3.4
10.3
8.4
NA – Information currently unavailable due to conversion to NAICS

Wage &
Salary
Empl.
(thousands)
1,552.4
(0.5)
1,559.5
1.2
1,541.0
3.6

Manufacturing
Empl.
(thousands)
135.8
(9.6)
150.3
NA
NA
NA

Construction
Empl.
(thousands)
123.8
(2.3)
126.7
NA
NA
NA

Services
Empl.
(thousands)
609.4
0.8
604.5
NA
NA
NA

National
CPI
179.9
1.6
177.1
2.8
172.2
3.4

Unemployment
Rate
5.6
3.9
2.7

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2003

(Continued from page 1)
eight-tenths of 1 percent compared to a
decline of three-tenths of 1 percent nationally.
Thus, as slow as things seem in Greater
Phoenix, the area is actually doing better
than many other places, and better than the
United States as a whole.
Employment Rankings
Greater Phoenix accounts for approximately 70 percent of the employment in
Arizona. In 2002, the state was ninth in
job growth out of 50 states. In fact, 40
states lost jobs and two states had about
flat job growth, including Arizona. Only
eight states had positive increases in
employment. In addition, there are 29
major job markets in the country (i.e. job
markets with more than one million jobs).
Greater Phoenix ranked sixth out of those
29 in 2002. It was also sixth for the first
six months of 2003.
While Greater Phoenix’s performance
was not as strong relative to the early-tomid-1990s, it is a good showing, especially
considering the effects of Sept. 11 and the
recession. Given its mix of employment
(i.e. heavy in semiconductors, commercial
aviation and tourism), things could have
been worse.

TABLE 1
PHOENIX-MESA
EMPLOYMENT GROWTH
(Ranking among all metro
areas greater than 1,000,000)

Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003*

Rank
4
5
4
2
1
1
1
3
1
2
10
10
6
6

No. of MSAs
22
22
24
24
24
24
24
25
26
27
30
31
29
28

* Latest data available through June
2003.

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

SIC vs. NAICS
Disguised in the overall employment
data is the fact that some industries are
doing well while others are not. Using the
latest North America Industry Classification System data (as opposed to Standard
Industry Classification data) has proven to
be interesting. There are currently disparities

The good news is that, given
where semiconductors and
commercial aviation are in their
life cycle, both industries should
continue to grow in the long run.

in the data, as NAICS has been revised
while SIC data has not.
Total nonfarm employment is up eighttenths of 1 percent through June 2003.
Goods-producing industries are down 2.9
percent for the first six months of the year,
while private sector service-producing
industries are up 1.6 percent. Construction
is up for the first six months of 2003Manufacturing is also down on a year-over-year

basis, with the biggest losses coming
in computers, electronic products and
fabricated metal products. Aerospace
products and parts apparently have turned
the corner and are up modestly.
Wholesale trade continues to be weak,
as does retail trade, which is up a meager
2 percent for the first six months of 2003
compared to the similar 2002 period.
Indeed, department stores and electronics
and appliance stores are down. As would be
expected, air transportation is down.
Information (a new sector that includes
publishing industries and telecommunications) is also down significantly, with the
biggest drops coming in telecommunications. Even finance and insurance is down
modestly. On the other hand, professional
services, educational and health services,
leisure, hospitality and government are all
up. Thus, it is a mixed bag.
Base Industries
In terms of base industries — those
industries that make the local economy
tick — the Greater Phoenix area is overweighted in semiconductors, aerospace (jet
engines and parts in particular), tourism,
and business services. As noted above, the
(Continued on page 4)

TABLE 2
SIC* vs. NAICS** EMPLOYMENT CATEGORIES
SIC Categories

% of Total

NAICS Categories

% of Total

Total Nonfarm

100%

Total Nonfarm

100%

Goods Producing
Manufacturing
Mining
Construction

16.5
8.9
0.1
7.5

Goods Producing
Manufacturing
Natural Resources & Mining
Construction

16.4
8.2
0.1
8.1

Service Producing
T.C.P.U.
Trade
F.I.R.E.
Services
Government

83.5
5.0
24.3
7.7
32.4
14.1

Service Producing
Transportation & Utilities
Trade
Information
Financial Activities
Professional & Business Services
Educational & Health Services
Leisure & Hospitality
Other Services
Government

83.6
3.7
16.6
2.3
8.2
16.1
10.1
9.8
4.0
12.8

SIC = Standard Industrial Classification
NAICS = North American Industrial Classification System
Source: Arizona Department of Economic Security

PAGE 4

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

(Continued from page 3)
events of Sept. 11 hit commercial aviation
and tourism particularly hard. In addition, the
national recession affected those industries,
plus semiconductors (which go into virtually
everything that is postponable) and business
services (as the overall level of business
activity declined). Thus, it would have been
reasonable to expect Greater Phoenix to
underperform when compared to many parts
of the country. It did not.
The relatively strong performance shows
the underlying strength of the Greater Phoenix
economy. This was due to continued strong
population flows and a strong housing environment, and at least relatively respectable
performance in tourism. The good news
is that, given where semiconductors and
commercial aviation are in their life cycle,
both industries should continue to grow in
the long run. That, combined with strides
the area is making in the bioindustry and
software industries, suggests a bright future.
Indeed, none of the basic underlying factors
that determine growth in the area have
changed for the negative. Given Greater
Phoenix’s continued interest in economic
development and the potential for future
positive changes in the state’s tax structure,
the dynamics probably are brighter today than
they have been for quite some time.
This does not suggest that Greater Phoenix,
like every other metropolitan area, is not

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2003

without problems or shortcomings. Continued
debate on issues such as education, tax policy,
and expansion of high-tech base industries
only serve to bring clarity to the issues and
make the area stronger.
The Greater Phoenix Economic Council has
identified five clusters, or groups, of businesses
that are likely to do very well in the long
run in Greater Phoenix. Some have a proven
track record (advanced business services,
high-tech and aerospace); others are in the
more embryonic stages of their existence
(software and bioindustry). While some of
these clusters are only now starting to recover
from the national slowdown, they are all likely
to have above average growth in the future.
As the economy continues to recover,
employment — especially in manufacturing,
retail trade, and information — should look
a great deal better. Employment growth
should accelerate in professional and business services as well. The outlook for
construction remains mixed. Overall, the
local economy is recovering. But, as is the
case with its national counterpart, it will not
feel good for a while longer.
— Elliott Pollack
Elliott Pollack is president of Elliott D.
Pollack and Company in Scottsdale, an
economic and real estate consulting firm
established in 1987.

TABLE 3
GREATER PHOENIX
EMPLOYMENT GROWTH
June YTD 2003 vs. June YTD 2002
NAICS Category
Total Nonfarm

YTD Growth
0.8%

Goods Producing
Manufacturing
Natural Resources
and Mining
Construction
Service Providing
Transportation and Utilities
Wholesale Trade
Retail Trade
Information
Financial Activities
Professional and Business
Services
Educational and Health
Services
Leisure and Hospitality
Other Services
Government

-2.9%
-6.6%
-2.1%
1.4%
1.6%
2.5%
-1.2%
2.0%
-8.4%
-0.5%
1.1%
6.2%
1.8%
2.8%
1.7%

Source: Arizona Department of Economic
Security

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Donald Wehbey

Protitlement
Steve Pritulsky

Elliott D. Pollack and Co.
Elliott Pollack

Arizona Public Service Co.
Brian Cary

ECON-LINC
John Lucking

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Arizona State University
Bank One Economic Outlook Center
Tracy Clark

H. C. Reardon Economics
Hank Reardon

University of Arizona, Eller College
Marshall Vest

Joint Legislative Budget Committee
Staff

Lancaster Consulting
Dwight Duncan

The Maguire Co.
Alan Maguire

Vision Econ
Debra J. Roubik

CH2M Hill
Kent Ennis

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

GREATER PHOENIX BLUE CHIP (ISSN 1042-6825) is published four
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