MARCH 2004 Volume 16, Number 1 GREATER PHOENIX BLUE CHIP • MARCH 2004 ........................................................................................... PAGE 1 Annual survey sees prospects brighten for manufacturers The 2004 Greater Phoenix Manufacturing Survey indicates a level of optimism that has not been seen since the boom in the mid-1990s. The survey has been conducted annually since 1994 and is sponsored by Arizona State University's Bank One Economic Outlook Center and Center for Business Research. Approximately 78 percent of those responding believe that the U.S. economy is moderately or substantially better than it was 12 months ago, and only 4 percent believe that the economy is worse. Some 65 percent of respondents feel the economy is better in Phoenix than it was 12 months ago, while only 2 percent believe it is worse. About two-thirds believe that their own industry has improved, while only about 9 percent believe their industry is worse off. Looking ahead 12 months, this year’s results are the most optimistic on record, with approximately 81 percent believing that the economy will be better, and only 3 percent that the U.S. economy will be worse. The highest level of optimism, however, was reserved for local conditions. Eighty-two percent of those surveyed believe that conditions will be better in the Greater Phoenix economy. Three out of four respondents indicated that business conditions are likely to be better in their own industry than at present. The outlook is bright for the employment picture as well, with 43 percent of respondents indicating that they expect an increase in employment over the next year compared to only 16 percent in last year’s survey. Even the outlook for business spending is positive, as some 42 percent expect capital expenditures to increase over the next 12 months at their own company, compared to only 7 percent that expect a decline. This is the most optimistic outlook for this response since 2000. More than half of those responding expect the exports of their company’s product or service to increase over the next 12 months while only 5 percent expect a decline in exports. Pricing power remains with the consumer, as only 11 percent expect prices to increase over the next 12 months while some 43 percent expect prices for their manufacturing goods to continue to be under downward pressure. Thus, employment and capital expenditures will be increasing, yet prices will be under control. This survey’s special question had to do with the timing of increasing business expenditures. Some 75 percent of (Continued on Page 4) Forecast panel expects job growth to get going in 2004-2005 All indications are that the metro Phoenix area will return to good economic times this year. After two sluggish years for job growth, the consensus is that 2004 will end with similar job growth to what was seen in 2000. The range of growth expected is between 2.1 and 4.0 percent. It’s been a long time coming, but the recovery is finally here. Although housing has been a hot item in the area, fueled by low mortgage rates, job growth in construction is expected to be slower than in manufacturing, a sector that has been in a recessionary state for years. The consensus forecast for this year calls for 2.4 percent growth in manufacturing jobs in 2004 and 3.3 percent in 2005. This compares to 1.6 and 1.7 percent in construction for the same respective periods. The price of steel has been increasing sharply, along with steel deliveries. Does this mean that Phoenix area manufacturers are seeing a surge in business? Several factors indicate it does — but it is difficult to tell whether this might, in fact, be a case of hoarding in the hopes of getting lower-cost steel before tariffs are put back into place. Services employment is expected to bring the most job growth into the Valley. Specifically, educational and health services have shown very strong gains over the last year, adding 9,500 jobs in 2003 compared to 2002. Of the service professions, only financial activities, while remaining positive, did not show strong job growth over the last year. Although job growth is likely to be close to where it was four years ago, the unem- ployment rate (which was 2.7 percent in 2000), will be higher. The consensus forecast calls for the unemployment rate to fall to 4.4 percent in 2004 and 4.2 percent in 2005. While the Greater Phoenix labor force shrank slightly in 2003 compared to the previous year, population grew at a rate of 3 percent. In raw numbers, the population grew by about 95,000 people while the labor force shrank by 3,368. It should be kept in mind that the labor force only includes those actively looking for work or working. All in all, the economic prospects for Greater Phoenix in the coming two years are much brighter than they have been for a long time. — Dawn McLaren PAGE 2 ........................................................................................... GREATER PHOENIX BLUE CHIP • MARCH 2004 GREATER PHOENIX ECONOMIC FORECAST FOR 2004 ANNUAL PERCENT CHANGE 2004 FROM 2003 PopuSOURCE lation Arizona Public Service 3.1 ASU – Bank One Economic Outlook Center 2.7 CH2M HILL 2.7 Department of Economic Security 2.3 L ECON-LINC 2.7 Elliott D. Pollack and Co. 2.7 H.C. Reardon Economics 2.7 Joint Legislative Budget Committee 2.7 Lancaster Consulting 2.7 The Maguire Company 2.8 Protitlement 2.8 Salt River Project 3.0 U of A – Eller College 3.4 H VisionEcon 2.8 Consensus 2.8 Personal Income 7.4 H 6.6 6.2 6.1 L 6.2 6.7 6.8 6.3 6.5 6.3 6.8 6.8 7.3 6.7 6.6 Retail Sales 6.7 H 6.0 6.0 6.0 6.0 6.5 5.9 5.8 L 6.2 6.1 6.5 6.0 6.1 6.1 6.1 Wage & Salary Empl. 3.8 3.3 3.3 2.1 L 3.7 4.0 H 3.6 3.2 3.2 3.3 3.8 3.5 4.0 H 4.0 H 3.5 Manufacturing Empl. 2.0 1.5 3.1 (2.6) L 3.0 5.0 H 3.4 2.1 2.0 2.3 3.5 2.0 3.4 2.8 2.4 AVERAGE RATE FOR 2004 Construction Empl. 5.5 H (3.5) L 0.0 0.8 2.0 5.0 1.5 1.0 0.0 0.0 1.5 2.0 4.2 3.0 1.6 Services Empl. 4.5 5.8 4.3 3.0 L 3.3 5.0 5.0 4.0 4.2 4.2 5.5 4.5 4.8 6.0 H 4.6 National CPI 2.1 1.8 2.1 2.0 2.4 2.7 2.1 1.8 2.5 2.4 2.5 1.7 1.2 L 3.6 H 2.2 Unemployment Rate 5.0 H 4.8 4.4 4.5 4.0 L 4.0 L 4.4 4.4 4.0 L 4.2 4.2 4.0 L 4.8 4.4 GREATER PHOENIX ECONOMIC FORECAST FOR 2005 ANNUAL PERCENT CHANGE 2005 FROM 2004 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 AVERAGE RATE FOR 2005 Population Personal Income Retail Sales Wage & Salary Empl. Manufacturing Empl. Construction Empl. National CPI Unemployment Rate 3.1 2.8 2.8 8.0 7.0 6.6 7.5 6.6 6.1 4.4 4.2 3.7 2.7 2.6 3.5 5.1 H (9.0) L 2.0 5.0 7.5 H 4.2 L 2.3 2.2 2.5 4.6 H 4.5 4.5 2.7 L 2.9 3.0 2.7 L 2.8 6.5 L 7.5 7.0 6.5 L 6.7 6.0 L 7.0 6.0 L 6.0 L 6.4 3.8 4.5 3.6 3.3 L 3.9 3.2 5.0 H 4.2 2.0 L 2.4 2.0 (2.0) 3.0 1.5 5.0 4.5 5.5 5.0 4.5 4.6 2.3 3.0 H 2.0 2.0 2.6 4.0 4.0 4.0 4.3 3.8 L 2.8 2.9 3.3 H 7.2 8.5 H 7.2 6.8 9.5 H 6.9 4.5 4.5 4.6 H 4.1 4.0 4.4 1.8 1.0 4.6 5.8 5.0 5.1 2.5 1.8 L 1.8 L 3.9 3.8 L 2.9 7.2 6.8 4.1 3.5 1.4 5.2 2.3 4.1 Services Empl. 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) 2003 3,382.0 102,586.0 32,132.0 2.8% 5.3% 4.7% 2002 3,289.0 97,423.0 30,690.0 3.0% 4.4% 0.3% 2001 3,194.0 93,317.0 30,605.0 3.1% 4.7% 1.5% NA – Information currently unavailable due to conversion to NAICS Wage & Salary Empl. (thousands) 1,568.9 1.1% 1,552.4 -0.5% 1,559.5 1.2% Manufacturing Empl. (thousands) 127.7 -6.0% 135.8 -9.6% 150.3 N/A Construction Empl. (thousands) 127.3 2.8% 123.8 -2.3% 126.7 N/A Services Empl. (thousands) 628.7 3.2% 609.4 0.8% 604.5 N/A National CPI 184.0 2.3% 179.9 1.6% 177.1 2.8% Unemployment Rate 4.9 5.6 3.9 GREATER PHOENIX BLUE CHIP • MARCH 2004 ........................................................................................... PAGE 3 BANK ONE ECONOMIC OUTLOOK CENTER • CENTER FOR BUSINESS RESEARCH 2004 SURVEY OF MARICOPA COUNTY MANUFACTURERS Percent of Responses Substantially Better Moderately Better Same Moderately Worse Substantially Worse 2004 2003 2002 10.2% 3.2 1.1 67.4% 25.3 12.0 18.4% 25.3 13.5 3.1% 38.1 52.4 1.0% 8.2 21.1 (b) for the Metro Phoenix economy: 2004 2003 2002 9.1% 2.9 0.7 55.6% 16.6 9.9 33.3% 34.9 24.8 0.0% 40.3 48.9 2.0% 5.4 15.7 (c) for your own industry: 2004 2003 2002 15.2% 4.6 1.8 49.5% 25.7 15.6 26.3% 24.6 19.6 5.1% 31.4 34.9 4.0% 13.6 28.0 2004 2003 2002 21.2% 5.7 5.1 59.6% 54.1 70.3 16.2% 31.5 17.4 3.0% 7.2 5.8 0.0% 1.4 1.5 (b) for the Metro Phoenix economy: 2004 2003 2002 18.2% 6.2 5.5 63.6% 48.6 62.4 16.2% 35.9 24.5 1.0% 8.7 6.2 1.0% 0.7 1.5 (c) for your own industry: 2004 2003 2002 21.2% 8.6 9.2 53.5% 50.4 64.8 22.2% 31.3 15.4 2.0% 8.3 7.7 1.0% 1.4 2.9 1) How do you rate present business conditions as compared with 12 months ago? (a) for the U.S. economy: 2) Looking ahead 12 months from now, do you think business conditions will be: (a) for the U.S. economy: The following questions address the economic environment of individual companies over the past 12 months and their forecasts for the next 12 months: Percent of Responses 3) Demand for your own company’s product or service: (a) over the past 12 months: (b) for the next 12 months: 4) Employment at your own company: (a) over the past 12 months: (b) for the next 12 months: 5) Capital expenditures at your company: (a) over the past 12 months: (b) for the next 12 months: Increase(d) Remain(ed) the same Decrease(d) Don’t Know 2004 2003 2002 46.0% 31.3 22.1 38.0% 23.5 23.9 16.0% 45.2 54.0 0.0% 0.0 0.0 2004 2003 2002 67.7% 48.6 54.9 26.3% 38.5 28.0 3.0% 3.6 9.5 3.0% 9.4 7.6 2004 2003 2002 35.0% 16.7 14.9 43.0% 44.1 36.2 21.0% 39.2 48.9 1.0% 0.0 0.0 2004 2003 2002 43.0% 27.9 32.4 51.0% 59.6 54.2 4.0% 7.9 9.5 2.0% 4.6 4.0 2004 2003 2002 32.0% 22.5 23.3 50.0% 36.1 37.1 18.0% 41.1 38.9 0.0% 0.4 0.7 2004 2003 2002 42.0% 31.2 29.7 51.0% 42.3 39.9 7.0% 21.2 25.3 0.0% 5.4 5.1 PAGE 4 ........................................................................................... Percent of Responses MANUFACTURERS SURVEY (continued) 6) Wage/salary levels at your own company: (a) over the past 12 months: (b) for the next 12 months: 7) Exports of your company’s product or service: (a) over the past 12 months: (b) for the next 12 months: GREATER PHOENIX BLUE CHIP • MARCH 2004 Increase(d) Remained the same 2004 2003 2002 39.0% 33.9 40.4 58.0% 58.2 48.7 3.0% 7.5 10.6 0.0% 0.4 0.4 2004 2003 2002 51.5% 39.4 37.2 46.5% 54.1 54.7 2.0% 2.2 5.1 0.0% 4.3 2.9 2004 2003 2002 34.9% 22.6 20.0 52.9% 49.1 35.4 20.6% 27.3 7.7 3.9% 3.6 4.6 2004 2003 2002 52.4% 35.3 37.6 49.0% 45.0 49.2 8.8% 11.0 4.6 6.9% 6.4 6.2 2004 2003 1.0% 1.4 27.8% 23.7 54.6% 46.0 16.5% 28.8 2004 2003 11.3% 4.3 39.2% 37.3 43.3% 49.8 6.2% 8.6 Decrease(d) Don't know 8) Pricing Power: 9) Prices charged in next 12 months will: (Continued from Page 1) those responding to the survey expect to increase spending on computers over the next 12 months, 69 percent expect to increase spending on software, and some 58 percent anticipate increased spending on physical plant. This suggests that manufacturers believe, as do most economists, that businesses spending on equipment will be increasing more rapidly than spending on plant over the next year. The outlook is extremely positive, accord- ing to Greater Phoenix area manufacturers. Overall, 2004 could be the best of all worlds with a growing economy and lower inflation, and the best year the economy has seen in half a decade. — Elliott D. Pollack ECONOMIC FORECAST PANEL Arizona Department of Economic Security Donald Wehbey ECON-LINC John Lucking Elliott D. Pollack and Co. Elliott Pollack Arizona Public Service Co. Pete Ewen H. C. Reardon Economics Hank Reardon Protitlement Steve Pritulsky Joint Legislative Budget Committee Staff Salt River Project Arlyn Herrera, Rebecca Holmes and Karen Wolfe Lancaster Consulting Dwight Duncan University of Arizona, Eller College Marshall Vest The Maguire Co. Alan Maguire Vision Econ Debra J. Roubik Arizona State University Bank One Economic Outlook Center Tracy Clark CH2M Hill Kent Ennis Bank One Economic Outlook Center Tracy L. Clark, Economics Editor Elliott Pollack, Topics Editor Nancy A. Maneely, Editorial Coordinator GREATER PHOENIX BLUE CHIP (ISSN 1042-6825) is published four times a year by the Bank One Economic Outlook Center, an affiliate of the L. William Seidman Research Institute in the W. P. Carey School of Business at Arizona State University. Rates: Print copy – one year (4 issues), $45.00; PDF (e-mail delivery) – one year, $39.00. For information, call the Bank One Economic Outlook Center at (480) 965–5543. ©2004 Arizona Board of Regents for Arizona State University. Reprint permission required from the Bank One Economic Outlook Center. Arizona State University vigorously pursues affirmative action and equal opportunity in its employment, activities and programs. • Not Printed or Mailed at State Expense •