SEPTEMBER 2004 Volume 16, Number 3
GREATER PHOENIX BLUE CHIP • SEPTEMBER 2004

........................................................................................... PAGE 1

A study in benchmarking: Greater Phoenix vs. its competitors
Greater Phoenix has long been known
as a fine place to locate a company and its
workers. In order to gain a better understanding of its competitive position, the
Greater Phoenix Economic Council (GPEC)
recently contracted with IBM Global Location Strategies, the world’s largest management consulting organization, to review the
area’s qualitative and quantitative attributes.
The IBM Global Marketing Project helped
to benchmark Greater Phoenix against peer
competitors and defined key selling points
for targeted industry subsectors. The project
also identified key public policy issues that
must be addressed if the region is to increase
its standing.
GPEC chose IBM Global Location
Strategies because of its experience in

corporate location and economic development advisory services. In order to parallel
GPEC’s High Wage/High Skill Strategy,
IBM evaluated four industries including
aerospace, high-tech/software, life sciences, and advanced business services,
and compared Greater Phoenix to 10 peer,
or major competitor regions.
Ten target industry subsectors were
identified. [see table on Page 3]. Regional
qualitative attributes include: 1) the general
business environment, 2) labor quality and
availability, 3) community infrastructure,
accessibility and logistics, 4) the living
environment, 5) the real estate market,
and 6) the presence of the specific industry
in question. Each region’s competitive
advantages or disadvantages were tabu-

lated based on its ability to meet industry
needs. Subjective weights were placed on
each attribute based on IBM’s experience.
Regional quantitative attributes are more
straightforward and directly relate to the
cost of doing business.
The analysis indicates that Greater
Phoenix’s overall competitive situation is
quite favorable, but does vary by industry.
The results contained within each industry
review are presented below.
AEROSPACE
In aerospace manufacturing, Greater
Phoenix is strongly positioned among its
competitors. Greater Phoenix’s favorable
ranking in aerospace competitiveness is
(Continued on Page 3)

Greater Phoenix economy holds its own despite recent hitches
The local economy seems to have dodged
the bullets that were headed its way last
quarter. Unfortunately, it appears the gun
is not empty yet. The Greater Phoenix
economy continues to do significantly
better than the nation as a whole, but not
as well as most have come to expect at this
point in the economic cycle.
The economy was clearly impacted by the
spike in gas prices, but it appears to have
suffered no lasting damage so far. Arizona
and other Western states arguably are more
sensitive to gas and fuel prices because of
lower population density and greater reliance on trucking. Fortunately, the state is
vulnerable only in the summer when demand
for gas and electricity spikes. People in
colder climates face the likelihood of heating
oil price spikes this winter. Gas prices have
retreated for the time being, but uncertainties about oil supplies have been pushing the
price of oil higher, which eventually will be
reflected in higher gas prices.

Recent Federal Reserve moves have
made clear that short-term interest rates
are on their way up from the recent historic
lows. Empirical studies have suggested
that the neutral federal funds rate (indicating the economy feels neither a boost or a
drag from monetary policy) is somewhere
around 3 to 4 percent. The Fed has a long
way to go if it is going to raise rates a quarter percent every six weeks. Fortunately, it
appears that the Fed has time to raise rates
gradually and will not be compelled to
make any dramatic moves.
The two groups that could be affected
by higher short-term rates are consumers
and those investing in the housing market.
Consumers are carrying a fairly heavy
debt load as it is, so rising rates will tend
to discourage further borrowing and make
increases in spending mostly a function
of increased income. Housing is likely to
suffer the biggest impact because rising
mortgage rates will discourage investors.

Rising rates will simultaneously reduce
the returns from housing and increase the
potential returns from other investments.
Rates are unlikely to rise high enough to
prevent new residents with good credit
ratings from purchasing a house.
Employment growth is perhaps the most
worrisome of the current economic indicators. The local situation (sluggish as it is)
is much better than the national picture.
Local job growth will continue as long as
the national economy continues to improve.
However, employment at the national level
is far from healthy despite some improvement since the beginning of the year. The
July numbers deteriorated significantly,
indicating net job growth of only 32,000
jobs for the entire country. If national
employment stagnates in the coming
months, Arizona and the Greater Phoenix
area could be in for a bumpy ride.
— Tracy Clark

PAGE 2

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

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2004

GREATER PHOENIX ECONOMIC FORECAST FOR 2004
ANNUAL PERCENT CHANGE 2004 FROM 2003
PopuSOURCE
lation
Arizona Public Service
3.1 H
ASU – Bank One Economic Outlook Center 2.7 L
CH2M HILL
2.8
Department of Economic Security
2.7 L
ECON-LINC
2.8
EconLit LLC
2.7 L
Elliott D. Pollack and Co.
2.9
H.C. Reardon Economics
2.9
Joint Legislative Budget Committee
2.8
The Maguire Company
2.9
Protitlement
2.8
Salt River Project
3.0
U of A – Eller College
3.1 H
VisionEcon
2.8
Consensus
2.9

Personal
Income
7.4 H
6.6
6.6
6.1 L
6.2
6.5
6.5
7.1
6.5
6.4
6.8
6.8
7.1
6.7
6.7

Retail
Sales
6.7
6.0 L
6.2
6.4
6.0 L
6.2
7.5
6.5
6.5
6.5
6.5
9.0 H
8.5
6.1
6.8

Wage &
Salary
Empl.
3.9
3.3
3.3
2.5 L
3.0
3.2
3.5
2.9
3.5
3.3
3.8
3.0
3.9
4.0 H
3.4

Manufacturing
Empl.
2.0
1.5
2.8
(2.0) L
0.0
2.0
4.0 H
0.0
2.1
2.6
3.5
0.0
2.2
2.8
1.7

AVERAGE RATE FOR 2004

Construction
Empl.
5.5
(3.5) L
0.0
3.5
10.0 H
0.0
3.0
6.0
2.0
2.0
2.0
8.0
6.4
3.0
3.4

Services
Empl.
4.7
5.8
4.3
3.7
3.3
4.2
5.0
5.0
4.5
4.5
5.5
3.0 L
5.1
6.0 H
4.6

National
CPI
2.1
1.8 L
2.4
2.2
2.4
2.5
2.5
2.7
2.2
2.4
2.5
2.7
2.7
3.6 H
2.5

Unemployment
Rate
4.7
4.8 H
4.7
4.8 H
4.0 L
4.0 L
4.4
4.4
4.4
4.5
4.2
4.2
4.8 H
4.5

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
EconLit LLC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
The Maguire Company
Protitlement
Salt River Project
U of A – Eller College
VisionEcon
Consensus

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

3.1
2.8
2.8
2.6 L
2.9
2.8
3.1
3.0
2.8
2.9
2.8
2.9
3.4 H

8.0
7.0
6.7
7.1
6.5 L
7.0
7.7
7.4
7.0
6.7
7.2
7.5
8.2 H

7.5
6.6
6.5
6.5
6.0
6.6
7.0
6.7
6.8
7.0
6.8
8.0 H
5.6 L

4.4
4.2
3.9
3.2 L
3.8
4.0
4.5
4.2
4.5
4.0
4.5
4.5
4.8 H

3.2
2.6
3.2
1.1 L
3.0
2.4
5.0 H
3.2
3.0
3.5
4.1
4.0
4.8

2.9

7.2

6.7

4.2

3.3

AVERAGE RATE FOR 2005

Construction
Empl.

Unemployment
Rate

Services
Empl.

National
CPI

2.5
(9.0) L
2.0
3.4
(2.0)
2.5
(5.0)
3.0
2.5
2.0
(1.0)
1.0
6.3 H

5.0
7.5 H
4.4
4.5
4.3 L
4.6
5.5
5.0
5.0
4.7
5.8
5.0
5.2

2.3
2.2
2.5
2.5
2.6
2.6
3.0 H
2.3
2.2
2.4
2.5
1.8 L
1.8 L

4.4
4.5 H
4.5 H
4.5 H
4.0
3.8 L
4.0
4.0
4.1
4.2
3.9
3.8

0.6

5.1

2.4

4.1

Data sources for Maricopa County (Greater Phoenix area): population, Arizona Department of Economic Security (DES); 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, DES.

GREATER PHOENIX HISTORICAL DATA

SOURCE
2003
2002
2001

Population
(thousands)
3,382.0
2.8%
3,289.0
3.0%
3,194.0
3.1%

Personal
Income
(millions)
$103,762.0
5.3%
$98,540.0
4.4%
$93,317.0
4.7%

Retail
Sales
(millions)
$32,132.0
4.7%
$30,690.0
0.3%
$30,605.0
1.5%

Wage &
Salary
Empl.
(thousands)
1,576.6
1.3%
1,556.9
(0.2)%
1,559.5
1.2%

Manufacturing
Empl.
(thousands)
126.9
(6.0)%
135.0
(10.2)%
150.3
7.5%

Construction
Empl.
(thousands)
128.6
3.3%
124.5
(1.7)%
126.7
8.3%

Services
Empl.
(thousands)
627.4
2.7%
610.8
1.0%
604.5
19.2%

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 • SEPTEMBER 2004

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

Competitive Locations (MSAs)

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SECTORS-LOCATION MATRIX

Subsectors
Aerospace Manufacturing
Aerospace Design
Next Generation Electronics
Software Development
Bio-Pharma Manufacturing Plan
Bio & Pharma Therapies (R&D)
Integrated Bio Operation
(R&D, Mfg., HQ)
Medical Diagnostic Devices
Manufacturing
Shared Services Center
(Business support)
Regional Headquarters

X
X
X
X
X
X

X
X
X
X
X

X
X
X

X
X
X
X
X
X

X
X
X
X

X
X
X
X

X
X
X
X
X

X
X

X

X

X
X

X

X
X

X

X

X
X
X

X
X
X

X
X
X
X
X

X
X
X

X

X

X

X

X
X

X
X

X

X

X
X

X

X

X
X

X

X

Source: GPEC; IBM Global Location Strategies: Benchmarking Greater Phoenix 2004

(Continued from Page 1)
based on both high qualitative attributes
and relatively low business costs. More
specifically, the region is well positioned
in terms of infrastructure, has a quality
living environment, provides an ample
supply of suitable industrial sites, and
already is well established in the industry.
The region also ranked favorably in aerospace research and development.
The area’s notable weaknesses include a
relatively tight labor market, a limited availability of qualified aerospace specialists, and
relatively fewer experienced manufacturing
workers. Employment in the aerospace
industry in Greater Phoenix was impacted
by the most recent recession. Nationally, the
industry was hit hard as well, but already
it is beginning to show signs of recovery
through new orders, and will benefit from
additional national defense spending in
coming years. Considering the presence
of industry in Greater Phoenix with major
employers such as Luke Air Force Base,
Honeywell and Boeing, the region should
expect to see continued growth.
HIGH TECH/SOFTWARE
Next-generation electronics is another
area in which Greater Phoenix scored

among or ahead of the top regional
competitors. Indeed, the region was the
most attractive of the 10 locations offering high quality at a comparatively low
cost. Listed strengths include a favorable
general business environment, the presence of a microelectronics industry, a
low level of competition, excellent infrastructure, abundant industrial sites, and
an attractive business cost level. Once
again, a tight labor market for quality
specialists was cited, but there were no
major weaknesses. Greater Phoenix also
ranked favorably in terms of software
development, but displayed a higher cost
of business operations than its competitor regions.
Greater Phoenix’s employment growth
in the computer and electronic production
industry turned negative in 2001, and
through the first half of 2004 is down 6.4
percent over the first half of 2003. Nationally, the industry is down 3.2 percent over
the same period. However, a boom in
Asia has been increasing the demand for
high-tech exports from Arizona and, in
turn, benefiting the Greater Phoenix area.
While this sector is clearly cyclical, the
long-term growth potential is excellent.
About 27.6 percent of all manufacturing

jobs in Greater Phoenix are in computer
and electronic production manufacturing,
and it appears that concentration will sustain itself for the foreseeable future.
LIFE SCIENCES
In terms of biopharmaceutical manufacturing, research and development, Greater
Phoenix similarly ranks high among the
10 competitive regions. Greater Phoenix
scored favorably in the areas of real estate,
infrastructure, living environment, and
general business environment, while its
weaknesses included labor availability
and industry presence.
In the medical diagnostic devices and
integrated bio operations (R&D, manufacturing, and headquarters) subsectors,
Greater Phoenix ranks near or above the
average for quality location attributes, and
above average in terms of attractive business operations costs. In this subsector,
Greater Phoenix’s primary weakness is
industry presence. For medical diagnostic
devices, Greater Phoenix’s primary weakness is labor availability.
The sector is expected to be one of
the fastest-growing over the next several
decades, and Greater Phoenix is actively
(Continued on Page 4)

PAGE 4

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

(Continued from Page 3)
pursuing such opportunities. Universities
are expected to devote a larger portion of
their efforts to research and development in
this field. Over the next decade, this industry
could ultimately become a major driver of
the local economy.
Life sciences operations will benefit in
coming years as new products and patented
research translate into profits and industry
expansion. However, many other states are
picking up on this trend and are encouraging the expansion of the industry in their
particular areas. Greater Phoenix will be
well served to continue its push to become
a Southwest life sciences hub
ADVANCED BUSINESS SERVICES
The shared service center subsector
includes business support centers concentrating on middle- and back-office
operations such as accounting or financial
services. Greater Phoenix is considered a
high-quality location with a below-average
cost level at the time of the study. Specific
strengths in this subsector include labor
availability, infrastructure, and the living
environment. However, the region scored
below average in the real estate criteria.
In terms of regional headquarters, Greater
Phoenix faces the most competition from
only two of its competitors. The region is

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2004

currently considered an attractive option profits and have the revenues to expand and
for low-cost operations at a high level of support the industry.
quality. The region’s weaknesses in this
subsector include the general business
CONCLUSION
environment and labor availability.
Overall, for the industries reviewed by
IBM Global Location Strategies, Greater
Phoenix scores favorable compared to its
primary competitors. The area’s recurring
weakness is the small pool of specialized
One big advantage
talent. However, one big advantage of the
Greater Phoenix market is that it has a
of the Greater Phoenix
proven track record in its ability to attract
market is that it has a
labor when the jobs are available.
To address the weaknesses, IBM recomproven track record in its
mends the development of industry presability to attract labor when
ence and talent base, while working toward
reshaping perceptions of the area. A signifithe jobs are available.
cant change can only come from a long-term
concentrated effort by the Greater Phoenix
community, and it is particularly important
that the process begins now.
Employment in the professional and busiThe IBM Global Marketing Project idenness services sector was negative during tified that Greater Phoenix already has many
the recession of 2001 in Greater Phoenix, of the resources to encourage and develop
but turned positive again in October 2002. the industries included in this review. With
Through the first six months of 2004, the proper planning and a solid commitment
sector grew by 2.9 percent over the similar to follow through on implementation and
period in 2003, while employment declined needed product improvement investments,
2.4 percent nationally. Advanced business Greater Phoenix can position itself to make
services will follow the current economic the most out of this economic potential.
expansion wave and will benefit as businesses that use these services post higher
— 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

EconLit LLC
Dwight Duncan

Protitlement
Steve Pritulsky

H. C. Reardon Economics
Hank Reardon

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Joint Legislative Budget Committee
Staff

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

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
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For information, call the Bank One Economic Outlook Center at
(480) 965–5543.

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

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