MARCH 2005 Volume 17, Number 1
GREATER PHOENIX BLUE CHIP • MARCH 2005

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

Survey conﬁrms manufacturers remain upbeat in 2005
Greater Phoenix manufacturers remain
very optimistic about the national and
local economies, as well as their own
businesses, according to the 2005 Greater
Phoenix Manufacturers Survey. Approximately three-quarters of those surveyed
believe that the economy is substantially
or moderately better than it was a year
ago. This compares to about 77.6 percent
in 2004. Last year's survey reported the
highest level of optimism since 1995.
Approximately the same percentage
believes that the Greater Phoenix economy
has improved over the last 12 months.
Looking ahead 12 months, almost twothirds believe that the U.S. economy will
be substantially or moderately better and
that Greater Phoenix will be substantially
or moderately better. The only higher ratings in the survey’s 11-year history came
last year. For their own industries, again

just under two-thirds believe that their
situation will be moderately or substantially better.
The outlook is excellent for employment
as well. Almost half of those surveyed said
employment has increased over the last
year and only 12 percent said it decreased.
Over the next 12 months, 44 percent
expect employment to increase and only
6 percent expect it to decline.
Responses regarding the capital expenditure outlook also have become more
positive, with over 41 percent indicating
that spending on plant and equipment has
increased and only 16 percent saying it
has decreased from the last year. Looking ahead, nearly half believe that capital
expenditures will increase; less than 9 percent believe that they will decrease. This
is the highest level of capital spending
expectations in the survey’s history.

According to the survey, it appears
that some wage pressures are developing. Over the last year, approximately 59
percent of respondents say wage levels
have increased compared to 39 percent
in 2004 and 34 percent in 2003. Looking
ahead 12 months, at most 65 percent of
survey respondents believe wage levels
will increase in their companies. This
is up from 51 percent last year and 39
percent in 2003. Added to this is a huge
change in companies' perceptions of their
pricing power. Some 56 percent of those
surveyed believe that their pricing power
has increased over the past 12 months,
compared to only 1 percent in 2003 and
2004. Indeed, less than 10 percent believe
that their pricing power has decreased
over the last year compared to more than
half last year. Looking ahead 12 months,
(Continued on Page 4)

Consensus panel revels in robust outlook for ’05 and beyond
At last we can say the Greater Phoenix
economy can report that there is good
news …and better news. The good news
is that the economy continues to perform
well compared to most large metro areas,
based on broad economic measures like
employment growth. Furthermore, prospects ﬁnally are brightening for manufacturing and telecommunications.
The outlook for 2005 is for a better year
than 2004. Wage and salary employment
overall will be solidly in the range we
have come to expect for the metro area,
which means good performance in both
relative and absolute terms. Employment
growth may ﬁnally be positive for all the
major categories, and the unemployment
rate recently has been quite low although
it may rise a little as some discouraged
workers re-enter the workforce. The

tighter labor market may allow some
workers who have been underemployed
since the tech bust to move into higherpaying positions.
The outlook for 2006 calls for conditions a little slower than 2005. Monetary
policy has been tightening in 2004 and will
likely reach the neutral point sometime in
2005. However, ﬁscal policy is likely to
remain stimulative for a few more years at
least. The panel’s forecast for inﬂation is
very positive, but should inﬂation begin to
increase the Fed would have to raise rates
even further to counteract ﬁscal policy.
Manufacturers are quite upbeat, and
it appears their optimism is well placed.
The last recession was triggered primarily by a drop in business spending, and
although spending has been trending up,
businesses have been resistant to loosen-

ing the purse strings. The prospects for
increased business spending in 2005 and
2006 are quite good, thanks to a recent run
of strong proﬁts.
The telecommunications sector has
struggled since the recession because of
the massive overbuilding of the telecommunications infrastructure during the
dot-com boom. The demand for dark
ﬁber (optic cable laid but never activated)
has seen a signiﬁcant upswing in the last
few months, which should hasten the day
when companies will have to make new
infrastructure investments. However,
telecommunications continues to undergo
signiﬁcant upheaval. It is still unclear who
will win, who will lose and how many jobs
will be gained or lost along the way.
— Tracy Clark

PAGE 2

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

GREATER PHOENIX BLUE CHIP • MARCH 2005

GREATER PHOENIX ECONOMIC FORECAST FOR 2005
ANNUAL PERCENT CHANGE 2005 FROM 2004
PopuSOURCE
lation
Arizona Public Service
3.1
ASU – Bank One Economic Outlook Center 2.8 L
CH2M HILL
2.8 L
Department of Economic Security
2.8 L
ECON-LINC
2.9
EconLit LLC
2.8 L
Elliott D. Pollack and Co.
3.1
H.C. Reardon Economics
3.0
Joint Legislative Budget Committee
2.9
The Maguire Company
3.0
Protitlement
3.0
Salt River Project
3.0
U of A – Eller College
3.3
VisionEcon
3.4 H
Consensus
3.0

Personal
Income
7.7
7.0
7.0
7.4
6.9 L
7.0
7.7
7.4
7.1
7.1
7.2
7.5
8.1
9.2 H
7.5

Retail
Sales
7.5
6.6
6.5 L
6.7
6.8
6.6
7.0
6.7
6.5 L
7.0
6.8
9.0 H
7.1
8.3
7.1

Wage &
Salary
Empl.
4.2
4.2
3.9
3.2 L
4.0
4.0
4.5
3.5
4.0
4.2
4.5
4.5
4.8
5.5 H
4.2

Manufacturing
Empl.
2.6
2.6
3.1
0.9 L
3.0
2.9
3.5
2.0
3.0
3.5
3.7 H
2.5
2.6
1.8
2.7

AVERAGE RATE FOR 2005

Construction
Empl.
5.6
5.0
1.8
6.9
(2.0) L
2.2
2.5
1.0
2.0
2.0
(1.0)
1.0
9.8 H
4.0
2.9

Services
Empl.
4.8
7.5
4.4 L
4.5
4.5
4.6
5.0
5.0
5.0
5.0
5.8
5.0
4.5
8.3 H
5.3

National
CPI
2.2
2.2
2.6
2.4
2.6
2.5
2.7
2.1
2.5
2.4
2.5
2.3
1.8 L
3.3 H
2.4

Unemployment
Rate
4.1
4.2
4.4 H
4.4 H
4.0
3.8
4.0
4.0
4.1
4.2
3.9
3.5 L
4.0
4.0

GREATER PHOENIX ECONOMIC FORECAST FOR 2006
ANNUAL PERCENT CHANGE 2006 FROM 2005

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

AVERAGE RATE FOR 2006

Wage &
Salary
Empl.

Manufacturing
Empl.

Construction
Empl.

6.0
6.0
6.4
6.5
7.0
7.0
6.5
5.9
6.7
7.0

3.8
3.8
3.4 L

2.0
2.6
3.0

4.2
4.5 H
4.5 H
3.8
4.1
4.3

7.0
4.5 L
9.3 H
6.6

4.0
3.5
4.3
4.0

Population

Personal
Income

Retail
Sales

3.0
2.8 L
2.8 L
2.9
2.9
3.0
3.1
3.0
2.8 L
3.0

7.4
6.8 L
6.8 L
7.2
7.0
7.0
8.0
7.1
7.0
7.2

2.9
3.4 H
3.3
3.0

7.0
7.4
8.3 H
7.2

Unemployment
Rate

Services
Empl.

National
CPI

4.2
3.0
(5.0) L

4.6
7.0
3.2 L

4.0
3.8
4.5 H

3.0
3.4
7.0 H
2.5
3.2
3.0

5.0
2.0
(5.0) L
3.0
2.5
2.0

4.6
5.0
5.5
5.0
5.0
5.5

2.0
2.5
3.0
2.2
2.5
2.5
3.2 H
2.1
2.3
2.5

2.5
2.1
1.6 L
3.0

1.0
5.7 H
0.0
1.5

1.6 L
1.7
3.2 H
2.4

3.3

5.0
3.4
12.0 H
5.5

3.8
3.7
4.5
3.8
4.0
4.0

3.8
3.9

Data sources for Maricopa County (Greater Phoenix area): population, U.S. Census Bureau; 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
2004
2003
2002
* Estimate

Population
(thousands)
3,495*
3.1
3,389
2.9
3,295
3.1

Personal
Income
(millions)
107,533*
4.4
100,686*
5.3
95,619
2.9

Retail
Sales
(millions)
34,605*
6.9
32,371
5.5
30,690
0.3

Wage &
Salary
Empl.
(thousands)
1,630.2*
3.4
1,576.6
1.3
1,556.9
-0.2

Manufacturing
Empl.
(thousands)
128.7*
1.4
126.9
-6.0
135.0
-10.2

Construction
Empl.
(thousands)
134.1*
4.3
128.6
3.3
124.5
-1.7

Services
Empl.
(thousands)
656.3*
4.6
627.4
2.7
610.8
1.0

National
CPI
188.6*
2.5
184.0
2.3
179.9
1.6

Unemployment
Rate
4.4*
4.9
5.6

GREATER PHOENIX BLUE CHIP • MARCH 2005

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

BANK ONE ECONOMIC OUTLOOK CENTER • CENTER FOR BUSINESS RESEARCH

2005 SURVEY OF MARICOPA COUNTY MANUFACTURERS
Percent of Responses
Substantially
Better

Moderately
Better

Same

Moderately
Worse

Substantially
Worse

2005
2004
2003

13.1%
10.2
3.2

60.7%
67.4
25.3

18.9%
18.4
25.3

5.8%
3.1
38.4

1.5%
1.0
8.2

(b) for the Metro Phoenix economy:

2005
2004
2003

14.4%
9.1
2.9

59.4%
55.6
16.6

20.8%
33.3
34.9

4.5%
0.0
40.3

1.0%
2.0
5.4

(c) for your own industry:

2005
2004
2003

21.0%
15.2
4.6

47.8%
49.5
25.7

19.0%
26.3
24.6

9.3%
5.1
31.4

2.9%
4.0
13.6

2005
2004
2003

11.7%
21.2
5.7

51.7%
59.6
54.1

28.3%
16.2
31.5

6.3%
3.0
7.2

2.0%
0.0
1.4

(b) for the Metro Phoenix economy:

2005
2004
2003

16.3%
18.2
6.2

52.5%
63.6
48.6

27.2%
16.2
35.9

2.5%
1.0
8.7

1.5%
1.0
0.7

(c) for your own industry:

2005
2004
2003

16.0%
21.2
8.6

47.1%
53.5
50.4

27.7%
22.2
31.3

7.3%
2.0
8.3

1.9%
1.0
1.4

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

2005
2004
2003

63.8%
46.0
31.3

25.6%
38.0
23.5

10.6%
16.0
45.2

0.0%
0.0
0.0

2005
2004
2003

61.2%
67.7
48.6

26.7%
26.3
38.5

4.9%
3.0
3.6

7.3%
3.0
9.4

2005
2004
2003

46.9%
35.0
16.7

40.6%
43.0
44.1

12.6%
21.0
39.2

0.0%
1.0
0.0

2005
2004
2003

44.0%
43.0
27.9

47.8%
51.0
59.6

6.3%
4.0
7.9

1.9%
2.0
4.6

2005
2004
2003

41.1%
32.0
22.5

43.0%
50.0
36.1

15.9%
18.0
41.1

0.0%
0.0
0.4

2005
2004
2003

48.3%
42.0
31.2

39.6%
51.0
42.3

8.7%
7.0
21.2

3.4%
0.0
5.4

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 2005

Increase(d)

Remained
the same

Decrease(d)

Don't
know

2005
2004
2003

58.5%
39.0
33.9

38.7%
58.0
58.2

2.9%
3.0
7.5

0.0%
0.0
0.4

2005
2004
2003

64.4%
51.5
39.4

33.2%
46.5
54.1

1.0%
2.0
2.2

1.5%
0.0
4.3

2005
2004
2003

38.5%
34.9
22.6

50.0%
41.9
52.9

9.4%
20.9
20.6

2.1%
2.3
3.9

2005
2004
2003

39.6%
52.4
35.3

49.0%
40.5
49.0

6.3%
4.8
8.8

5.2%
2.4
6.9

2005
2004
2003

56.1%
1.0
1.4

34.3%
27.8
23.7

9.7%
54.6
46.0

0.0%
16.5
28.8

2005
2004
2003

58.4%
11.3
4.3

37.2%
39.2
37.3

4.4%
43.3
49.8

0.0%
6.2
8.6

8) Pricing Power:

9) Prices charged in next 12 months will:

(Continued from Page 1)
almost 59 percent believe their pricing
power will increase, compared to only 11
percent last year and 4 percent in 2003.
Only 4 percent believe it will decline,
compared to 43 percent last year and nearly

half in 2003.
costs to consumers. This is a signiﬁcant
Overall, the outlook is bright in terms of change from the Manufacturers Survey
employment and capital spending, but it is responses over the last several years.
clear that pricing pressures are building not
only through higher wages but also through
manufacturers’ ability to pass through their
— 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

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
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(480) 965–5543.
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