SEPTEMBER 2005 Volume 17, Number 3
GREATER PHOENIX BLUE CHIP • SEPTEMBER 2005

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

Greater Phoenix region lands a ‘high-tech Superbowl’
Much local press coverage has been
given to the upcoming 2008 Super Bowl
to be held at the new Cardinals Stadium
in Glendale. While this event will have
a great economic impact on the region,
recent but less-publicized developments
in the high-tech sector will have a greater
long-term effect on the region’s economy.
The potential for local growth in high-tech
ﬁelds is exciting. The region is nationally
acclaimed as a great place to live and conduct business. High-tech jobs tend to be
high-paying jobs, and their impact on the
overall economy is very positive. Thus, it
is worth examining that ﬁeld as it applies
to Greater Phoenix.
HIGH-TECH NEIGHBORS
The following highlights some of the
recent high-tech business development
activities in the community:

First and foremost is the decision by
Intel executives to locate a $3 billion plant
in Chandler. When completed, the facility
will be about 1 million square feet in size,
will employ approximately 1,000 highpaid workers, and will house some of the
most advanced high-tech wafer fabrication
equipment in the world.
In terms of economic impact, the numbers are impressive. Economic activity
will originate from both the construction
of the facility and ongoing operations. A
good portion of the $3 billion plant cost
will be high-tech equipment. Because these
types of facilities require special, expensive construction such as clean rooms, the
building value is expected to be sizeable.
It is estimated that building structure value
represents approximately 25 percent of
the $3 billion total cost of the project, and
$750 million in construction costs would

generate over 4,500 total construction jobs
(1 job = 1 work year) and another 4,500
supporting jobs. The total economic output
associated with the construction phase
would add to nearly $1.4 billion.
Even more important than the construction impact is the economic boost from
ongoing operations. In addition to the 1,000
high-paying Intel jobs, we would expect the
creation of at least another 1,500 supporting
jobs. Total annual economic output associated with the plant operations will amount
to about $400 million. This is equivalent to
landing a Super Bowl in Greater Phoenix
every year.
This will represent a sizeable fiscal
impact on local communities, Maricopa
County and state government. It is hoped
that Intel's decision will encourage other
businesses to follow suit.
(Continued on Page 3)

Katrina’s impact to reverberate in construction, energy
The Greater Phoenix forecasts were collected after Hurricane Katrina hit, and they
suggest the panel does not expect a substantial impact on the local economy from the
disaster in the Gulf region. There will be
some effects, but not enough to change the
fundamental course of the economy either
nationally or locally.
The main reason for the subdued impact
is that the economy is fundamentally stronger than it was just prior to the nation's
last disaster, the terrorist attacks of Sept.
11, 2001. Thus, it is less likely that the
economy will be tipped into a recession.
Even so, it is a good idea to look at the
likely impacts to see how and when they
will affect the local economy.
At ﬁrst glance, the most serious impact
for our economy would be a run-up in construction costs as a result of the rebuilding

effort in the Gulf. Hurricane Andrew in
1992 destroyed or rendered unrepairable
28,000 homes; four hurricanes in 2004 took
out 27,500 homes, while the best estimate
for Katrina is 275,000 homes. Construction
materials already had been in tight supply
because of the housing boom all across the
nation and because of the appetite of the
Chinese economy.
The greatest impact so far has been on
materials like PVC pipe, which requires
large quantities of crude oil and natural
gas in the manufacturing process. The
impact on other construction materials has
yet to really materialize, and is likely to
be spread out over a long period of time.
The rebuilding effort cannot get under
way in earnest until two things occur:
the roads and railroads must be repaired
first, and most of the damaged homes

must be checked by building inspectors
before repairs or rebuilding can begin
— a process that is likely to take many
months. The rebuilding effort is likely to
be a lengthy one based on the experience
of the much smaller Hurricane Andrew,
after which the rebuilding process is estimated to have taken 11 years. The impact
on construction materials is unlikely to
be as dramatic as many feared but much
more sustained.
ENERGY CONCERNS
The Gulf is a major part of the nation’s
energy infrastructure, and much of the anxiety has been focused on the impact on crude
oil and gasoline which is likely a mistake.
As the ﬁgure on Page 4 shows, after an
initial spike, gasoline prices dropped to at
(Continued on Page 4)

PAGE 2

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

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2005

GREATER PHOENIX ECONOMIC FORECAST FOR 2005
ANNUAL PERCENT CHANGE 2005 FROM 2004
PopuSOURCE
lation
Arizona Public Service
3.5
ASU – Bank One Economic Outlook Center 2.8 L
CH2M HILL
2.9
Department of Economic Security
2.8 L
ECON-LINC
3.2
EconLit LLC
2.8 L
Elliott D. Pollack and Co.
3.3
H.C. Reardon Economics
3.0
Joint Legislative Budget Committee
3.0
The Maguire Company
3.4
Protitlement
3.0
Salt River Project
3.6
U of A – Eller College
4.1 H
VisionEcon
3.4
Consensus
3.2

Personal
Income
8.0
7.0 L
7.5
7.4
7.5
7.0 L
7.8
7.6
7.5
7.6
7.2
8.8
9.6 H
8.5
7.8

Retail
Sales
9.0 H
6.6 L
7.5
6.7
7.3
6.8
9.0 H
8.0
8.0
7.7
6.8
9.0 H
8.4
8.3
7.8

Wage &
Salary
Empl.
4.2
4.2
4.0
3.2 L
4.2
4.0
4.2
4.2
4.5
4.5
4.5
4.5
5.8 H
5.3
4.4

Manufacturing
Empl.
0.0
2.6
2.5
0.9
1.0
2.9
2.0
(0.2) L
2.5
3.3
3.7
1.0
4.9 H
1.8
2.1

AVERAGE RATE FOR 2005

Construction
Empl.
10.0
5.0
2.5
6.9
12.0 H
3.0
7.5
5.0
5.0
4.5
(1.0) L
11.0
8.8
8.0
6.3

Services
Empl.
4.8
7.5 H
4.6
4.5
4.5
5.0
5.5
5.0
5.0
5.0
5.8
4.0 L
5.6
4.0 L
5.1

National
CPI
2.7
2.2
2.7
2.4
2.8
2.5
3.2 H
3.0
2.8
2.6
2.5
3.1
2.1 L
2.8
2.7

Unemployment
Rate
4.1
4.2
4.3
4.4 H
4.2
3.8 L
4.0
4.0
4.1
4.2
3.9
4.0
4.0
4.1

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

Wage &
Salary
Empl.

Manufacturing
Empl.

6.0
6.0
6.7
6.5
7.2
7.0
7.5
6.8
7.5
7.0

3.8 L
3.8 L
3.8 L

8.0 H
5.8 L
7.7
6.9

Population

Personal
Income

Retail
Sales

3.2
2.8 L
2.9
2.9
3.0
3.0
3.1
3.0
2.9
3.2

7.0
6.8 L
7.4
7.2
7.2
7.0
7.7
7.3
7.3
7.5

3.2
3.6 H
3.4
3.1

8.3
8.9 H
7.8
7.5

AVERAGE RATE FOR 2006

Construction
Empl.

Services
Empl.

0.0 L
2.6
2.4

4.0 H
3.0
(1.0)

4.6
7.0
4.8

4.2
4.0
4.3
3.8 L
4.1
4.4

2.5
2.8
3.0
1.0
2.6
3.5 H

(2.0) L
1.5
4.0 H
3.0
2.5
2.0

4.3
4.1
4.5 H
4.1

2.5
1.4
1.6
2.2

3.0
4.0 H
4.0 H
2.3

National
CPI

Unemployment
Rate
4.2 H
3.8
4.1

4.6
5.0
5.5
4.5
5.0
5.5

3.0 H
2.5
2.9
2.2
2.8
2.5
3.0 H
2.5
2.5
2.6

5.5
4.4 L
8.0 H
5.4

2.2
1.6 L
2.9
2.6

3.5 L

4.0
3.7
4.0
3.8
4.0
4.2 H

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
Revenu

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 • SEPTEMBER 2005

(Continued from page 1)
ECONOMICS
AND MANUFACTURING
The region is also likely to see the local
high-tech manufacturing industry, as a
whole, pick up a little more steam in the
next couple of years. A review of employment growth data for high-tech manufacturing industries shows that Greater Phoenix
fared about the same as the nation as a
whole during the past economic downturn.
The current trend appears to be on the
upswing in terms of high-tech employment
growth in the coming months.
Despite the positive recent news, uncertainty remains in the high-tech manufacturing industries in terms of productivity and
outsourcing. The 2001 recession resulted in
many layoffs, and a large portion of these
jobs will not return. Manufacturers are
ﬁnding they can get by with fewer labor
inputs because of productivity enhancements due to new capital investment. In the
long run, this is not a bad thing. Productivity enhancement is how we advance as a
society. This is simply basic economics
at work.
Outsourcing may not have the detrimental impact on the region that many fear.
Lower-skilled manufacturing jobs are being
outsourced to countries with lower-cost
labor. While Arizona may not get many of
these jobs back, the state is likely to see
local employment growth related to the
highest of high-tech manufacturing — such
as the Intel plant in Chandler.
This also leaves room in the economy for
employment growth in promising new sectors, such as biotechnology. Furthermore,
there are limits to the extent aerospace
operations can be outsourced to other
countries, due to national defense issues.
Expect the local aerospace industry to have
better years ahead.
The region is experiencing an inﬂection
point in the manufacturing industries. The
key is to respond to this change and provide
a quality work force that can accommodate
the growth demands of the remaining hightech businesses, and for regional leadership
to encourage development in business
sectors with the promise of outstanding
future growth.
UNIVERSITY ACTIVITY
Arizona State University has broadened
its commitment to the local community and
to the technology sector. This is taking the

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

form of the university’s expansion in downtown Phoenix and in technology initiatives
such as the Biodesign Institute, Arizona
Technology Enterprises, MacroTechnology Works, the ASU Scottsdale Center
for New Technology and Innovation, and
ASU Technopolis. These ASU efforts, and
other private and public investments, will
deepen existing partnerships and create
new ones.
Arizona appears to be headed in the
right direction in development of the
biotechnology industry. A recent Battelle
study has reported that the state realized
11.8 percent growth in biotechnology jobs
between 2000 and 2004. Although the percentage of the work force employed in these
operations remained relatively ﬂat during
this period, slow growth is not unusual in
the early stages of industry development. It

Arizona appears to be
headed in the right direction in its development of
the local biotechnology
industry. A recent Battelle
study has reported that the
state realized 11.8 percent
growth in biotechnology
jobs between 2000 and
2004.
is in the best interest of the region to create
an environment in which the private sector
is incentivized to diversify our research and
manufacturing base into other areas.
LEADERSHIP, LEGISLATION
AND INFRASTRUCTURE
The impact of quality leadership on local
growth should not be discounted. In the
1940s, Greater Phoenix was growing and
beneﬁting from defense spending and the
attractive climate for manufacturing hightech equipment. However, the area still
needed promotion in order to attract new
residents. State political ﬁgures, from local
mayors to congressmen, were critically
important in promoting the local area and
assuring its future.
This cause was later furthered by the
development of such groups as the Greater
Phoenix Economic Council, regional
chambers of commerce and other business

leadership organizations.
In addition, throughout the area’s history, key decisions related to legislation
and investment occurred at optimal times.
In 1946, in response to business input,
legislation was passed to make Arizona a
right-to-work state. This legislation was
cited as a primary reason many businesses
in the 1940s and 1950s decided to locate
in the Valley. In fact, this legislation is still
important today.
Many other examples can be cited, but
probably the best example of leadershipinduced economic development is the case
of the city of Chandler investing in its infrastructure and helping to establish a nitrogen
gas supply line within its borders. The
provision of this necessary raw material
for chip production induced both Motorola
and Intel to locate near its southern border.
Chandler has been beneﬁting from this
investment decision ever since.
Today, the same things are happening.
In response to business input through
GPEC and others, the governor and the
legislature modiﬁed the corporate income
tax formula for allocating taxable activity.
This new apportionment formula encourages high-tech manufacturing investment
by reducing corporate taxes when a
company hires and builds plants locally
and exports its product. It is no surprise
that soon after the passage of this critical
legislation Intel notiﬁed the state of its
intent to expand.
CONCLUSIONS
We may indeed see some high-tech
manufacturing jobs being replaced through
productivity enhancement or outsourcing.
However, the future still looks bright in the
local high-tech ﬁelds, including research
and manufacturing. This year, cooperation
between politicians and economic development advocates was most successful. Not
only did Arizona secure a huge investment
from Intel, but the region is in the midst of
a signiﬁcant change in how our universities
promote high-tech.
A pat on the back is certainly warranted.
But we should not sit back and be passive
in coming years because of this recent success. Future efforts still need to focus on the
provision of a quality work force, additional
improvements in the life sciences, and the
general diversiﬁcation of our research and
manufacturing base.
— Elliott D. Pollack

PAGE 4

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

(Continued from Page 1)
or near pre-Katrina levels. The Gulf produces
a signiﬁcant fraction of domestic production,
but since the U.S. imports so much of its
oil, the impact on total oil supply is much
smaller. The reﬁnery capacity is much more
important, and fortunately all but one of the
reﬁneries is or will be back on line quickly.
NATURAL GAS PRICE SPIKES
Natural gas prices spiked and then continued to increase for several reasons (see ﬁgure
at right). The Gulf represents a signiﬁcant
fraction of domestic production, and the
U.S. does not and indeed cannot import signiﬁcantly more natural gas. Our facilities for
transferring liquid natural gas from tankers
are limited so that large increases in imports
are impossible.
The demand equation for natural gas is
also working against us because we are
drawing down supplies during a time when
supplies are usually being built up in anticipation of winter demand. Demand is also
much higher because of the construction of
so many electrical generating plants that run
on natural gas.
The U.S. faces a winter of signiﬁcantly
higher heating and electricity costs, and the
extent of the problem will likely be determined by how cold it is this winter.
— Tracy Clark

GREATER PHOENIX BLUE CHIP • SEPTEMBER 2005

GASOLINE (Cents Per Gallon, 2005)
Regular Unleaded Spot Price on the New York Mercantile Exchange

350
300

Katrina

250
200
150
100
50
0
Jan

16
14
12
10
8
6
4
2
0

Feb

Mar

Apr.

May

Jun

Jul

Aug

Sep

NATURAL GAS (U.S. Dollars/Million BTU, 2005)
Henery Hub Spot Bid
Katrina

Jan

Feb

Mar

Apr.

May

Jun

Jul

Aug

Sep

Source: Global Insight

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 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.

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

©2005 Arizona Board of Regents for Arizona State University. Reprint
permission required from the Bank One Economic Outlook Center.
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• Not Printed or Mailed at State Expense •

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