MARCH 2006 Volume 18, Number 1
GREATER PHOENIX BLUE CHIP • MARCH 2006

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

Survey of manufacturers upbeat in outlook for 2006
Manufacturers in the Greater Phoenix
area remain optimistic about the United
States economy, the local economy and
their own industries.
Indeed, 71 percent of those responding
to the 2006 Greater Phoenix Manufacturers Survey believe that the Greater Phoenix economy is better today than it was 12
months ago. More than 70 percent believe
that their own industries are doing better
than they were doing 12 months ago. That
is the highest level of optimism reported
in 11 years.
The 13th annual survey represents a
broad cross-section of the manufacturing
industry in Greater Phoenix.
In looking ahead 12 months, the level
of optimism is down modestly from
the last few years. This is normal since
the economy has been expanding for
quite some time. Even so, 60 percent of
manufacturers believe the Greater Phoenix
economy will be better in 12 months from
what it is today.

In terms of their own industries, 70 percent believe they will be better and only
12 percent believe that they will be doing
worse in 12 months.
In terms of their own company’s product
or service, two-thirds indicate that demand
has increased over the last year; 63 percent
believe it will increase again over the next
12 months. These are the strongest readings by historic standards.
Nearly 50 percent of manufacturers
believe they will increase employment
over the next 12 months. This is the highest level in the survey’s 13-year history.
Capital spending is expected to remain
strong, with almost 48 percent indicating
there will be increasing capital expenditures over the next 12 months. Again, this
is a high rating by historic standards. Only
7 percent believe there will be decreasing capital expenditures over the next 12
months. This is one of the lowest levels for
that answer in the survey’s history.
In terms of wage levels, 71 percent

of respondents indicate that wages have
increased over the last 12 months. Sixtytwo percent believe wages will increase
over the next 12 months.
Companies also have been experiencing
increases in export of their products. Fifty
percent report that exports have increased;
another 51 percent anticipate exports will
increase over the next 12 months.
Surprisingly, fewer respondents than
last year anticipate it will be easier to pass
through price increases over the next 12
months. Only 18 percent believe it is going
to be easier to increase prices, compared
to 56 percent a year ago. This is surprising
given the strong demand in the economy as
a whole, but it is an indication that inflation in manufactured goods should be held
in reasonable check over the next year.
Overall, the results of this year's survey
indicate a strong positive sentiment and a
positive outlook on the part of the Valley’s
manufacturers.
— Elliott D. Pollack

Local economy expected to slow, but remain strong through ’07
The Greater Phoenix forecast for 2006
and 2007 is for gradually slowing growth,
primarily because of slowing at the
national level and an expected decline in
single-family home construction. However, the slowdown is expected to be
modest — unless the national economy
deteriorates more than expected.
Employment and personal income for
2005 could well be revised upward when
the information from the unemployment
insurance program is fully incorporated.
This may incline the forecasters toward
even higher levels of optimism. Still,
although the starting point may change,
the forecast of slowing growth is most
likely to remain.
The biggest unknown for the local

economy remains the extent and speed
with which the single-family housing
market will slow. Investors are expected
to play a large part in the slowdown as
they stop buying new properties, and-or
cash out.
Additionally, there is some concern that
housing affordability has declined enough
to pose a problem for people moving into
the state. The rise in interest rates has been
modest, although large enough to impact
the investment market to some extent.
The increase in prices is of more concern
with relatively modest homes recording
price increases of $100,000 in the course
of 2005.
The first indication of a slowing in the
market is an increase in the number of

homes on the market for more than a few
days — which suggests that the market
is moving into what would typically be
considered “normal” territory. The next
step is likely to be a drop in the time to
completion of new homes into more reasonable territory. The market has been so
overextended for so long that the process
of slowing down to a normal pace could
take some time.
The good news is that population growth
continues, and wage growth has been reasonably strong. The bad news is that wages
certainly have not kept up with the rise in
housing prices, making home ownership
significantly more difficult to attain for
many newcomers to the area.
— Tracy Clark

PAGE 2

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

GREATER PHOENIX BLUE CHIP • MARCH 2006

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

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

AVERAGE RATE FOR 2006

Population
2.9 L
3.2
3.1
3.1
3.2
3.0
3.1
3.2
3.1
3.2
3.2
3.4 H
3.4 H

Personal
Income
7.6
8.5
7.8
7.6
7.8
7.5 L
8.0
7.7
7.5 L
8.1
8.9 H
8.7
8.2

Retail
Sales
6.9
10.0 H
7.5
6.7 L
7.6
7.0
8.0
7.4
7.4
7.3
7.5
7.0
8.6

Wage &
Salary
Empl.
4.0
3.5 L
4.5 H
3.8
4.2
4.0
4.3
4.2
4.1
4.3
4.3
4.3
4.5 H

Manufacturing
Empl.
2.8
0.0
1.2
1.2
2.5
2.5
3.0 H
1.0
2.2
3.0 H
2.0
(0.1) L
1.6

Construction
Empl.
2.5
8.0
3.0
9.6 H
(2.0) L
1.5
4.0
1.0
3.0
4.0
2.0
3.5
6.0

3.2

8.0

7.6

4.2

1.8

3.5

Services
Empl.
4.8
4.0 L
7.0 H
4.8
5.0
5.5
6.0
5.0
5.5
4.5
4.8
6.0

National
CPI
3.1
3.5 H
2.8
2.8
3.0
2.5 L
3.0
2.6
2.9
3.0
2.6
2.7
3.2

5.2

2.9

Unemployment
Rate
4.1
4.1
4.0
4.0
4.2
3.7 L
4.0
3.9
4.0
4.1
3.8
4.5 H
4.0

GREATER PHOENIX ECONOMIC FORECAST FOR 2007
ANNUAL PERCENT CHANGE 2007 FROM 2006
Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

Arizona Department of Commerce
Arizona Public Service
ASU - Bank One Economic Outlook Center
Department of Economic Security
ECON-LINC
EconLit LLC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
The Maguire Company
Salt River Project
U of A - Eller College
VisionEcon

2.9 L
3.1
3.0
3.0
3.2 H
3.0
3.1
2.9 L
3.0
3.1
3.2 H
3.1
2.9 L

7.1
8.7 H
7.0
7.7
7.8
7.4
7.5
7.4
7.3
7.6
7.4
7.5
6.3 L

6.8
8.0 H
7.0
7.0
7.2
6.8
7.5
7.0
7.0
7.0
6.0 L
6.3
6.9

3.6
3.0
4.2 H
4.0
4.2 H
3.8
4.0
3.9
4.0
4.0
2.8 L
3.1
3.1

2.0
(1.0) L
1.1
1.3
2.0
2.4
3.5 H
0.5
2.0
3.0
1.0
0.6
1.6

Consensus

3.0

7.4

7.0

3.7

1.5

SOURCE

AVERAGE RATE FOR 2007

Construction
Empl.
(10.0) L
4.0
(5.0)
4.0
5.0 H
2.7
3.0
2.0
2.5
4.0
0.0
(0.5)
4.0
1.2

Unemployment
Rate

Services
Empl.

National
CPI

3.9
3.5
6.0 H
5.2
5.4
5.0
4.5
5.2
5.0
3.0 L
3.7
4.0

3.1
3.8 H
3.1
2.2
3.2
2.7
3.2
2.4
2.4
3.0
2.3
1.6 L
3.2

5.0 H
4.2
4.2
4.2
4.2
3.9
4.2
4.2
4.1
4.2
3.5 L

4.5

2.8

4.2

4.3

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
Population
SOURCE
(thousands)
2004
3,501
Percent Change
3.3%
2003
3,389
Percent Change
2.9%
2002
3,294
Percent Change
3.1%
* Estimate

Personal
Income
(millions)
109,155*
6.8%
102,205
4.7%
97,597
4.3%

Retail
Sales
(millions)
35,466
9.6%
32,371
5.5%
30,690
0.3%

Wage &
Salary
Empl.
(thousands)
1,632.9
3.6%
1,575.8
1.2%
1,556.9
-0.2%

Manufacturing
Empl.
(thousands)
127.7
-0.5%
128.3
-5.0%
135.0
-10.2%

Construction
Empl.
(thousands)
139.4
8.1%
128.9
2.5%
125.7
-1.6%

Services
Empl.
(thousands)
656.8
4.9%
626.4
2.6%
610.8
1.0%

National
CPI
188.9
2.7%
184.0
2.3%
179.9
1.6%

Unemployment
Rate
4.4
5.2
5.6

GREATER PHOENIX BLUE CHIP • MARCH 2006

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

BANK ONE ECONOMIC OUTLOOK CENTER • CENTER FOR BUSINESS RESEARCH

2006 SURVEY OF MARICOPA COUNTY MANUFACTURERS
Percent of Responses
Substantially
Better

Moderately
Better

Same

Moderately
Worse

Substantially
Worse

2006
2005
2004
2003

12.2%
13.1%
10.2%
3.2%

57.1%
60.7%
67.4%
25.3%

14.3%
18.9%
18.4%
25.3%

15.3%
5.8%
3.1%
38.1%

1.0%
1.5%
1.0%
8.2%

(b) for the Metro Phoenix economy:

2006
2005
2004
2003

21.7%
14.4%
9.1%
2.9%

49.5%
59.4%
55.6%
16.6%

19.6%
20.8%
33.3%
34.9%

8.3%
4.5%
0.0%
40.3%

1.0%
1.0%
2.0%
5.4%

(c) for your own industry:

2006
2005
2004
2003

24.5%
21.0%
15.2%
4.6%

45.9%
47.8%
49.5%
25.7%

14.3%
19.0%
26.3%
24.6%

10.2%
9.3%
5.1%
31.4%

5.1%
2.9%
4.0%
13.6%

2006
2005
2004

6.2%
11.7%
21.2%

41.2%
51.7%
59.6%

36.1%
28.3%
16.2%

13.4%
6.3%
3.0%

3.1%
2.0%
0.0%

(b) for the Metro Phoenix economy:

2006
2005
2004

10.5%
16.3%
18.2%

49.5%
52.5%
63.6%

33.7%
27.2%
16.2%

6.3%
2.5%
1.0%

0.0%
1.5%
1.0%

(c) for your own industry:

2006
2005
2004

14.4%
16.0%
21.2%

46.4%
47.1%
53.5%

26.8%
27.7%
22.2%

11.3%
7.3%
2.0%

1.0%
1.9%
1.0%

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

2006
2005
2004

14.4%
16.0%
21.2%

46.4%
47.1%
53.5%

26.8%
27.7%
22.2%

11.3%
7.3%
2.0%

2006
2005
2004

62.9%
61.2%
67.7%

24.7%
26.7%
26.3%

9.3%
4.9%
3.0%

3.1%
7.3%
3.0%

2006
2005
2004

45.0%
46.9%
35.0%

42.0%
40.6%
43.0%

12.0%
12.6%
21.0%

1.0%
0.0%
1.0%

2006
2005
2004

49.5%
44.0%
43.0%

41.4%
47.8%
51.0%

6.1%
6.3%
4.0%

3.0%
1.9%
2.0%

2006
2005
2004

48.0%
41.1%
32.0%

38.0%
43.0%
50.0%

13.0%
15.9%
18.0%

1.0%
0.0%
0.0%

2006
2005
2004

47.5%
48.3%
42.0%

43.4%
39.6%
51.0%

7.1%
8.7%
7.0%

2.0%
3.4%
0.0%

PAGE 4

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

GREATER PHOENIX BLUE CHIP • MARCH 2006

MANUFACTURERS SURVEY (continued)
Percent of Responses

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:

Increase(d)

Remained
the same

Decrease(d)

Don't
know

2006
2005
2004

71.0%
58.5%
39.0%

26.0%
38.7%
58.0%

3.0%
2.9%
3.0%

0.0%
0.0%
0.0%

2006
2005
2004

62.2%
64.4%
51.5%

33.7%
33.2%
46.5%

3.1%
1.0%
2.0%

1.0%
1.5%
0.0%

2006
2005
2004

50.0%
38.5%
34.9%

30.0%
50.0%
41.9%

17.5%
9.4%
20.9%

2.5%
2.1%
2.3%

2006
2005
2004

51.3%
39.6%
52.4%

28.2%
49.0%
40.5%

10.3%
6.3%
4.8%

10.3%
5.2%
2.4%

2006
2005
2004

18.0%
56.0%
1.0%

52.0%
34.3%
27.8%

25.0%
9.7%
54.6%

5.0%
0.0%
16.5%

2006
2005
2004

13.0%
58.4%
11.3%

56.0%
37.2%
39.2%

30.0%
4.4%
43.3%

1.0%
0.0%
6.2%

Significant

No Impact

Small Impact

N/A

56.0%
28.3%

3.0%
7.8%

40.0%
62.0%

1.0%
2.0%

8) Pricing Power:

9) Prices charged in next 12 months will:

10) Effect of oil prices on your business?
2006
2005

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

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Arizona State University
Bank One Economic Outlook Center
Tracy Clark
Arizona Department of Commerce
Kent Ennis

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

H. C. Reardon Economics
Hank Reardon
Joint Legislative Budget Committee
Staff
The Maguire Co.
Alan Maguire

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University of Arizona
Eller College
Marshall Vest
Vision Econ
Debra J. Roubik