GREATER PHOENIX BLUE CHIP • JULY 2001

VOLUME 13 • NUMBER 3 • JULY 2001
........................................................................................... PAGE 1

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B
L U E • C H I P • E C O N O M I C • F O R E C A S T
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Why the Phoenix metro area continues to grow
The Greater Phoenix economy continues
its recent pattern of progressively slower
rates of growth in the face of the slowdown
in the U.S. economy, but it is still strong
relative to the national economy. The
rate of growth in the Phoenix metro area
as measured by employment is now the
slowest it has been at any time during
the last 10 years. While wage and salary
employment grew by 4.6 percent in 1999
and 3.7 percent last year, growth has
slowed to 2.2 percent through June 2001.
Thus, preliminary estimates of employment growth could be as low as 2.5 percent
this year and 2.0 percent next year. In the
short run, re-acceleration is not expected
until a recovery in the U.S. economy
occurs. Yet, in the long run, Greater
Phoenix will continue to grow vis-à-vis
the United States.
Steller Economic Performance
For decades, Arizona has been one of
the fastest growing states in the country.
Since the end of World War II only two

states have been in the top five growth
states for population and employment
every decade. Arizona is one of them.
Greater Phoenix has actually grown
more rapidly than the state as a whole.
Indeed, in 1950 the Phoenix area was
54.4 percent and 55.8 percent of the
state’s employment and population,
respectively. As of 2000, it was 70.4
percent and 63.4 percent, respectively.
The Phoenix metro area has grown rapidly in relative as well as absolute terms.
As recently as 1970, Greater Phoenix
was the 34th largest metropolitan area
in the country. As of today, it is the 14th
largest metropolitan area. The growth
has extended through the 1990s, the era
of the new economy.
There are presently 30 major employment markets in the country. A major
employment market is a metro area with
more than one million jobs. Every year
since 1993, Greater Phoenix has been the
first or second most rapidly growing of
those major markets. Even in the early

1990s, which were not particularly good
years for the local economy, the Phoenix
area was never lower than fifth out of
the then-existing 22 major markets in the
country in terms of growth.
There are numerous reasons why one
area of the country outperforms another.
Some reasons why the Phoenix metro area
grows are subjective. Greater Phoenix is
a desirable place to live, work and raise
a family. The Southwestern lifestyle is
attractive, with low population density and
a climate conducive to outdoor recreation.
The area has a diversified and large
job market. There is no rigid social infrastructure. (Indeed, in Greater Phoenix,
people are interested in what you can do
for the community, rather than where you
went to school or who your parents are.)
Other reasons, such as the cost of living,
housing costs and favorable climate are
more objective in nature.
While there are hundreds of factors
that people consider in determining
(Continued on page 3)

Construction boosts a sluggish Greater Phoenix economy
The Greater Phoenix economy continues
to grow — although at a much slower pace
than last year. In June, employment was
running at 2.2 percent growth vs. 3.7 percent
at the same time last year. The panel clearly
expects the economy to continue growing
this year and next. Year-to-date employment
growth that is more than a full percentage
point lower than last year may not sound
like "good news," but considering the flood
of layoff announcements this year, 2.2
percent growth is quite respectable.
The current economic slowdown is concentrated in the manufacturing sector, and
particularly manufacturing of goods sold
to other businesses. The high-tech sector

has been particularly hard hit, with significantly reduced growth forecasts or outright
declines in activity. However, employment
in manufacturing is still growing slightly
(although benchmark revisions at the end of
the year might well show a drop in employment). The Phoenix area actually fared
quite well considering how manufacturing
has suffered nationwide. The problems
in the tech sector may seem worse than
they really are because, until a short time
ago, industry forecasts were for continued
double-digit profit growth.
The bright spot for the local economy
continues to be construction, particularly of
new homes. Permits are down compared to

last year, but year to date they have declined
less than last year. The level of permit
activity remains very high by historical
standards, and both new and resale home
activity remain good. Construction in
general should benefit from the planned
sports facilities and the many projects from
the planned capital spending on schools.
The local economy remains vulnerable
to many of the same forces affecting the
national economy. The Greater Phoenix area
is more sensitive than the nation as a whole
to what happens in Asia, but prospects for
the Asian economies seem to be stable.
— T.C.

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • JULY 2001

GREATER PHOENIX ECONOMIC FORECAST FOR 2001
ANNUAL PERCENT CHANGE 2001 FROM 2000

SOURCE
Arizona Public Service
ASU - Bank One Economic Outlook Center
CH2M HILL
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
U of A - Eller College
VisionEcon
Consensus

Population

Personal
Income

Retail
Sales

2.9
2.7
2.7
2.8
2.9
2.7
2.9
2.8
2.9
2.7
2.8
3.2
3.0
3.0
2.9

6.8
6.0
6.1
6.4
6.9
6.0
7.0
6.4
6.4
6.2
6.6
6.4
6.3
6.0
6.4

6.0
5.0
5.6
5.5
7.0
5.4
6.0
5.9
5.2
5.0
5.7
6.0
5.1
7.0
5.7

L
L

L

L
H

L

L
H

L

Wage &
Salary
Empl.

Manufacturing
Empl.

3.6 H
3.3
3.2
3.0
3.2
2.8
3.4
3.2
3.1
3.3
3.6 H
3.1
3.3
2.5 L
3.2

1.2
1.0
0.1
0.5
0.8
0.0 L
1.0
0.5
0.5
1.0
1.8 H
1.0
1.1
1.0
0.8

L

H

L

H

AVERAGE RATE FOR 2001

Construction
Empl.
(2.5)
(4.0)
(5.0)
(3.0)
2.3
1.0
(5.0)
0.0
0.0
(5.0)
0.0
0.5
2.2
2.0
(1.2)

Services
Empl.
4.3
5.0 H
4.6
4.2
4.9
4.2
5.0 H
4.0
4.4
4.5
4.8
4.0
4.2
3.5 L
4.4

L
H
L

L

National
CPI

Unemployment
Rate

2.4
2.7
3
2.7
2.9
2.7
2.7
3.1 H
2.9
2.5
2.3 L
2.9
3.1 H
2.8
2.8

3.4
3.3
3.7
3.4
3.2
3.4
3.1 L
3.5
3.5
3.9 H
3.5
3.2
3.5
3.4

GREATER PHOENIX ECONOMIC FORECAST FOR 2002
ANNUAL PERCENT CHANGE 2002 FROM 2001

SOURCE
Arizona Public Service
ASU - Bank One Economic Outlook Center
CH2M HILL
Communities Southwest
Department of Economic Security
ECON-LINC
Elliott D. Pollack and Co.
H.C. Reardon Economics
Joint Legislative Budget Committee
Lancaster Consulting
The Maguire Company
Salt River Project
U of A - Eller College
VisionEcon
Consensus

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

2.8
2.6 L
2.7
2.7
2.7
2.8
2.7
2.8
2.8
2.6 L
2.7
3.1 H
2.9
3.0
2.8

6.4
5.8
6.2
6.2
7.7 H
6.4
6.0
6.8
6.5
5.8
6.3
6.2
5.6 L
6.8
6.3

5.9
4.7 L
6.5
6.0
6.9
6.0
5.0
6.0
6.0
4.7 L
6.0
6.0
6.6
7.2 H
6.0

3.3
2.8 L
3.2
3.4
3.7 H
3.2
3.0
3.5
3.1
2.9
3.4
3.3
2.9
3.1
3.2

Manufacturing
Empl.

AVERAGE RATE FOR 2002

Construction
Empl.

1.0
0.7 L
1.4
2.0
1.4
2.0
2.0
2.0
2.0
0.9
1.6
2.0
3.1 H
2.0
1.7

(3.5)
(5.0)
(5.0)
(5.0)
1.1
(2.0)
(10.0) L
0.0
0.0
(10.0) L
0.0
1.5
0.2
4.0 H
(2.4)

Services
Empl.
4.1
4.5
3.9
4.8
5.5
4.6
5.0
5.5
4.4
4.1
4.8
5.5
3.2
4.5
4.6

H

H

H
L

National
CPI

Unemployment
Rate

2.3 L
2.5
2.7
2.6
2.8 H
2.5
2.5
2.5
2.6
2.5
2.3 L
2.6
2.5
2.4
2.5

3.5
3.7
3.5
3.6
3.0 L
3.5
3.3
3.5
3.5
4.2 H
3.5
3.1
3.8
3.5

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

GREATER PHOENIX HISTORICAL DATA

SOURCE
2000
Percent Change
1999
Percent Change
1998
Percent Change
* Estimated

Population
(thousands)
2,966
2.9
2,882
3.1
2,794
3.3

Personal
Income
(millions)
$81,769*
7.1
81,711*
7.7
75,869
9.7

Retail
Sales
(millions)
$30,167
8.4
27,825
10.4
25,207
7.9

Wage &
Salary
Empl.
(thousands)
1,544.6
3.9
1,487.2
4.8
1,418.8
5.5

Manufacturing
Empl.
(thousands)
162.2
0.4
161.8
(2.9)
166.7
5.2

Construction
Empl.
(thousands)
117.9
4.8
112.3
7.6
104.4
11.8

Services
Empl.
(thousands)
512.0
5.5
486.2
9.0
446.2
5.2

National
CPI
172.2
3.4
166.6
2.2
163.0
1.6

Unemployment
Rate
2.6
3.0
2.6

GREATER PHOENIX BLUE CHIP • JULY 2001

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

TABLE 1
FAVORABLE SOCIOECONOMIC STRUCTURE: GREATER PHOENIX
People
Lifestyle
Climate
Cost of living
Cost of housing
Air quality
Social infrastructure
Ability to attract good employees
Ability to keep good employees
Education level and facilities
Age demographics
Transportation system
Tourist facilities
Crime
School test scores

Resources
Cost & availability of:
Energy
Water
Land
Buildings
Employment mix
Geographic location
Number of flights
Cost of flights
Arts & sports amenities
Perception of community
Weather
Proximity to suppliers
Proximity to markets

Government
Pro-growth attitude
Tax policy
Type of taxes
Regulation policies
Red tape
Number of government entities
Level playing field
Right to work
Level of unionization
24 municipalities
County government

Why the Phoenix metro area continues to grow
(Continued from page 1)
why one area of the country grows
vis-à-vis another, no one knows with
certainty exactly which factors are the
most important. Preferences vary among
companies and individuals. Both people
and companies vote with their feet. Thus,
it is important to look at the underlying
dynamics and determine whether and
to what extent the factors favorable to
growth have changed. The fact that
Greater Phoenix has continued to do so
well for so long suggests that this mix of
factors remains favorable.
These factors have fostered growth
because the public's perception of
Greater Phoenix has improved over the
last 10 years. The area's proven ability to
attract employees, its lifestyle compared
to its competitors, and its increasing
diversity all are deemed favorable,
making Phoenix one of the most rapidly
growing major markets in the country.
All of this can be boiled down to three
general concepts: people, resources and
government. Table 1 is a partial list of
these factors.
People factors include lifestyle, climate, cost of living, cost of housing,
air quality, social infrastructure, ability
to attract and keep new employees, and
age demographics. For example, Greater

Phoenix has many niche markets in
terms of lifestyle. Scottsdale is known
as a gentrified area. Downtown Tempe
is more urban and collegial. Mesa and
Chandler are more family-oriented.
These are just a few examples. Also,
the Phoenix area population tends to be
younger and better educated than that of
the United States as a whole. The median
age in Maricopa County is 33.0 years
compared to 35.3 years for the U.S. The
area’s cost of living is relatively low
compared to its major competitors, and
the cost of housing is lower than in most
West Coast cities.
Resources include cost and availability
of energy, water, land and buildings,
geographic location, number of flights in
and out, arts and amenities, employment
mix and proximity to markets. Here,
once again, factors appear to be favorable
for the Phoenix area. Due to the region’s
effi cient water management practices,
there is not now, nor is there ever likely
to be, a significant water shortage in
the Phoenix metro area. Its location
next to California and Mexico provide
easy access to major markets. And the
competition between America West and
Southwest airlines has made Greater
Phoenix easily accessible to virtually
anywhere in the country.

Greater Economic Diversity
The Phoenix area also tends to grow
more rapidly because of its mix of
employment. In the Phoenix-Mesa MSA,
the employment base is diversified and
mirrors that of the United States in many
respects. It is somewhat over-represented
in construction jobs compared to the
United States as a whole. This is due to
its rapid population growth.
Greater Phoenix has become a hub
for chip manufacturers and aerospace
companies, which attracts high-tech
employees and companies serving hightech industries. In the long run an area
fares better if it is associated with hightech companies that specialize in components in the early stages of their lifecycle, as opposed to companies in older
industries such as autos, appliances
and home furnishings. A breakdown of
Metro Phoenix’s manufacturing sector
(as measured by employment) is reflective of the metro area’s high-technology
base. A total of about 43 percent of all
manufacturing jobs are high-tech, versus
14 percent nationally.
Under government, factors such as
pro-growth government attitude, types of
taxes, regulatory policies and level playing field all come into play. While once
(Continued on page 4)

PAGE 4

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Growth
(Continued from page 3)
again these areas tend to be subjective,
the Phoenix metro area tends to be progrowth. An important factor is a county
government structure that provides few
regulatory obstacles — thus, the 24
municipalities in the area tend to compete
against one another.
Today, people and companies search
for a deep labor market. People desire to
move to an area with a lot of jobs. The
Phoenix area enjoys a positive business
climate, according to statistics from the
U.S. Bureau of the Census on the number
of business establishments in Maricopa
County. From 1982 through 1999 (the
latest data available), the total number
of business establishments more than
doubled, from 34,500 to nearly 70,500.
Growth was strong in all categories.
Firms with 100 to 499 employees
increased 164 percent over the 17-year
period, while employers with 500 or
more employees increased 234 percent
and small employers (under 100 employees) increased 104 percent.
Long-Term Outlook
The size and diversity of the Greater
Phoenix economy and its above-average
employment and lifestyle opportunities

GREATER PHOENIX BLUE CHIP • JULY 2001

TABLE 2
NONFARM WAGE AND SALARY EMPLOYMENT
Percent Distribution 2000
Phoenix-Mesa
Sector
MSA
Manufacturing ................................. 10.4%
Mining .............................................
0.2
Construction ....................................
7.3
Goods Producing................... 17.9
TCPU*.............................................
5.3
Trade................................................ 23.4
FIRE** ............................................
7.8
Services ........................................... 33.2
Government ..................................... 12.3
Services Producing................ 82.0
Non-Farm Wage & Salary ............... 100.0%

United
States
14.0%
0.4
5.3
19.7
5.4
22.9
5.8
30.9
15.3
80.3
100.0%

*Transportation, Communication and Public Utilities
**Finance, Insurance and Real Estate
Source: Arizona Department of Economic Security
are attractive aspects of the region. While
the area certainly is not without imperfections, the strong growth over decades
indicates that these factors are generally
considered favorable by companies and
individuals who desire to re-locate or

expand their businesses. As long as there
are no major changes in these underlying dynamics, the outlook will remain
favorable not only for more growth, but
better growth.
– E.P.

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Dan Anderson and Donald Wehbey
Arizona Public Service Co.
Pete Ewen and Brian Cary
Arizona State University,
Bank One Economic Outlook Center
Tracy Clark
CH2M Hill
Kent Ennis
Communities Southwest
Steve Pritulsky

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

ECON-LINC
John Lucking

Elliott D. Pollack and Co.
Elliott Pollack

H. C. Reardon Economics
Hank Reardon

Salt River Project
Arlyn Herrera, Rebecca Holmes
and Karen Wolfe

Joint Legislative Budget Committee
Tim Everill

University of Arizona, Eller College
Marshall Vest

The Maguire Co.
Alan Maguire

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, College of Business,
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Vision Econ
Debra J. Roubik

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www.greaterphoenix.net