GREATER PHOENIX BLUE CHIP • AUGUST 2002

VOLUME 14 • NUMBER 3 • AUGUST 2002
........................................................................................... 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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Key clusters pave the path to economic diversity
Periods of economic slowdown provide
communities with the opportunity for introspection: How diverse is our economy? Are
we pursuing the right mix of industries?
How should we be organized? How can we
improve ourselves? Given the slowdown
in the economy and the lingering effects
of last Sept. 11, the Greater Phoenix
business community took action. Nine
large business organizations came together
to form the Greater Phoenix Business
Leadership Coalition. The Greater Phoenix
Economic Council (GPEC) was charged
with developing an economic development
policy and identified five target industries in
which Greater Phoenix has an opportunity
to excel.
The ultimate goal of this effort is to
make the economy more balanced (i.e. less
dependent on any one industry) thereby
creating a broader tax base and an even
more vibrant business climate by attracting

more jobs in certain high-wage sectors.
While the Greater Phoenix area has enjoyed
great success for decades, this type of
planning can only enhance the outlook for
the community by focusing our economic
development resources. The benefits could
be dramatic.
The five clusters are aerospace, hightech, bioindustry, advanced financial &
business services, and software.
AEROSPACE AND AVIATION
Aerospace accounts for about 12 percent
of all the manufacturing jobs in the Greater
Phoenix area. The region produces more
than $5.2 billion in aerospace related goods
and services each year. The concentration
in aerospace is about two and a half times
the national average. Indeed, while Greater
Phoenix is ranked 15th among all metro
areas in terms of the number of people
employed in the production of aircraft,

it is third in the nation in the production
of aircraft engines. That is where the
opportunity lies given the long-term
outlook for the industry. Also, there is
already a significant concentration of
aerospace industries in the Greater Phoenix area and a network of airports (Sky
Harbor International, Williams Gateway,
Goodyear, Chandler, Scottsdale, Glendale,
Deer Valley, Goodyear, Buckeye).
While the nation’s aerospace industry is
projected to grow only modestly over the
next decade, companies tend to like the
cluster. Greater Phoenix has the proven
ability to either produce or import the
necessary number of skilled workers.
HIGH-TECH
The high-tech cluster includes computers, communications equipment, measuring
and control devices, telecommunication
(Continued on Page 3)

Local forecast declines in line with national outlook
The outlook for the Greater Phoenix area
has deteriorated in line with the weaker
results for the nation as a whole. The
outlook is not all gloom and doom, but
most of the risks to the forecast are on
the downside.
The most significant area where the local
economy differs from the national is our
greater reliance on high tech, particularly
semiconductor manufacturing. We have
known for some time that semiconductor
manufacturing was disproportionately
affected by the national recession for
several reasons. First, business spending,
which was cut back, is a large part of
semiconductor demand. Second, consumers maintained their spending on autos and
homes at the expense of other consumer
goods. Third, the money consumers have

been shelling out for electronics has been
concentrated on smaller items like DVD
players and MP3 devices. Small consumer
electronics, while they do contain semiconductors, tend to be less expensive than
the chips going into computers, routers
and the like. The short-term outlook for the
industry is mixed at best. Manufacturers
have been increasing their spending on
equipment used to manufacture chips for
several months; however, demand for
PCs slumped after the holiday season and
the inventory-to-sales ratio for computer
makers is deteriorating.
Business spending is likely to remain
soft going into 2003, primarily because
of the slumping stock market and the
preoccupation with restating earnings
and trying to restore investor confidence.

Businesses have been making investments
in software, which suggests that competitive pressures have not let up — when
businesses see a need to replace computer
equipment, they will spend the money.
Unfortunately, the area of business spending that is likely to remain soft is spending
on labor, which means that job creation
is going to remain anemic. National and
local economies have lost ground in job
growth compared with the same period
last year. But there is a bright spot: The
unemployment rate during this recession
has been much lower than those of past
recessions.
— Tracy Clark
Associate Director
Bank One Economic Outlook Center

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • AUGUST 2002

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

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

Population
2.7
2.8
2.6
2.6
2.4 L
2.7
3.3 H
2.6
2.6
2.8
2.7
3.0
2.4 L
3.0
2.7

Personal
Income
5.3
5.0
3.8
4.9
4.2
4.0
5.2
4.5
5.4
5.5
5.6 H
5.0
3.4 L
5.6 H
4.8

Retail
Sales
3.1
2.4
4.0
4.6
3.2
3.5
3.5
2.5
4.4
4.3
4.8
2.0
1.3 L
5.7 H
3.5

Wage &
Salary
Empl.
0.6
(0.3)
1.4
(1.5) L
(0.8)
(0.5)
1.2
0.0
1.8
0.0
2.2
0.0
(0.6)
2.3 H
0.4

Manufacturing
Empl.
(2.1)
(5.0)
(2.0)
(5.8)
(6.5) L
(6.0)
(5.0)
(1.0)
0.3
(2.0)
0.1
(5.0)
(3.6)
1.4 H
(3.0)

AVERAGE RATE FOR 2002

Construction
Empl.
(3.3)
(7.5)
(5.0)
(5.0)
(5.0)
(8.0)
(6.0)
(5.0)
(10.0) L
(10.0) L
(6.0)
(3.0)
(3.6)
2.5 H
(5.4)

Services
Empl.
1.2
2.2
2.0
(1.3) L
0.0
2.0
2.3
1.0
3.2 H
1.0
3.2 H
1.0
(0.7)
2.0
1.4

National
CPI
2.0
1.9
2.0
3.6 H
2.0
2.0
1.8
1.9
2.0
2.0
2.2
1.7
1.7
1.4 L
2.0

Unemployment
Rate
4.9
5.4
5.1
5.0
5.3
5.2
4.7
5.7 H
4.6
4.5 L
4.7
5.0
5.2
5.0

GREATER PHOENIX ECONOMIC FORECAST FOR 2003
ANNUAL PERCENT CHANGE 2003 FROM 2002
Population

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

2.7
2.6
2.6
2.6
2.5
2.6
3.2 H
2.5
2.5
2.8
2.7
2.9
2.3 L
3.2 H
2.7

Personal
Income
6.3
6.0
6.2
6.4
5.0 L
5.5
7.0
6.0
6.0
6.3
6.8
6.0
6.3
7.5 H
6.2

Retail
Sales

Wage &
Salary
Empl.

4.6 L
5.1
5.6
5.6
5.0
6.0
6.4
5.0
5.2
6.0
6.4
5.0
4.8
9.7 H
5.7

2.8
3.0
2.9
2.2 L
3.0
3.0
3.3
2.5
2.8
3.3
3.6
3.0
2.9
4.0 H
3.0

Manufacturing
Empl.

AVERAGE RATE FOR 2003

Construction
Empl.

0.3 L
1.0
1.5
1.4
2.0
4.0 H
2.7
0.5
1.9
2.0
2.5
2.0
1.7
2.5
1.9

1.2
(1.0)
1.0
(0.9)
0.0
(5.0)L
3.3
1.0
1.8
0.0
(1.5)
3.0
0.4
5.5 H
0.6

Services
Empl.
3.3
5.3 H
3.1 L
3.2
3.8
5.0
5.0
3.2
3.8
5.0
5.2
3.5
4.2
5.0
4.2

National
CPI

Unemployment
Rate

2.8
2.6
2.3
2.9 H
2.3
2.5
2.9 H
2.7
2.8
2.2
2.8
2.8
2.8
2.1 L
2.6

4.2
4.4
4.2
4.4
4.2
4.7
4.2
5.5 H
4.2
4.0
3.9
3.8 L
4.1
4.3

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 and unemployment rate,

GREATER PHOENIX HISTORICAL DATA

SOURCE
2001
Percent Change
2000
Percent Change
1999
Percent Change

Population
(thousands)
3,196
3.2
3,097
3.4
2,995
3.6

Personal
Income
(millions)
92,849
5.9
87,676
9.4
80,165
6.2

Retail
Sales
(millions)
30,605
1.5
30,167
8.4
27,825
10.4

Wage &
Salary
Empl.
(thousands)
1,557.2
0.8
1,544.6
3.9
1,487.0
4.8

Manufacturing
Empl.
(thousands)
155.8
(3.9)
162.2
0.4
161.6
(3.1)

Construction
Empl.
(thousands)
119.7
1.5
117.9
4.8
112.5
7.8

Services
Empl.
(thousands)
507.9
(0.8)
512.0
5.5
485.3
8.8

National
CPI
177.1
2.8
172.2
3.4
166.6
2.2

Unemployment
Rate
3.9
2.7
3.0

GREATER PHOENIX BLUE CHIP • AUGUST 2002

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

Key clusters pave path to economic diversity
(Continued from Page 1)
services, as well as components. About 26
percent of all manufacturing jobs in Greater
Phoenix are in chip manufacturing. This
sector is clearly cyclical and the long-term
growth potential is excellent. While the
Greater Phoenix area will be heavily concentrated in chip manufacturers for the
foreseeable future, moving more of our eggs
into other baskets can only serve to stabilize
our long-term outlook. Interestingly enough,
the employment concentration in this sector
vis-à-vis the United States has actually
declined from about 2.2 times the U.S.
average in 1990 to 1.9 times in 2000. Part
of the decline is cyclical, but it shows that
other metropolitan areas are catching up.
Expanding our efforts here is well worth the
effort because the significant concentration
makes us an attractive place for other hightech manufacturers. The focus will be

on research and development as well as
manufacturing. Research and development
companies tend to have higher-paying jobs
that can create spinoff companies.
ADVANCED FINANCIAL
AND BUSINESS SERVICES
This cluster includes not only banks
and other lenders, but brokers, insurance
companies, business services, lawyers,
accountants, as well as engineers. Many of
these industries employ people whose wages
are well above average. Greater Phoenix
has the opportunity to become a regional hub
for these services, which is important for two
reasons. First, it will increase the average
wage in services and second, financial and
business services tend to be considerably less
cyclical than manufacturing. Employment in
this particular sector has more than doubled
in the last decade and the concentration

has also increased to about 1.4 times the
national level. The region’s critical mass in
this cluster has now positioned in Greater
Phoenix to increase its concentration in
these higher-value, higher-wage business
services.
BIOINDUSTRY
The bioindustry sector includes testing
labs, research and development, drug
companies, laboratory instruments, surgical
and medical instruments and supplies as
well as commercial physical research.
Although Greater Phoenix currently has a
lower concentration of bioindustry employment than the nation as a whole, the growth
of local bioindustry employment has outpaced the national average. With the recent
location of the Transnational Genomics
Research Institute, the outlook for the
(Continued on Page 4)

TABLE I
TARGET CLUSTERS - EMPLOYMENT (Greater Phoenix, 1990-2000)
Employment
Concentration vs. U.S.

Employment
Aerospace & Aviation
High-Tech
Advanced Business & Financial Services
BioIndustry
Software
Total Private Industries

1990
45,859
49,798
135,148
4,816
9,796
848,925

2000
54,745
60,047
292,492
8,790
29,100
1,359,808

Percent Growth
19.4%
20.6%
116.4%
82.5%
197.1%
60.2%

1990
2.2:1
2.2:1
1.2:1
0.4:1
1.0:1
1.0:1

2000
1.8:1
1.9:1
1.4:1
0.4:1
1.0:1
1.0:1

TABLE II
PRIORITY CLUSTERS - PROJECTED VS. TARGETED GROWTH* (Greater Phoenix, 2010)
Employment, 2010
Projected
Aerospace & Aviation
64,951
High-Tech
80,027
Advanced Business & Financial Services 469,765
BioIndustry
13,396
Software
44,815
Total - Five Target Clusters
672,954

Income (Payroll - millions), 2010

Targeted

Difference

Projected

Targeted

Difference

77,247
100,480
497,422
26,339
77,353
778,841

12,296
20,453
27,657
12,943
32,538
105,887

$3,706
$6,396
$17,011
$714
$2,966
$30,793

$4,408
$8,031
$18,013
$1,405
$5,121
$36,978

$702
$1,635
$1,002
$691
$2,155
$6,185

"Projected" growth represents normal employment and income growth in the cluster if no special development actions are taken.
"Targeted" growth represents the results of a directed economic development effort to strengthen these five priority clusters.
Source (Tables I and II): Greater Phoenix Economic Council, July 2002

PAGE 4

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(Continued from Page 3)
bioindustry sector in Greater Phoenix has
been greatly improved. Bioindustry is
expected to be one of the fastest-growing
and innovative industries over the next
several decades and will cause the state’s
universities to devote a larger portion of
their effort to research and development. It
is likely to create more spinoffs than most
industries and this is likely to draw in more
venture capital.
While bioindustry is the smallest of
identified industries at present, it is expected
to be one of the most rapidly growing over
the next decade. At the present time, Greater
Phoenix is 21st in the nation in terms of
pharmaceutical employment and 11th in
analytical instruments. Those numbers could
change significantly over the next decade if
current efforts continue and could ultimately
be a major driver of the Greater Phoenix
economy.
SOFTWARE
Another cluster identified by GPEC is
software. The concentration of software
jobs in Greater Phoenix is proportionate
to that of the United States overall. The
industry has created a significant number
of jobs over the last decade. The software
industry is interwoven into the economy
as a whole and could create more new
jobs over the next decade. These jobs tend

GREATER PHOENIX BLUE CHIP • AUGUST 2002

to pay well above average, and employees
tend to focus on quality of life concerns.
Given the diversity of the Greater Phoenix
area and the attractive lifestyle opportunities available, this is another industry
which, if properly approached, could pay
considerable dividends to the Greater
Phoenix area.

Key areas such as tax
and fiscal policy, research
and development,
infrastructure, quality of life,
and education must be
assessed and aligned to meet
the needs of these industries.
SUMMARY
According to GPEC projections, if left to
their own devices, employment in the five
sectors identified would grow by almost
230,000 jobs over the first decade of the 21st
century. However, with a more directed economic development approach this number
increases over 40 percent to 330,000 jobs.
This would considerably enhance the diversity and average income level in the Greater
Phoenix area.
These things will not happen overnight.
It will take a change in direction at both

the state and local levels. Key areas such
as tax and fiscal policy, research and
development, infrastructure, quality of
life, and education must be assessed
and aligned to meet the needs of these
industries, as well as those of existing
driver sectors. The coalition plan allows
for growth in these targeted industries
as well as in other industries that have
been part of the traditional backbone of
the Phoenix economy (i.e. tourism and
regional services). It takes advantage
of the cost benefits of living in Greater
Phoenix, the advantage that we still have
over most of our major competitors. And
most of all, it has brought together the
economic development community and
local governments focus on the issues.
While Greater Phoenix has strengths and
weaknesses in all of the identified sectors,
the growth history shows that the region is
well positioned to take advantage of these
opportunities. By marketing ourselves
correctly, dealing with tax, fiscal, and
infrastructure issues, we can ensure an
even brighter future.
— Elliott Pollack
Elliott Pollack, a member of the Greater
Phoenix Blue Chip Economic Forecast panel,
is president of Elliott D. Pollack and Company
in Scottsdale, an economic and real estate
consulting firm established in 1987.

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Dan Anderson and Donald Wehbey

Protitlement
Steve Pritulsky

Elliott D. Pollack and Co.
Elliott Pollack

Arizona Public Service Co.
Pete Ewen and Brian Cary

ECON-LINC
John Lucking

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

H. C. Reardon Economics
Hank Reardon

University of Arizona, Eller College
Marshall Vest

Joint Legislative Budget Committee
Staff

Lancaster Consulting
Dwight Duncan

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 College of Business
at Arizona State University. Rates: Print copy – one year (4 issues),
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the Bank One Economic Outlook Center at (480) 965–5543.

Bank One Economic
Outlook Center
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Elliott Pollack, Topics Editor
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