GREATER PHOENIX BLUE CHIP • MARCH 2003

VOLUME 15 • NUMBER 1 • MARCH 2003
........................................................................................... PAGE 1

™

B
L U E • C H I P • E C O N O M I C • F O R E C A S T
.........................................................................................................................................................

2003 Manufacturers Survey reflects cautious optimism
Attitudes about the economy have
started to improve and now stand at their
highest levels in three years, according to
the 2003 Greater Phoenix Manufacturers
Survey. The survey has been conducted
annually since 1994, and is sponsored
by Arizona State University Bank One
Economic Outlook Center and Center for
Business Research. Those responding
to the survey represent a broad cross
section of the manufacturing industry in
Greater Phoenix.
Some 28.5 percent of participants think
that business conditions in the United
States are better than they were a year
ago, compared to 13 percent in last year’s
survey. Forty-six percent believe conditions are worse than a year ago, compared
to 78 percent last year. While this is not as
positive as during the previous boom, it is

significantly better than last year.
Yet, fewer felt that conditions were
better in Greater Phoenix than the U.S.
as a whole. Only 19.5 percent believe that
conditions in Greater Phoenix are better,
and 45 percent believe conditions are
worse. The same general attitudes exist
for respondents on their own industries.
'Things have to get better'
In looking ahead 12 months, less than
9 percent believe that conditions will be
worse for the United States economy, and
less than 10 percent believe that conditions would be worse in Metro Phoenix
or for their own industry. This apparently
reflects a “things have to get better”
attitude on the part of Phoenix manufacturers. Indeed, some 55 percent believe
that conditions will be better in Metro

Phoenix and 59 percent believe that business conditions will be better for their
own industry.
Nearly half of those responding to
the survey believe that demand for their
companies' products will increase over
the next 12 months, while only 4 percent
believe that the demand would decrease.
However, the employment picture remains
anemic: Only 28 percent believe that
employment will increase over the next 12
months compared to some 32 percent last
year. 8 percent believe that employment
will decrease over the next 12 months
compared to 9.5 percent a year ago.
Pricing power will also be a problem,
with 46 percent of those responding
believing that their ability to increase
prices will diminish over the next year,
(Continued on page 4)

High-tech business spending may be bright spot in 2003
The course of the Greater Phoenix economy remains tied to what happens on
a national and international levels. The
consensus panel is forecasting continued but
gradual improvement in the local economy
— contingent on further improvement at
the national level. The biggest bright spot
may be the anticipated upswing in spending
on computers reported in the 2003 Greater
Phoenix Manufacturers Survey.
The local economy is closely tied to
what might be loosely termed high-tech
manufacturing. The first example is semiconductors, but the area also plays host to
a wide range of makers of high-tech goods.
The blessing —and the curse — is that the
vast majority of the high-tech enterprises
are selling to other businesses rather than
consumers.
The unprecedented level of business
capital investment during the ’90s boosted

the local economy significantly. Locally,
the impact of the recession has been magnified because almost the entire decline in
spending has been in business spending.
Traditional business investment in new
plant capacity is unlikely to revive soon
because of the very low levels of capacity
utilization across the nation. However,
firms are showing some signs of increased
spending in the high-tech sector as they
replace outdated equipment purchased
before Y2K and seek to improve the productivity of a significantly leaner workforce.
It seems likely that Arizona firms could
benefit from this early upturn in spending.
The Manufacturers Survey lends credence
to this scenario, particularly if local firms are
representative of business nationwide.
Tourism is recovering gradually, based on
bed tax receipts, but the combination of cost
cutting and continued fears of terrorism is

slowing the recovery. Firms are not showing
any trend toward significant increases
in travel spending that would lead to
an increase in demand for planes. Consequently, the portion of manufacturing
devoted to aerospace is unlikely to see an
upturn in the near future unless the focus
is military.
The area also will have to contend with a
cooling off of the single-family construction
market that has been such a bright spot
until now. Either interest rates will rise as
the economy improves, or (if the national
economy does not improve) a double-dip
recession will cause a drop in demand.
Population growth is holding up better than
expected in light of the weak job market, but
the level of housing activity seen in 2002
does not appear to be sustainable.
— Tracy Clark

BANK ONE ECONOMIC OUTLOOK CENTER • ARIZONA STATE UNIVERSITY

PAGE 2

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GREATER PHOENIX BLUE CHIP • MARCH 2003

GREATER PHOENIX ECONOMIC FORECAST FOR 2003
ANNUAL PERCENT CHANGE 2003 FROM 2002
PopuSOURCE
lation
Arizona Public Service
2.6
ASU – Bank One Economic Outlook Center 2.6
CH2M HILL
2.6
Department of Economic Security
2.4
ECON-LINC
2.6
Elliott D. Pollack and Co.
2.6
H.C. Reardon Economics
2.7
Joint Legislative Budget Committee
2.5
Lancaster Consulting
2.5
The Maguire Company
2.8
Protitlement
2.7
Salt River Project
2.9
U of A – Eller College
2.1 L
VisionEcon
3.0 H
Consensus
2.6

Personal
Income
5.5
5.6
4.9 L
5.6
5.5
5.5
6.2
5.5
6.0
6.0
6.2
5.5
5.7
6.7 H
5.7

Retail
Sales
4.6
4.1
3.9 L
5.4
5.0
6.0
5.0
4.0
5.2
6.0
5.4
5.0
4.7
6.7 H
5.1

Wage &
Salary
Empl.
2.1
2.2
2.2
1.6 L
2.2
2.7
2.9
2.5
2.8
2.9
2.8
2.5
2.6
3.4 H
2.5

Manufacturing
Empl.
0.3
0.8
(1.5) L
(0.5)
1.0
3.0
2.0
0.0
1.8
2.0
3.5 H
1.0
(1.4)
3.0
1.1

AVERAGE RATE FOR 2003

Construction
Empl.
0.0
(3.5)
(5.0) L
(1.3)
(1.0)
(5.0) L
0.0
0.0
1.2
0.0
(3.0)
2.0
0.7
3.5 H
(0.8)

Services
Empl.
3.0
4.9
2.4
1.7 L
2.3
4.0
5.0 H
3.2
3.8
4.5
4.2
2.5
4.6
4.5
3.6

National
CPI
2.5
2.1 L
2.3
2.9 H
2.3
2.5
2.3
2.6
2.7
2.3
2.4
2.3
2.3
2.1 L
2.4

Unemployment
Rate
4.5
5.5 H
4.9
4.7
4.2 L
4.5
4.9
4.5
4.2 L
4.4
4.6
4.5
5.0
4.6

GREATER PHOENIX ECONOMIC FORECAST FOR 2004
ANNUAL PERCENT CHANGE 2004 FROM 2003

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

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

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

7.0
6.2
5.2 L
6.2
5.6
6.7
6.8
6.0
6.2
6.0
6.8
6.5
7.5 H
6.2
6.4

5.9
6.0
5.0
6.1
5.4
6.5
5.9
4.5 L
5.7
6.0
6.5
6.0
7.6 H
6.1
5.9

3.4
3.8
2.9
2.2 L
3.1
4.0
3.2
3.0
3.1
3.2
3.8
3.5
3.9
4.1 H
3.4

1.2
2.7
(1.0) L
0.9
2.6
5.0 H
3.4
0.5
2.2
2.0
4.1
2.0
0.5
2.0
2.0

AVERAGE RATE FOR 2004

Construction
Empl.
3.0
(8.0) L
(5.0)
(2.1)
3.0
5.0 H
(5.0)
1.0
1.4
0.0
1.5
2.0
0.7
3.0
0.0

Services
Empl.
4.0
6.4 H
2.6
2.3 L
3.2
5.0
5.4
3.5
4.2
4.0
5.5
3.5
6.1
6.0
4.4

National
CPI
2.5
3.0
2.5
2.8
2.4
2.7
2.4
2.9
2.5
2.5
2.8
2.5
2.4
2.6
2.6

Unemployment
Rate
4.4
3.8 L
4.8 H
4.4
4.0
4.0
4.4
4.5
3.9
4.3
4.2
4.0

H

L
L

L
4.8 H
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
2002
Percent Change
2001
Percent Change
2000
Percent Change
*Estimated

Population
(thousands)
3,289
3.0
3,194
3.1
3,097
3.4

Personal
Income
(millions)
96,934*
4.4
92,849*
5.9
86,676
9.4

Retail
Sales
(millions)
30,683*
0.3
30,605
1.5
30,167
8.4

Wage &
Salary
Empl.
(thousands)
1,563.3
0.4
1,557.2
1.1
1,541.0
3.6

Manufacturing
Empl.
(thousands)
143.0
-8.2
155.8
-4.1
162.5
0.6

Construction
Empl.
(thousands)
114.9
4.0
119.7
2.3
117.0
4.0

Services
Empl.
(thousands)
194.0
-61.8
507.9
0.2
507.0
4.5

National
CPI
179.9
1.6
177.1
2.8
172.2
3.4

Unemployment
Rate
5.3
3.9
2.7

GREATER PHOENIX BLUE CHIP • MARCH 2003

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

BANK ONE ECONOMIC OUTLOOK CENTER • CENTER FOR BUSINESS RESEARCH

2003 SURVEY OF MARICOPA COUNTY MANUFACTURERS
Percent of Responses
Substantially
Better

Moderately
Better

Same

Moderately
Worse

Substantially
Worse

2003
2002
2001

3.2%
1.1
4.6

25.3%
12.0
22.4

25.3%
13.5
29.6

38.1%
52.4
40.8

8.2%
21.1
2.6

(b) for the Metro Phoenix economy:

2003
2002
2001

2.9%
0.7
7.8

16.6%
9.9
24.0

34.9%
24.8
44.2

40.3%
48.9
22.7

5.4%
15.7
1.3

(c) for your own industry:

2003
2002
2001

4.6%
1.8
8.5

25.7%
15.6
29.4

24.6%
19.6
25.5

31.4%
34.9
29.4

13.6%
28.0
7.2

2003
2002
2001

5.7%
5.1
1.3

54.1%
70.3
20.9

31.5%
17.4
33.3

7.2%
5.8
39.9

1.4%
1.5
4.6

(b) for the Metro Phoenix economy:

2003
2002
2001

6.2%
5.5
0.7

48.6%
62.4
27.3

35.9%
24.5
42.2

8.7%
6.2
27.9

0.7%
1.5
2.0

(c) for your own industry:

2003
2002
2001

8.6%
9.2
2.6

50.4%
64.8
28.6

31.3%
15.4
34.4

8.3%
7.7
31.2

1.4%
2.9
3.3

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

2003
2002
2001

31.3%
22.1
56.1

23.5%
23.9
23.2

45.2%
54.0
20.7

0.0%
0.0
0.0

2003
2002
2001

48.6%
54.9
40.8

38.5%
28.0
34.2

3.6%
9.5
19.1

9.4%
7.6
5.9

2003
2002
2001

16.7%
14.9
41.9

44.1%
36.2
41.3

39.2%
48.9
16.8

0.0%
0.0
0.0

2003
2002
2001

27.9%
32.4
30.3

59.6%
54.2
52.6

7.9%
9.5
15.1

4.6%
4.0
2.0

2003
2002
2001

22.5%
23.3
50.3

36.1%
37.1
36.8

41.1%
38.9
12.9

0.4%
0.7
0.0

2003
2002
2001

31.2%
29.7
36.0

42.3%
39.9
38.0

21.2%
25.3
24.7

5.4%
5.1
1.3

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:

(Continued from page 1)
while less than 2 percent believe that their
companies will have more say over prices.
Indeed, almost half believe that prices
they charge will decline over the next 12
months.
Capital spending to increase
It now has been more than three years
since businesses replaced their equipment
in anticipation of Y2K. Because of this
and other reasons, 80 percent of those
companies surveyed believe that they will

GREATER PHOENIX BLUE CHIP • MARCH 2003

Increase(d)

Remained
the same

2003
2002
2001

33.9%
40.4
77.4

58.2%
48.7
21.3

7.5%
10.6
1.3

0.4%
0.4
0.0

2003
2002
2001

39.4%
37.2
61.2

54.1%
54.7
34.2

2.2%
5.1
2.6

4.3%
2.9
2.0

2003
2002
2001

22.6%
20.0
52.3

52.9%
49.1
35.4

20.6%
27.3
7.7

3.9%
3.6
4.6

2003
2002
2001

35.3%
37.6
40.0

49.0%
45.0
49.2

8.8%
11.0
4.6

6.9%
6.4
6.2

be increasing their spending for computers over the next year. Some 82 percent
believe that they will increase spending
for software and other equipment. Despite
the high level of unused plant capacity that
exists nationally and weaknesses about
capital spending expressed in a previous
survey question, some 80 percent also
believe they will increase spending on
physical plant over the next year. Thus, the
outlook for plant and equipment spending
in the Phoenix area appears to be positive.
Overall, the business survey indicates

Decrease(d)

Don't
know

that businesses believe that they will see
some improvement over a year ago in the
national and local economy and, indeed, in
their own industries, and almost 60 percent
believe that conditions will improve over
the next year. Probably the best news for
the economy is that business capital and
software spending are expected to rise over
the next year. For consumers, the good
news is that prices of manufactured goods
may weaken.
— Elliott Pollack

ECONOMIC FORECAST PANEL
Arizona Department of Economic Security
Donald Wehbey

Protitlement
Steve Pritulsky

Elliott D. Pollack and Co.
Elliott Pollack

Arizona Public Service Co.
Brian Cary

ECON-LINC
John Lucking

Salt River Project
Arlyn Herrera, Rebecca Holmes and Karen Wolfe

Arizona State University
Bank One Economic Outlook Center
Tracy Clark

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

CH2M Hill
Kent Ennis

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

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
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– one year (4 issues), $45.00; PDF (e-mail delivery) – one year,
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at (480) 965–5543.
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