FIRST QUARTER 2007 Volume 19, Number 1
GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2007

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PAGE 1

Manufacturing Survey consistent with aging business cycle
The 2007 Greater Phoenix Blue Chip
Manufacturing Survey shows businesses
have grown considerably more cautious
about business conditions within the United
States compared to a year ago and, for that
matter, anytime since 2003. For metro
Phoenix, the results are similar.
Interestingly, the survey respondents
are more optimistic about the current state
of their individual industries. Almost 50
percent believe that their own industry is
substantially or moderately better than it
was a year ago. While this is a less positive
response than in 2004 through 2006, it is
substantially better than in the 2000 through
2003 period.
Looking ahead 12 months, respondents'
expectations for the U.S. economy are the
lowest since 2000. For the metro Phoenix
economy, the level of optimism is down
compared to the last three years, but higher
than in the 1990 through 2000 timeframe.
Responding about their own industry’s
12-month outlook, manufacturers are less
optimistic than they have been since 2001.
These more conservative responses are typical of periods late in the business cycle.
As for their own products or services, 67
percent of the respondents saw increases in

demand over the past 12 months, a strongly
positive result. For the next 12 months, 87
percent expect demand to increase or stay
the same. This is not nearly as strong as the
results of the 2004 through 2006 surveys.
Again, a reduced level of optimism is normal
for the later stages of the business cycle.
The employment outlook is less positive:
Only 33 percent of manufacturers expect
employment to increase over the next 12
months compared to 43 percent, 44 percent
and 49 percent over the last three surveys,
respectively. This is the weakest showing
since the 2001 through 2003 period, probably indicating that manufacturers will be
slow to hire.
Regarding capital expenditures, 89 percent of manufacturers’ capital spending
remained the same or increased over the
last 12 months. This is a strong response and
indicates that businesses have been adding
substantially to their capacity. For capital
expenditures over the next 12 months, the
responses are not as strong as from 2004 to
2006, but better than 2001 through 2003.
It appears that capital investment will
continue at least through the end of 2007,
even though employment growth will be
slowing.

Companies appear to be exporting more
as well, with 56 percent indicating they
have increased their exports over the last
12 months. This is the highest response on
record. Forty-one percent believe exports
will be higher over the next 12 months and
only 2 percent believe they will decline;
this decline is the lowest since the survey
began in 1994. The strong global economy
appears to be helping.
Pricing power continues to moderate.
Manufacturers are having more difficulty
passing through prices, yet a majority will
attempt to increase prices over the next 12
months. However, the percent of manufacturers planning to increase prices is still
down from the last few years.
Overall, the level of optimism on the
part of the manufacturers in this survey is
indicative of a mature business cycle. A
similar response was seen late in the last
business cycle. Indeed, one would expect
results to be less optimistic than during
the early stages of an expansion. The good
news is that while the responses are consistent with an aging business cycle, they are
not consistent with a pending recession.
— Elliott D. Pollack

Greater Phoenix economic growth rate expected to slow in 2007
Economic growth in the Greater Phoenix area is forecast to slow in 2007 compared to 2006, and the panelists expect this
trend to continue into 2008. This is in line
with forecasts for the state and the nation
as a whole. In fact, the forecasts are quite
upbeat given the impact we normally see
on the economy when real estate slows
down.
The performance of the national economy is one of the two biggest unknowns
when it comes to forecasting local economic conditions. Federal Reserve chairman Bernanke recently seemed cautiously

optimistic that inflation would remain
under control, which is a prerequisite for
the recessionless national forecasts most
economists have made. However, the Fed
remains committed to keeping inflation
under control even if it means a national
recession. The biggest risk to the national
economy is some sort of unanticipated
shock, like a sudden spike in oil prices.
Rising interest rates or a recessionary
national economy would be particularly
unwelcome news for the metro economy
because of the weakness of the singlefamily construction market. The local

economy has not seen the worst of the construction downturn yet, but it seems likely
to be less severe than in the usual construction cycle. However a national recession
or rising interest rates could worsen the
outlook considerably. Population growth
would likely slow significantly at the same
time that worsening economic conditions
forced more homes onto the market.
The bottom line is that the economy is
expected to do better than during previous
housing downturns. The problem is that
most of the risks are on the downside.
— Tracy Clark

PAGE 2

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GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2007

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

SOURCE
Arizona Department of Commerce
Arizona Public Service
ASU - 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
Southwest Growth Partners
Salt River Project
U of A - Eller College
VisionEcon
Consensus

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

Personal
Income
7.2
7.5
8.0 H
7.3
7.9
7.2
7.5
6.9
7.5
7.6
6.8
7.8
6.8
6.7 L
7.3

Retail
Sales
6.1
9.0 H
5.8
7.0
7.5
7.2
5.8
6.6
7.0
7.4
6.4
7.0
5.4 L
6.3
6.8

Wage &
Salary
Empl.
3.5
4.1
2.7
4.1
4.2 H
3.8
4.0
4.1
3.8
4.0
3.4
3.1
2.6 L
3.1
3.6

Manufacturing
Empl.
0.1
0.5
1.2
1.3
0.0 L
1.8
1.0
1.3
1.5
2.5 H
0.8
1.0
0.3
1.6
1.1

AVERAGE RATE FOR 2007

Construction
Empl.
-10.0 L
6.0
-7.0
7.1 H
-1.0
1.5
-10.0 L
-5.0
0.0
0.0
-8.0
0.0
-9.0
4.0
-2.2

Services
Empl.
4.0
4.5
5.8
4.1
5.0
5.0
4.5
6.0 H
4.5
5.0
4.8
3.5 L
4.7
4.5
4.7

National
CPI
3.0
2.8
1.9 L
3.3
3.2
2.7
3.2
3.3
2.3
3.2
3.0
2.1
2.3
3.7 H
2.9

Unemployment
Rate
4.1
4.2
4.2
3.9
4.2
4.2
4.2
4.2
4.3
4.1
4.2
3.8 L
4.5 H
4.2

GREATER PHOENIX ECONOMIC FORECAST FOR 2008
ANNUAL PERCENT CHANGE 2008 FROM 2007

SOURCE
Arizona Department of Commerce
Arizona Public Service
ASU - 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
Southwest Growth Partners
Salt River Project
U of A - Eller College
VisionEcon
Consensus

AVERAGE RATE FOR 2008

Population

Personal
Income

Retail
Sales

Wage &
Salary
Empl.

Manufacturing
Empl.

Construction
Empl.

Services
Empl.

National
CPI

2.9
3.2
3.0
3.0
3.1
3.0
3.0
3.3 H
3.0
3.2
3.1
3.0
3.1
2.7 L
3.0

6.8
7.5
8.0 H
7.6
7.2
7.5
7.0
7.9
7.0
7.5
6.5
7.6
6.6
6.3 L
7.2

6.1
8.5 H
5.5
6.8
7.0
7.3
4.5 L
6.8
6.0
7.5
5.8
7.0
5.5
6.7
6.5

3.4
4.4
3.3
3.7
3.8
3.9
3.0
5.0 H
3.5
4.0
3.2
3.0
2.3
2.2 L
3.5

-0.5
0.0
1.0
0.9
2.0 H
1.8
0.0
1.0
1.0
2.0 H
0.5
1.0
-0.7 L
1.0
0.8

-7.0 L
5.0
-4.0
-5.4
5.0
1.7
10.0
15.0 H
-5.0
0.0
-4.0
3.0
-2.3
0.0
0.9

4.0
5.0
6.3 H
3.7
4.8
4.8
3.0 L
6.0
4.0
5.0
4.2
3.0 L
3.3
4.0
4.4

3.0
2.4
2.4
3.0
2.2
2.8
3.0
3.1
2.5
3.3
2.8
2.0
1.2 L
3.9 H
2.7

Unemployment
Rate
4.4
3.7 L
4.5 H
4.1
4.2
4.3
4.4
4.0
4.2
4.2
4.4
4.0
4.3
4.2

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

2006
2005
2004
* Estimate

Population
(thousands)
3,764
3.5%
3,636
3.9%
3,499
3.2%

Personal
Income
(millions)
131,729*
8.4%
121,521*
9.4%
111,104
8.6%

Retail
Sales
(millions)
43,821*
8.2%
40,500
14.2%
35,466
9.6%

Wage &
Salary
Empl.
(thousands)
1,827.0*
4.8%
1,743.1
6.2%
1,641.2
4.2%

Manufacturing
Empl.
(thousands)
134.0*
1.4%
132.2
2.5%
129.0
0.5%

Construction
Empl.
(thousands)
174.2*
6.8%
163.1
15.8%
140.9
9.3%

Services
Empl.
(thousands)
744.8*
5.5%
706.0
6.7%
661.6
5.6%

National
CPI
201.6
3.2%
195.3
3.4%
188.9
2.7%

Unemployment
Rate
4.0*
4.1
4.4

GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2007

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PAGE 3

BANK ONE ECONOMIC OUTLOOK CENTER • CENTER FOR BUSINESS RESEARCH

2007 SURVEY OF MARICOPA COUNTY MANUFACTURERS
Percent of Responses
Substantially
Better

Moderately
Better

Same

Moderately
Worse

Substantially
Worse

2007
2006
2005

5.0%
12.2%
13.1%

41.0%
57.1%
60.7%

31.0%
14.3%
18.9%

22.0%
15.3%
5.8%

1.0%
1.0%
1.5%

(b) for the Metro Phoenix economy:

2007
2006
2005

5.1%
21.7%
14.4%

40.4%
49.5%
59.4%

39.4%
19.6%
20.8%

13.1%
8.3%
4.5%

1.0%
1.0%
1.0%

(c) for your own industry:

2007
2006
2005

16.3%
24.5%
21.0%

32.7%
45.9%
47.8%

32.7%
14.3%
19.0%

12.2%
10.2%
9.3%

6.1%
5.1%
2.9%

2007
2006
2005

3.0%
6.2%
11.7%

29.0%
41.2%
51.7%

45.0%
36.1%
28.3%

19.0%
13.4%
6.3%

4.0%
3.1%
2.0%

(b) for the Metro Phoenix economy:

2007
2006
2005

5.1%
10.5%
16.3%

41.4%
49.5%
52.5%

42.4%
33.7%
27.2%

10.1%
6.3%
2.5%

1.0%
0.0%
1.5%

(c) for your own industry:

2007
2006
2005

10.2%
14.4%
16.0%

36.7%
46.4%
47.1%

38.8%
26.8%
27.7%

12.2%
11.3%
7.3%

2.0%
1.0%
1.9%

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

2007
2006
2005

67.0%
67.7%
63.8%

17.0%
18.2%
25.6%

16.0%
14.1%
10.6%

0.0%
0.0%
0.0%

2007
2006
2005

45.3%
62.9%
61.2%

43.2%
24.7%
26.7%

7.4%
9.3%
4.9%

4.2%
3.1%
7.3%

2007
2006
2005

42.0%
45.0%
46.9%

41.0%
42.0%
40.6%

17.0%
12.0%
12.6%

0.0%
1.0%
0.0%

2007
2006
2005

32.7%
49.5%
44.0%

46.9%
41.4%
47.8%

15.3%
6.1%
6.3%

5.1%
3.0%
1.9%

2007
2006
2005

44.4%
48.0%
41.1%

44.4%
38.0%
43.0%

11.1%
13.0%
15.9%

0.0%
1.0%
0.0%

2007
2006
2005

36.1%
47.5%
48.3%

43.3%
43.4%
39.6%

18.6%
7.1%
8.7%

2.1%
2.0%
3.4%

PAGE 4

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GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2007

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

2007
2006
2005

65.7%
71.0%
58.5%

33.3%
26.0%
38.7%

1.0%
3.0%
2.9%

0.0%
0.0%
0.0%

2007
2006
2005

52.1%
62.2%
64.4%

42.7%
33.7%
33.2%

3.1%
3.1%
1.0%

2.1%
1.0%
1.5%

2007
2006
2005

55.8%
50.0%
38.5%

26.9%
30.0%
50.0%

7.7%
17.5%
9.4%

9.6%
2.5%
2.1%

2007
2006
2005

41.2%
51.3%
39.6%

37.3%
28.2%
49.0%

2.0%
10.3%
6.3%

19.6%
10.3%
5.2%

2007
2006
2005

12.1%
18.0%
56.0%

50.5%
52.0%
34.3%

25.3%
25.0%
9.7%

12.1%
5.0%
0.0%

2007
2006
2005

14.0%
13.0%
58.4%

45.0%
56.0%
37.2%

37.0%
30.0%
4.4%

4.0%
1.0%
0.0%

Significant

No Impact

Small Impact

N/A

49.0%
56.0%
28.3%

5.0%
3.0%
7.8%

43.0%
40.0%
62.0%

3.0%
1.0%
2.0%

8) Pricing Power:

9) Prices charged in next 12 months will:

10) Effect of oil prices on your business?
2007
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
JPMorgan Chase Economic Outlook Center
Tracy Clark
Arizona Department of Commerce
Kent Ennis

JPMorgan Chase
Economic
Outlook Center
Tracy L. Clark, Economics Editor
Elliott Pollack, Topics Editor
Jim Dodson, Editorial Coordinator

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

GREATER PHOENIX BLUE CHIP (ISSN 1042-6825) is published four
times a year by the JPMorgan Chase Economic Outlook Center, an
affiliate of the L. William Seidman Research Institute in the W. P. Carey
School of Business at Arizona State University. E-mail subscriptions
(PDF) are available for $39 for one year (4 issues). For information,
call the Economic Outlook Center at (480) 965–5543.
©2007 Arizona Board of Regents for Arizona State University. Reprint
permission required from the JPMorgan Chase Economic Outlook
Center.
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University of Arizona
Eller College
Marshall Vest
Vision Econ
Debra J. Roubik