GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2008 PAGE 1 ............................................................................... FIRST QUARTER 2008 Volume 20, Number 1 Manufacturer's Survey: Gloomy outlook for Phoenix and U.S. The results of the 15th Annual Greater Phoenix Manufacturer’s Survey are some of the poorest in its history. The only time the survey showed a more negative view of the United States and Phoenix economies versus a year earlier was immediately after the 2001 recession. Results of the survey indicate that only 12.5 percent of companies polled believe that the U.S. economy is moderately or substantially better than it was a year ago and some 64 percent believe that it is moderately or substantially worse. The Greater Phoenix economy is also seen as having deteriorated, with only 13.4 percent believing the local economy is better and 56.9 percent believing that it is worse than a year ago. These results are not terribly dissimilar to the 2002 survey. When asked about their own industry, some 22.0 percent said that conditions were better and 48 percent said that they were worse. Looking ahead 12 months, only 21.2 percent believe conditions will be better nationally a year from now, with 46.9 percent believing they will be worse. The same is true for the expected conditions in Greater Phoenix where only 26.2 percent believe conditions will be better and 39.3 percent believe that they will be worse. Reponses to both of these questions are the most pessimistic in the survey's history. As for conditions in the participants’ own industries a year from now, some 32.4 percent believe that they will be better and 34.9 percent believe they will be worse. These responses are similar to those reported during the depths of the 2001 recession. In terms of what has happened to employment over the past year, 24.6 percent of those polled reported that employment increased while 22.8 percent reported it declined. Only in 2002 and 2003 were results worse. As for the next 12 months only 22 percent believe that employment will increase – the lowest percentage on record. This does not bode well for an economy already in a no-growth mode. The same generally negative attitude exists for the outlook for capital spending and wage increases. In terms of exports, 44.8 percent believe that exports will be increasing over the next 12 months. While this is a relatively high level, it is well below levels in 2004 and 2006. That is surprising in view of the weak dollar, which makes U.S. goods more competitive overseas. When asked about the biggest challenge facing their company, results varied from a slowing economy to general competition, with the most frequent answers listed as the housing market slowdown and immigration law. Overall, the 2008 Greater Phoenix Blue Chip Manufacturer’s Survey shows a low level of optimism for 2008 and 2009. Businesses will conduct hiring and capital spending accordingly. — Elliott D. Pollack Phoenix job growth numbers revised downward for 2006, 2007 It is clear that the impact of the declining housing market is being felt in the Greater Phoenix area. Benchmark revisions to 2006 and 2007 employment data show that the economy was weaker than originally reported. Forecasts for 2008 have been revised downward and the first look at 2009, while better than 2008 overall, is hardly robust. Downward revisions in the employment numbers were widely expected because surveys tend to overestimate employment when the economy first starts weakening and underestimate employment as a recovery gets underway. The monthly survey numbers are benchmarked to the information from the unemployment insurance program. The revisions were near the upper end of most analysts' expectations, although where the weakness occurred was no surprise at all. Employment was revised downward in 2006 by 11,500 jobs, which chopped 0.7 percentage points off the growth rate, and 2007 lost 53,300 jobs or 2.2 percentage points off the growth rate. Construction was revised downward in 2006 by 4,800 jobs while the rest of the job losses were spread across several sectors. For 2007, revisions were biggest in construction (14,300) and professional and business services (14,500). The job losses in professional and business services are likely concentrated in employ- Employment Estimates (Thousands of Employees) Level 2006 Level 2007 Growth 2006 Growth 2007 PrePostBench- Benchmark mark Difference 1,847.5 1,836.0 -11.5 1,907.3 1,854.0 -53.3 6.0% 3.2% 5.3% 1.0% -0.7% -2.2% Source: Arizona Department of Commerce, Research Administration ment services, which is made up of contract and temporary help firms. These firms are the first to lose jobs in a downturn; job losses in 2008 probably will be more evenly spread across sectors. — Tracy Clark PAGE 2 ................................................................................ GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2008 GREATER PHOENIX ECONOMIC FORECAST FOR 2008 ANNUAL PERCENT CHANGE 2008 FROM 2007 SOURCE Arizona Department of Commerce Arizona Public Service ASU - Economic Outlook Center ECON-LINC EconLit LLC Elliott D. Pollack and Co. Grand Canyon University H.C. Reardon Economics Joint Legislative Budget Committee The Maguire Company Southwest Growth Partners Salt River Project U of A - Eller College Consensus AVERAGE RATE FOR 2008 Population 2.7 3.2 2.8 2.8 3.0 2.5 L 2.7 2.8 3.0 2.9 3.0 2.8 2.5 L Personal Income 4.8 7.5 H 6.5 6.0 6.8 5.5 6.3 5.0 6.5 5.8 7.3 5.5 3.3 L Retail Sales 2.4 8.5 H 1.0 5.2 5.5 1.0 6.7 2.0 5.5 4.6 6.8 2.5 -0.4 L Wage & Salary Empl. 1.2 4.4 H 1.6 2.2 2.8 1.0 2.2 1.5 3.0 2.8 3.0 0.6 -1.0 L Manufacturing Empl. -0.8 0.0 -0.5 -0.5 0.5 0.0 1.0 H -1.0 0.0 0.0 1.0 H -0.7 -2.8 L Construction Empl. -9.0 5.0 -5.0 19.0 H -5.0 -15.0 0.0 -12.0 -4.0 -8.0 -1.0 -17.5 -21.6 L Services Empl. 2.1 L 5.0 H 3.0 3.2 3.8 2.5 4.0 4.0 4.0 3.8 4.2 2.8 2.6 National CPI 2.2 2.4 2.4 2.6 2.7 2.5 2.7 2.2 2.9 3.2 H 2.1 2.0 L 2.2 2.8 5.9 3.9 1.9 -0.3 -5.7 3.5 2.5 Unemployment Rate 4.6 H 3.7 4.6 H 4.0 4.3 4.0 4.6 H 4.6 H 4.2 4.6 H 4.0 4.4 4.3 GREATER PHOENIX ECONOMIC FORECAST FOR 2009 ANNUAL PERCENT CHANGE 2009 FROM 2008 SOURCE Arizona Department of Commerce Arizona Public Service ASU - Economic Outlook Center ECON-LINC EconLit LLC Elliott D. Pollack and Co. Grand Canyon University H.C. Reardon Economics Joint Legislative Budget Committee The Maguire Company Southwest Growth Partners Salt River Project U of A - Eller College Consensus AVERAGE RATE FOR 2009 Population Personal Income Retail Sales Wage & Salary Empl. Manufacturing Empl. Construction Empl. Services Empl. National CPI Unemployment Rate 2.6 5.8 3.2 2.1 0.1 0.4 2.9 2.0 4.3 2.6 3.0 H 2.9 2.5 L 6.8 6.5 6.9 H 6.0 2.0 L 6.0 5.5 2.5 2.6 3.2 H 2.9 2.0 1.0 H 1.0 H 0.0 0.0 0.0 5.0 H 0.0 -10.0 L 3.3 3.5 3.9 2.5 2.2 2.2 2.6 H 1.5 L 4.9 H 4.2 4.1 4.0 L 3.0 H 2.9 5.5 6.3 3.5 5.5 2.5 2.9 0.0 0.0 0.0 0.0 4.0 H 3.5 2.2 2.5 4.4 4.6 2.7 2.7 6.3 4.8 L 4.6 6.6 H 2.2 0.7 L 0.0 -0.6 L 1.0 0.5 3.2 1.2 L 1.8 1.6 4.1 2.8 6.1 4.4 2.3 0.2 -0.3 3.1 2.1 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 2007 2006 2005 * Estimate Population (thousands) 3,876 3.0% 3,764 3.5% 3,636 3.9% Personal Income (millions) 140,288* 7.2% 130,857* 8.4% 120,717 9.5% Retail Sales (millions) 43,712 0.1% 43,686 7.9% 40,500 14.2% Wage & Salary Empl. (thousands) 1,854.0 1.0% 1,836.0 5.3% 1,743.0 6.2% Manufacturing Empl. (thousands) 133.3 -2.1% 136.2 2.3% 133.1 3.2% Construction Empl. (thousands) 167.7 -6.4% 179.2 9.8% 163.2 15.8% Services Empl. (thousands) 771.7 2.4% 753.7 7.0% 704.6 6.5% National CPI 207.3 2.8% 201.6 3.2% 195.3 3.4% Unemployment Rate 3.2 3.5* 4.0 GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2008 ............................................................................... PAGE 3 JPMorgan Chase Economic Outlook Center 2008 SURVEY OF MARICOPA COUNTY MANUFACTURERS Percent of Responses Substantially Better Moderately Better Same Moderately Worse Substantially Worse 2008 2007 2006 0.9% 5.0% 12.2% 11.6% 41.0% 57.1% 23.6% 31.0% 14.3% 52.8% 22.0% 15.3% 11.1% 1.0% 1.0% (b) for the Metro Phoenix economy: 2008 2007 2006 1.3% 5.1% 21.7% 12.1% 40.4% 49.5% 29.8% 39.4% 19.6% 47.5% 13.1% 8.3% 9.4% 1.0% 1.0% (c) for your own industry: 2008 2007 2006 4.9% 16.3% 24.5% 17.1% 32.7% 45.9% 30.1% 32.7% 14.3% 33.5% 12.2% 10.2% 14.4% 6.1% 5.1% 2008 2007 2006 0.9% 3.0% 6.2% 20.3% 29.0% 41.2% 32.0% 45.0% 36.1% 37.7% 19.0% 13.4% 9.2% 4.0% 3.1% (b) for the Metro Phoenix economy: 2008 2007 2006 1.8% 5.1% 10.5% 24.3% 41.4% 49.5% 34.6% 42.4% 33.7% 31.9% 10.1% 6.3% 7.4% 1.0% 0.0% (c) for your own industry: 2008 2007 2006 4.0% 10.2% 14.4% 28.4% 36.7% 46.4% 32.7% 38.8% 26.8% 28.6% 12.2% 11.3% 6.3% 2.0% 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 2008 2007 2006 40.0% 67.0% 67.7% 25.4% 17.0% 18.2% 34.2% 16.0% 14.1% 0.4% 0.0% 0.0% 2008 2007 2006 34.3% 45.3% 62.9% 36.3% 43.2% 24.7% 20.8% 7.4% 9.3% 8.6% 4.2% 3.1% 2008 2007 2006 24.6% 42.0% 45.0% 52.4% 41.0% 42.0% 22.8% 17.0% 12.0% 0.2% 0.0% 1.0% 2008 2007 2006 22.3% 32.7% 49.5% 63.0% 46.9% 41.4% 11.0% 15.3% 6.1% 3.8% 5.1% 3.0% 2008 2007 2006 35.4% 44.4% 48.0% 44.0% 44.4% 38.0% 20.1% 11.1% 13.0% 0.6% 0.0% 1.0% 2008 2007 2006 26.0% 36.1% 47.5% 47.2% 43.3% 43.4% 23.6% 18.6% 7.1% 3.2% 2.1% 2.0% PAGE 4 ................................................................................ GREATER PHOENIX BLUE CHIP • FIRST QUARTER 2008 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) Remain(ed) the same Decrease(d) Don't know 2008 2007 2006 49.3% 65.7% 71.0% 46.1% 33.3% 26.0% 4.3% 1.0% 3.0% 0.4% 0.0% 0.0% 2008 2007 2006 43.2% 52.1% 62.2% 50.5% 42.7% 33.7% 3.8% 3.1% 3.1% 2.5% 2.1% 1.0% 2008 2007 2006 40.6% 55.8% 50.0% 45.5% 26.9% 30.0% 7.4% 7.7% 17.5% 6.4% 9.6% 2.5% 2008 2007 2006 44.8% 41.2% 51.3% 41.9% 37.3% 28.2% 4.4% 2.0% 10.3% 8.9% 19.6% 10.3% 2008 2007 2006 12.4% 12.1% 18.0% 43.9% 50.5% 52.0% 33.3% 25.3% 25.0% 10.4% 12.1% 5.0% 2008 2007 2006 7.7% 14.0% 13.0% 53.5% 45.0% 56.0% 33.9% 37.0% 30.0% 4.9% 4.0% 1.0% Significant No Impact Small Impact N/A 37.0% 49.0% 56.0% 7.1% 5.0% 3.0% 54.3% 43.0% 40.0% 1.6% 3.0% 1.0% 8) Pricing Power: 9) Prices charged in next 12 months will: 10) Effect of oil prices on your business? 2008 2007 2006 ECONOMIC FORECAST PANEL Arizona Department of Commerce Dennis Doby and Chen Levenson EconLit LLC Dwight Duncan Joint Legislative Budget Committee Staff Arizona Public Service Co. Pete Ewen Elliott D. Pollack and Co. Elliott Pollack The Maguire Co. Alan Maguire Arizona State University JPMorgan Chase Economic Outlook Center Tracy Clark Grand Canyon University Debra J. Roubik Salt River Project Arlyn Herrera, Janna Lorenzen and Karen Wolfe H. C. Reardon Economics Hank Reardon University of Arizona Eller College Marshall Vest ECON-LINC John Lucking JPMorgan Chase Economic Outlook Center Tracy L. Clark, Economics Editor Elliott Pollack, Topics Editor Jim Dodson, Editorial Coordinator 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. For information, call the Economic Outlook Center at (480) 965–5543. ©2008 Arizona Board of Regents for Arizona State University. Reprint permission required from the JPMorgan Chase Economic Outlook Center. 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