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With the year considered a recession almost halfway through, analysts are still trying to figure out which direction the economy is headed.
Construction is sluggish, home prices have softened, banks are failing, the stock market is well below its peak, consumer spending is slowing, and interest rate increases have brought the average credit card rate to 20%. .
But the most important indicator, employment, remains rock solid, as evidenced by the 339,000 net new jobs created nationwide in May, with some totals revised upward from last month.
“Consistent job strength delays the start of a potential recession, but it does not eliminate that possibility,” said Cathy Bosjancic, chief economist at Nationwide.
Other indicators continue to point to the downside, he added. “And if the economy remains too hot to curb inflation, (the Federal Reserve) will raise rates further.”
Other economists also expect a recession this year, ie broad negative economic growth that lasts at least a few months. And if the national economy crashes, Arizona almost certainly will too.
“I’m not sure how much longer the music will go on,” Tim Quinlan, a senior economist at Wells Fargo, said on June 1, speaking in Phoenix. It predicts that there will be a mild recession in the second half of 2023.
According to one poll, about 43% of Americans already think that the United States is in a recession. The percentage is even higher among many foreigners who suspect that their own countries have entered a recession.
However, George Hammond, an economist at the University of Arizona, recently said that he does not see a recession in the US or the state this year or next.
Employment continues to live up to expectations
The strong growth in employment coupled with the equally low unemployment rate baffles economists. Part of the low unemployment is due to the massive wave of baby boomer retirements and many young people leaving the workforce for various reasons.
Small businesses, in particular, have struggled to fill jobs at wages they are willing and able to pay, with 44% of owners saying in May that they are closing open positions, according to a survey by the National Federation of Independent Firms. Can’t fill up. This figure is 20 percent more than the average of the last 49 years. Nearly 9 out of 10 companies that hired or tried to hire in May reported few or no qualified candidates.
Speaking to about 60 small business owners in Phoenix, Quinlan said the Federal Reserve’s aggressive policy of raising interest rates over the past 15 months has slowed the economy in many ways. Consumer spending has plummeted, and people are saving less money now that the pandemic stimulus checks have expired, he said. In addition, three major banks have failed so far in 2023, and many banks are tightening their lending rules. Manufacturing activity has also cooled down due to falling orders.
The pace of real estate activity has also been uneven, although Quinlan said he doesn’t see vacant downtown office buildings as “the next shoe to drop.” In his view, gains in suburban areas and smaller cities have offset some of the downside in downtown commercial real estate.
In their opinion, inflation remains above the levels desired by those responsible for the Federal Reserve, so they will keep interest rates at current levels or possibly raise them slightly further.
“We expect a mild recession this year as inflation makes a soft landing less likely,” Quinlan said.
Arizona may weather the recession relatively well
But if a recession does eventually set in, he expects Arizona to do reasonably well, thanks to a steady flow of people moving here from other regions, fueling demand. Arizona’s population grew 1.7% last year.
Hammond, director of the Center for Business and Economic Research at the University of Arizona, also believes Arizona’s economy outperforms that of the entire nation, though he takes a different view on whether the recession is looming.
In April, total jobs in Arizona were 165,000 above their pre-pandemic peak, with nearly 90% in the Phoenix metropolitan area. He said Arizona’s unemployment rate was 3.4% in April, a record low since 1976.
On the downside, the Phoenix metropolitan area has also had some of the highest inflation rates, reading 7.4% in the 12 months through April, compared to 4.9% nationally.
“Phoenix inflation is outpacing the U.S. primarily because housing costs have risen much faster,” Hammond said in an email.
But it’s also improving as home prices in the Phoenix metro area fell to an average of $455,400 in April from a high of $510,000 in May 2022.
Hammond’s forecasts call for Arizona’s economy to slow in 2023 and 2024, but avoid recession in both years.
Translation: Javier Arce
