TUCSON, AZ – Tucson’s economy is poised for significant growth over the next two years. That was a key message at the University of Arizona Eller College of Management 2016 Breakfast with the Economists event held this week at the Westin La Paloma Resort in Tucson. 

More than 400 people attended the event to hear presenters George W. Hammond, Ph.D., director and research professor at UA Eller’s Economic and Business Research Center, and Ross DeVol, chief research officer of the Milken Institute, discuss the latest data and share predictions for local job growth, the housing sector, trade and export activity, the impact of education on local economic growth and more.

Hammond, who predicted in December 2015 that Tucson’s job growth would gradually improve, said Tucson job growth is finally beginning to pick up steam.

“Tucson continued to expand at a modest pace last year, but recent results suggest a significant acceleration,” Hammond said. “Further, the forecast calls for recent momentum to build toward stronger performance during the next two years.”

Hammond’s presentation revealed that: 

• Job growth in the Tucson metropolitan statistical area (MSA) averaged 2.8 percent over the year in the first three months of 2016. That translated into 10,400 additional jobs, according to the preliminary data. That was much faster than the 0.8 percent (2,900 jobs) increase that the local area posted last year.

• Most of the job gains over the year were in education and health services, financial activities, and professional and business services, with smaller increases in government (primarily state and local), manufacturing, leisure and hospitality, information, and trade, transportation, and utilities.

• Natural resources and mining and other services lost jobs. Declining copper prices drove the losses in mining.

• Population gains were modest last year, with the region adding just 2,200 residents. However, with stronger job growth expected for 2016, population gains may pick up additional steam. That would boost housing permit activity from relatively weak levels in 2015 to better performance during the next few years.

• Tucson’s job growth is forecast to accelerate from 0.8 percent last year to 1.7 percent in 2016, and to 1.9 percent in 2017. Population growth increases from 0.2 percent in 2015 to 0.6 percent this year and then to 1.0 percent in 2017.

“Overall, if the national economy continues to expand, Tucson is well positioned to grow, and to grow at a faster pace,” Hammond said. “However, there are risks to the outlook to consider. These include, but are not limited to, a national or global downturn, continued low U.S. residential mobility, and a major fiscal shock affecting the government sector.”

DeVol’s presentation focused on the characteristics of competitive places and the critical role of human capital. Guests heard about the Milken Institute’s new research, which displays the relationship between educational attainment and economic performance across 261 metropolitan economies in the U.S.

“We took into account the average years of schooling, age composition of the workforce, industry mix, R&D intensity as measured by patents per capita, and other structural differences,” DeVol said. “We found that adding one year of schooling to the average educational attainment among employed workers with at least a high school diploma is associated with an increase in real GDP per capita of 17.4 percent and an increase in real wage per worker of 17.8 percent.”

DeVol’s presentation covered several key points:

• The factors that are critical for regional economic success are changing and the role of human capital is becoming ever more important. Labor is highly mobile between U.S. regions as individuals and firms respond to differences in relative economic-performance factors. Migration trends between states and regions, however, can greatly alter their long-term potential growth rates. Today, concentrations of talent attract firms to states as opposed to industry agglomerations and firms being the principal attraction force for people.

• Since 1980, the average years of schooling among Americans 15 and older increased by 1.1 years, to 13.1 years in 2010. However, many nations are closing the gap. Other advanced economies gained 2.4 years, reaching 10.6 years of schooling over the same period.

• Tucson ranks the highest among Arizona’s metros in terms of education attainment. However, Tucson’s ranking has slipped from 62nd in 1990 to 90th in 2010 in the percent of the workforce with a bachelor’s degree or above among 261 metros.

• Arizona’s ranks 29th on human capital measures for states. Arizona performs well in attracting skilled labor from outside the state, but falls short of where it needs to be in creating its home-grown human capital.

For more information or to view Dr. Hammond’s slide presentation, visit Eller’s Economic and Business Research website, ebr.eller.arizona.edu.

Tucson’s economic growth is expected to outpace the national economy by 2017. That was the key message at the University of Arizona Eller College of Management 2015 Mid-Year Economic Breakfast Wednesday at the Westin La Paloma Resort.

More than 300 people attended the event to hear presenters George W Hammond, Ph.D., director and research professor at UA Eller’s Economic and Business Research Center and Roberto Coronado, Ph.D., assistant vice president and senior economist at the Federal Reserve Bank of the Dallas-El Paso branch, give a mid-year assessment of economic condition related to job growth, the housing sector, gas prices, and economic relations with Mexico.

Hammond who predicted in December 2014 that Tucson’s job growth would gradually improve by 2016 said job growth is predicted to accelerate from 0.5 percent last year to 0.9 percent this year, and rise to 1.4 percent in 2016. Job growth is expected to continue in 2017, helping to fuel Tucson’s economy and begin to outpace the national average.

The Federal fiscal drag has diminished, but continues to weigh on the local economy. It is now joined by fiscal drag from the state and local sector

“Tucson’s employment was up 4,000 jobs over the year in April and it is forecasted to add 3,400 jobs this year and 5,200 jobs in 2016,” Hammond said. “Most of the new jobs will be gained in the service sectors, such as health services, trade, leisure and hospitality, and professional and business services.”

Coronado’s visit to Tucson marked the first time he participated in a UA event. His presentation focused on Mexico, with a special emphasis on the border economy.

After a strong recovery from the so-called Great Recession, Mexico’s economy entered a soft patch since the second half of 2013,” Coronado said. Mexico’s economy has been gaining momentum since the second half of 2014, but growth has been moderate at best.”

U.S.- Mexico trade flows reached record high levels in 2014 at more than $530 billion, representing exports plus imports. “Automotive is the top trading sector as Mexico has made significant inroads into the North American auto manufacturing industry,” he said.

Mexico has been working on structural reforms since the 1980s. This process accelerated since 20123 as Mexico has engaged in an aggressive structural reform agenda. Macroeconomic stability has been achieved mostly due to three factors: central bank independence; fiscal discipline; and openness to trade. In spite of this, per capita income growth remains weak. Therefore, the new reforms are needed to soru growth.

Arizona exports to Mexico rose by 22.2 percent in 2014. However, the recent appreciation of the U.S. dollar versus the peso has slowed state export growth in 2016. The dollar/peso exchange rate is up by 16.3 percent from April 2014.

Gas prices hare helping fuel the economy. Lower gas prices are increasing the funds available to households to spend and save. If prices remain $1 per gallon below 2014 levels, it could free up $368 per person in Tucson. Preliminary indications suggest the U.S. households are choosing to save, rather than spend, a significant portion of those funds.

During the presentation, Hammond also shared updates regarding the Arizona-Mexico Economic Indicators website, www.azmex.eller.arizona.edu, which was launched in December 2014. The first site of its kind to have economic indicators from both sides of the border.

Arizona-Mexico Economic Indicators focuses on Arizona’s trade with Mexico, assessment of the role of Arizona’s border ports of entry in the U.S.-Mexico border region, and monitoring key indicators of Mexico’s economy. Six major sections capture the dynamics of Arizona’s trade and competiveness: Arizona Trade, Border Crossings by Border Port of Entry, Commodity Flows by Border port of Entry, the Economy, Foreign Direct Investment, and Population.

As the presentation came to a close, Hammond was optimistic about the future.

“Overall, Tucson will benefit during the next few years from faster U.S. growth, which will contribute to increased residential mobility across the nation and improved population gains locally,” he said. “The addition of more residents will boost housing and related secots, which have lagged since the end of the recession.”

Dr Hammond’s slide presentation can be viewed by going to Eller’s Economic and Business Research website: www.ebr.eller.arizona.edu.

Experts agree, Arizona’s economy continues to struggle based on the 31^st Annual Forecast Luncheon held on December 12^th co-sponsored by University of Arizona’s Eller College of Management and JPMorgan Chase.

George W Hammond, Ph.D., Director of the Economic and Business Research Center presented the following economic forecast:

After an awful start to the year, the U.S. economy is back on track and growing again. However, the economy remains well below potential, which leaves a large segment of the population without adequate employment opportunities. This is putting downward pressure on wage and income growth. In contrast, the stock market posted strong results in 2013 and is still rising.

Tucson continues to grow, with rising jobs, income, and population. But that growth has been disappointing.

The missing link in the state’s recovery has been construction, which continues to battle headwinds. Without a serious rebound in this sector, it is unlikely that state growth will accelerate appreciably. Such a rebound in the next year seems unlikely at this point, which means that Arizona is headed for another year of modest growth.

Arizona job growth rebounded in the third quarter of 2014, after a dismal showing during the previous three months. The state added 51,600 jobs in the third quarter on a year-over-year basis, which translated into a growth rate of 2.0%. That was slightly faster than the national job growth rate of 1.9%.

Most of the job growth was concentrated in leisure and hospitality (especially jobs in food services and drinking places); education and health services; professional and business services; and trade, transportation, and utilities (especially retail trade). These sectors together accounted for 81.2% of job growth over the year. Government jobs rose modestly during the period, reflecting gains in state and local education, as well as slower job losses in the federal sector. Manufacturing jobs were up over the year, driven by gains in other manufacturing and non-durable goods. Aerospace and computer and electronic products both posted job losses.

Construction employment continued its string of disappointing results, dropping 5,700 jobs over the year in the second quarter. This primarily reflects sluggish activity in the construction of buildings, both residential and nonresidential.

Natural resources and mining also posted job losses over the year, but these seem to be related to an administrative reallocation of jobs across sectors by the U.S. Bureau of Labor Statistics.

Job growth in the Phoenix MSA has outpaced gains statewide and growth in the Tucson MSA. Indeed, the Phoenix MSA added 38,400 jobs over the year in the third quarter, which translated into a growth rate of 2.1%. Phoenix job growth also accounted for 74.4% of state growth. The Tucson MSA added 4,200 jobs over the year, for a 1.2% growth rate, and accounted for 8.1% of state job growth.

One reason that Arizona’s recovery has been tepid is the slow rebound of the housing sector.

House prices have followed a somewhat similar pattern, with strong increases beginning in 2011, which have gradually decelerated during 2013 and into 2014. According to data from Case-Shiller, house price appreciation in the Phoenix MSA peaked at 23.2% (year over year) in January 2013. The latest data, for August 2014, show year-over-year growth of just 4.3%. That general pattern holds for Tucson as well, with strong gains in 2012, followed by slower growth.

Overall, Arizona residential activity remains stuck in a low gear, held back by slow population and household growth, still-tight mortgage credit conditions, and modest supply constraints related to the availability of affordably priced lots in desirable areas.

According to Hammond, Arizona is in good position to continue expanding in the future, assuming the national economy avoids recession. However, that growth is likely to remain slow in the near term.

Most of the job gains expected during the next three years will be in the service-providing sectors, particularly trade, transportation, and utilities; professional and business services; leisure and hospitality; and education and health services. Together, these four industries account for 71.4% of net job growth through 2016.

Personal income is expected to rise at a faster pace in 2014 than in 2013. Keep in mind, however, that gains in 2013 were depressed by the federal fiscal cliff. Personal income growth of 3.4% in 2014 and 3.5% in 2015 is not rapid. Slow increases in personal income during the next two years reflect modest improvement in earnings from work, which are likely to be restrained as the state takes time to absorb slack in the labor market.

The Phoenix and Tucson MSAs are both expected to add jobs, residents, and income in the near term, although growth remains slow. As Exhibit 4 shows, employment is forecast to rise at a faster pace in Phoenix than Tucson. Tucson continues to battle the headwinds created tight federal spending (including the sequester), since federal government activities (both civilian and military) are a large part of the local economy.

To see the full slide presentation click here