Phoenix Recovery Advances, but Downside Risks Lurk

  • Improvement in Phoenix’s unemployment rate stalled in the third quarter, at a flat 7.2 percent. Although stationary, Phoenix unemployment is 0.9 percent below the national rate for Q3. Payroll job growth in Phoenix continues to outpace that of the nation, growing at a 3.3 percent annualized rate in the third quarter, 1.8 percent above the national rate. Phoenix is well-situated to gain an employment boost from a mix of short-term and longer-term investments by major corporations in the area. Manufacturers Raytheon Missile Systems and Honeywell International Inc. together recently received over half a billion dollars in government contracts to build high-tech military equipment and machinery. Intel has begun construction on a $300 million R&D facility in Chandler in addition to building a new $5 billion chip facility there which will be the most advanced high-volume semiconductor manufacturing site in the world. Although high tech manufacturing is fueling growth in the Phoenix job market, the area’s exposure to manufacturers of military equipment leaves it vulnerable to drag from potential federal government spending cuts associated with the Fiscal Cliff in early 2013. A merger between US Airways and American Airlines also poses a risk to the local economy. If Phoenix were to lose its status as a major US Airways hub local job losses would ensue.
  • Nominal income growth in Phoenix, fueled by a recovering labor market, has kept pace with national growth over the first half of 2012. Full-year income growth is expected to outpace national growth by 0.7 percent.
  • Local home prices turned positive on a year-over-year basis in Q2, the first such increase since before the Great Recession. Housing starts are off of their recession lows, driven by a boom in single-family construction.  Multifamily construction picked up noticeably in the third quarter, as well. Credit quality for businesses and individuals has been improving slowly, but bankruptcies remain historically high.

Click here for the complete 2012Q4 Phoenix Regional Economic Update: Phoenix 2012Q4.

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