Phoenix Recovery Advances, but Downside Risks Lurk

  • Following a flat unemployment rate through Q2 and Q3 of last year, Phoenix unemployment dipped to 6.8 percent on average for Q4 2012. Payroll job growth in Phoenix outperformed the national average in 2012, up 2.5 percent, compared to 1.7 percent nationally. Upside potential for the Phoenix labor market comes from a mix of short-term and longer-term investments by major corporations in the area, such as manufacturers Raytheon Missile Systems and Honeywell International Inc., who together recently received over half a billion dollars in government contracts to build high-tech military 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. Boeing, which has operations in Mesa, also poses a near-term risk to the local labor market, as the company struggles with a PR hit brought about by mechanical issues with its newly delivered Dreamliner series. Mitigating this risk somewhat is the fact that, while Boeing engineers work to address the Dreamliner’s issues, existing orders for older models should keep their workforce engaged. The recently ratified merger between US Airways and American Airlines points to the loss of corporate headquarters jobs in Tempe, however other non-redundant operations are expected to remain in the area.
  • Nominal income growth in Phoenix, fueled by a recovering labor market, is on track to outperform the national rate by 1.2 percent for all of 2012, even as the rate of growth slowed noticeably in the third quarter.
  • Local home prices turned positive on a year-over-year basis in Q2, increasing again in Q3, by 9.5 percent on the same basis. Housing starts are well off of their recession lows, driven by a boom in single-family construction over the course of 2012. Multifamily construction picked up noticeably in the second half of the year. Credit quality is improving, but remains impaired by historical standards.

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Click here for the complete Phoenix MSA Regional Economic Update: Phoenix 2013Q1.

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