After facing a number of headwinds in 2013, Phoenix’s moderate economic expansion will continue into 2014. Increased uncertainty and federal budget sequestration were a drag on local defense-related businesses throughout 2013. Honeywell International, whose aerospace division is headquartered in Phoenix, saw flat aerospace-related sales growth in 2013. Boeing, which has facilities in Mesa, saw military aircraft revenues decline by 1 percent in 2013. The passing of the Bipartisan Budget Act in December eased the uncertainty surrounding the defense budget in 2014. Under the act, discretionary defense spending will increase to $520.5 billion in FY2014 compared to $498 billion under sequestration.
Phoenix regional housing markets regained momentum at the end of 2013. After gaining ground in the first half of 2013, Phoenix housing starts dipped in 2013Q3, hitting a 19-month low of a 12,800 unit annual rate in September. Increased mortgage rates were a drag on housing markets during this time period. Housing starts then bounced back to a 20,000 unit annual rate in December. Housing permits in the region are worth noting as they reached a 69-month high of a 30,400 unit annual rate in December. We expect housing starts for the region to total 17,341 for 2014, increasing to 19,136 in 2015.
Phoenix total nonfarm payrolls increased by 43,000 from a year ago in December. Mining and logging were down 300 jobs; manufacturing lost 2,100; and government lost 2,100. Trade, transportation and utilities were up 12,800 jobs; education and health services gained 10,900; and financial activities were up 8,300. Unemployment in the Phoenix region declined to 6.4 percent in December, below the U.S. average of 6.7 percent. The outlook for area labor markets is positive in 2014. Total nonfarm payroll employment is expected to gain an additional 44,000 jobs by the end of 2014Q4. The unemployment rate is expected to decline to 5.1 percent by the end of 2014.
Click here for the complete Phoenix MSA Regional Economic Update: Phoenix 2013Q4.