While it is a difficult time financially for many people, the hardships during this economic period are not unusual. That was part of the consensus among economists during the recent Flagstaff Economic Outlook Conference.
The annual conference was sponsored by Chase, Northern Arizona University W.A. Franke College of Business and Flagstaff Business News. Since 1976, the conference has drawn local businesspeople eager to hear annual forecasts by prominent economists. Keynote speaker Jim Glassman of JPMorgan Chase & Company said in an interview with Flagstaff Business News prior to the conference, “If you think the world is coming to an end, then you will be surprised by what you’ll hear this morning.
“We economists know that the economy rises and falls like the tide,” said the managing director and senior economist of one of the oldest financial institutions in the United States. “What we’re telling you is not that it feels good, but that it is getting better. Last year, we had to bank on hope and faith. This year, we see what we hoped for. The promising signs are more concrete this year.
“Business hiring is picking up. The pace of growth is slow. Outside of the U.S., lights are coming on. We’re seeing the benefits of what’s happening in the global economy,” said Glassman, who flew in from New York City for the conference.
“The first thing that had to be corrected was excesses in the real estate market. Real estate prices were out of line with the consumer’s ability to afford a home. The good news is that the whole next generation of people who need to buy homes won’t have to wait their whole lives for prices to come down.
“There is a lot of pain with still lots of mortgages underwater, but that’s not going to get in the way. Several areas are really over-built with homes. If they were all in Flagstaff, they’d be no problem, but they’re built in Las Vegas,” said Glassman, who confessed that Northern Arizona is his favorite part of the country.
Before panelists began speaking, Aldo Pazzini-Bortoluzzi, president of NAU’s International Honor Society in Economics, said, “I am hoping to hear that the economy is getting better. My family owns a staffing agency in the Valley and I hope the speakers will talk about unemployment.”
Alan Chan, principal of Jim Babbitt Ford, shared, “Our economy is kind of unique here in Flagstaff. Sometimes it lags and sometimes it leads. That is why I try to come to this event every year.”
“I came to hear about what’s happening. We had a great summer and I’m interested to hear other people’s thoughts about the economy,” said Dave Smith, director of sales and marketing of Arizona Snowbowl.
Dr. Ronald Gunderson, professor of economics at the W.A. Franke College of Business, began with a regional outlook. “It certainly doesn’t feel like the recession is over,” he said.
“The decline in tax revenue will moderate … real estate sales should pick up a little. Home prices are likely to drop or hold.” Gunderson added, “Tourist-related sales in Flagstaff will remain questionable. “Holiday shopping could match last year’s spending. The new Walmart will help with increased sales,” predicted the NAU professor. Overall, Gunderson forecasts that chances for a better regional economy in 2011 are 51 percent. “I am not so concerned about the Flagstaff economy as I was last year,” he concluded.
“Troubling signs point to ‘this is not over.’ The Treasury Reserve is up over $1 trillion since August 2008,” cautioned the next speaker, Dr. Dennis Foster, also from W.A. Franke College of Business. The NAU professor of economics explained that reserves are not backed with Treasury bonds, but rather mortgage-backed securities of “questionable mortgages,” many of which will mature in ten years.
Foster forecasts that interest rates will remain low, inflation seems inevitable, and unemployment will not improve dramatically. “Recession worries are not over,” Foster warned. “It may get worse. Be very prepared.”
On the other side of the coin, panelist Elliot Pollack, CEO of Elliot D. Pollack & Company, a Scottsdale-based economic consulting firm, stated, “The good news is that Arizona is recovering. The bad news is that Arizona is recovering slowly.
“If we take out the census workers, unemployment hasn’t improved. Hours worked [per employee] are going up because employers want to improve productivity of existing workers before hiring more.” Pollack predicts that Arizona will not see the low unemployment rates of 2007 until 2014. Pollack forecasts that no commercial office space will be built in Phoenix for the next five years, but that the recovery of Arizona’s housing market will happen in 2013 or 2014. “Recovery for Arizona will be painfully slow,” concluded the economist.
During the break before the keynote address, Fran Algya of Flagstaff Equipment said, “I haven’t heard them speak about how recent weather has affected local businesses. Al- though heavy snows were bad news for some, there was a good news side of it. We employed a lot of people to shovel snow from roofs right before the holidays.” Algya also questioned how other recent disasters – fire, flooding and tornadoes – might affect the local economy. In the keynote address, Glassman continued his tide analogy. “Economic rhythm is like the tide – rising and falling. The roll of data waves says nothing about tidal movements. It is sloppy, messy and difficult to measure an economy as complex as ours,” revealed the eminent economist. “Economists spend less time looking at the data and more time looking at where the moon is.”
The Wall Street economist revealed that he doesn’t fear inflation. “This is not a story that our school books ever taught us about,” Glassman explained. “There is no inflation threat because in three seconds, the Fed can change and trap excess reserves.
“It looks like the tide is coming back in,” concluded Glassman, who said it will be 10 years to full employment in the U.S. “There is a sober lesson in this. It took a short time to disrupt the economy, but it will take a long time to recover.” FbN