2016 Economic Outlook: Better than 2015, but no Boom!

The nation and Arizona can expect continued slow, steady growth through the remainder of the year and into 2016, and the Federal Reserve Bank may hold off its planned interest hike this month because of the market’s recent volatility, according to three speakers at the Greater Phoenix Chamber of Commerce’s annual Economic Outlook Wednesday.

David Brancaccio, Jim Huntzinger and Elliot Pollack all agree the nation and Arizona are in good shape economically.

Brancaccio, the host of National Public Radio’s Marketplace Morning Report, discussed the economy from a global perspective; Huntzinger, chief investment officer for BOK Financial, examined the economy from a national view; and Pollack, CEO of Elliot D. Pollack & Company took a look at Arizona and the Phoenix area’s economic outlook.

All three agreed that despite the large up and down swings on Wall Street, and what appears to be an unsteady economy in China, there is really nothing to be worried about.

Displaying a series of graphs showing positive signs the nation has recovered from the Great Recession, Huntzinger said, “The Chinese economy should not have a significant effect on what is a healthy labor market in the U.S.”

Brancaccio offered, “The Stock Market is not the real economy. In truth, not that many people own stocks. It’s less than half the people.”

He also said that while factory activity in China is at its lowest point in three years, it’s slowdown has little impact on U.S. products, because we export only about 1% of our products to that nation.

When will the Fed raise rates?
All three are watching the Fed closely. To help stimulate investment and borrowing, the Fed has not raised the interest rate – which remains at 0% – since 2006. Brancaccio said he’s hearing there is a consensus that because of the large swings during the last two weeks, the Fed will not raise the rate this month as it has indicated for months it would do.

Brancaccio added the Fed likely could go ahead with gradual interest rate hike this year. He said it will not want its action to become embroiled in presidential election year politics.

While Pollack suggested the Fed would go ahead and raise the interest rate this month as planned, Huntzinger agreed more with Brancaccio, saying right now the Fed has no flexibility. A .25% interest rate hike, he said would not really have much effect and would provide the Fed further options.

A highlight of Huntzinger’s graphs showed that for 22 straight weeks, jobless claims have fallen below 300,000, which indicates a healthy jobs market. That means, he explained, that many of those who were underemployed or unemployed are returning to better paying jobs.

The underemployed rate has dropped from a high of 17% to 10.5%, he said. The overall unemployment rate stands at 5.3% from the high of 10% at the height of the recession.
Huntzinger pointed out that the job growth still comes from small business owners, who say they are finding it more difficult to find good employees.

Recovery for the foreseeable future
In turning to Arizona, Pollack’s energetic, lively style couldn’t mask that growth here has lagged behind the rest of the nation. The good news, he said, is “the recovery will continue for quite some time.”

Pollack explained that Arizona’s recovery from downturns normally lead the nation, but after the Great Recession that didn’t happen. One factor in the past has been growth. But the number of people moving to the area during the past decade has slowed way down.

One graph he displayed showed that since 2010 when SB 1070 was passed, the rate of migration to Arizona fell and has remained flat ever since.

Pollack said, “There have been no accelerators to income, so people are learning to live within their means. The average person spends the most between the ages of 45 to 56, but unlike other times in our history, there are fewer people in this age range.

“Also, Millennials have managed to delay adulthood, still living with mommy and daddy,” he said to laughter. “Eventually, they will move out, get married and will look to buy their own homes.”

Although indicators show Arizona’s single-family housing starts are beginning to grow again, Pollack said construction in the state remains down by 40% compared to pre-recession.

“When housing does come back, we will have big issues with labor,” he predicted, pointing out that home builders have fled the state for locations where construction hasn’t been as hurt.

Pollack summed up Arizona’s outlook saying, “2016 will be better than 2015; but there will be no boom.”

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