How is Phoenix's economy doing amid recession talk?
Between the price of groceries, higher mortgage rates and news reports of layoffs, some people are bracing for tougher economic times — or wondering if they should be. So how does the Valley’s economy look?
Talk of a slowdown and recession got louder after Amazon, Google and Meta, Facebook’s parent company, announced more than 40,000 employees would lose their jobs. During a webinar hosted by the Greater Phoenix Economic Council, Steve Wyett, chief investment strategist for BOK Financial, provided context for the roughly 175,000 recent layoffs in the tech industry.
“Getting back to the size of our labor force of 164 million. What are we talking about there? Maybe a tenth of a percent? That’s not really indicative of a weakening labor market,” he said. “And by the way, it does appear a lot of those people that are getting laid off are finding other jobs pretty quickly because the unemployment continues to be at a cycle low of 3.5%.”
Arizona has recovered the number of jobs lost during the pandemic and added about a hundred thousand more. GPEC Senior Vice President Kristen Stephenson said the Valley’s job growth rate is expected to slow a bit over the next couple years.
“For all the talk of a national recession, as of right now, greater Phoenix and Arizona are forecasted to kind of float along the top of that, maybe seeing more of a slowdown than an actual deceleration in growth,” she said.
That’s partly because of population growth. We’ll need more health care workers and retail and restaurant employees. But it’s also because of lessons learned from the Great Recession when we took the brunt of the housing collapse. Since then, elected officials, along with business and economic development leaders have focused on diversifying our economy, so if one sector takes a hit, it won't feel like a tsunami.
Stephenson said Arizona’s manufacturing sector — that includes computer chips, electronic products and transportation equipment — now employs as many people as the construction industry.
“I think to people who have been around for a while that’s kind of a surprising statistic to hear,” she said. “We’re also seeing other types of jobs grow here, too. So, you’ll see within the top 10, software developers. We’re expecting that industry to grow by 19% over the next five years, adding 5,000 people here.”
Historically, our median wages have lagged behind national numbers. While the gap is narrowing, it may not feel like it because our cost of living is 6% higher than the national average, mostly due to housing costs.
“We are back in a seller’s market believe it or not — just barely,” said Tina Tamboer, senior housing analyst of the Cromford Report.
She said over the last month, demand has picked up while supply has dropped. Why? Recession talk is making investors skittish and they’ve moved away from flipping and selling.
“Since June, owner-occupants have now come back and they’re now driving the bus on housing again,” Tamboer said. “It used to be your cash investors. But now we’ve got homeowners, normal people who want to live in their home are now back in their normal range between 70% and 75%.”
As of mid-January, she said potential buyers could find the best deals in Goodyear and Buckeye, Queen Creek and Maricopa.
“Instead of the list price being the starting price where they go up from there, now we’re seeing the negotiations coming in where they’re ending at about 3.5% below the last list price,” Tamboer said.
The data shared during last week’s webinar provided a snapshot in time. The Federal Reserve is expected to raise interest rates again. By making it more expensive to borrow money, the central bank hopes to slow the economy to bring down inflation without causing major job losses.
"A general rule of thumb is that two consecutive quarters of economic contraction constitute a recession."
— Federal Reserve Bank of St. Louis
According to the St. Louis Fed, "A recession is a significant decline in general economic activity extending over a period of time. A general rule of thumb is that two consecutive quarters of economic contraction constitute a recession."
Who decides when the economy is in a recession? Or a peak? Or another business cycle? Here's an explanation from the Federal Reserve Bank of St. Louis:
"The National Bureau of Economic Research — the NBER — is a group of economists who, in addition to doing economic research, examine data and identify the specific starting dates for the phases of the business cycle. To make their decision, they examine a variety of economic data. Of course, time is needed to collect and analyze data, so there is a time lag between when a business cycle phase begins and when the NBER announces that it has begun. In the past, the time between an actual change and the NBER announcement has been anywhere from 6 months to 21 months. The NBER Business Cycle Dating Committee prefers to wait long enough and see enough data to minimize any doubts about the turning point."