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Tucson's economy expected to continue slow improvement

The economy in metro Tucson isn't growing as fast this year as expected but should improve next year, especially if all the "buzz" around town about potential new employers is accurate, a University of Arizona economist said Friday at an annual forecast luncheon.

Job growth in the Tucson area was flat from the third quarter of 2016 through the third quarter of 2017, according to preliminary state data, said George Hammond, director and research professor at the UA's Economic and Business Research Center.

"But before you get concerned about that, I think those estimates are way too pessimistic," he said. They will be revised in March, and those revisions can change them considerably.

A week earlier, Lee McPheters, an Arizona State University economist, predicted at a similar event in Phoenix that Tucson would end up losing jobs this year and that the only area in the state that would really add jobs was metro Phoenix.

But Hammond said he relies on more accurate data and predicts a meager growth of .8 to one percent this year in metro Tucson, compared to 1.3 percent in 2016. That could translate into up to 3,800 more jobs in 2017 than in 2016.

Hammond and Anthony Chan, chief economist for JPMorgan Chase, addressed about 500 people at the Arizona Eller College of Management's annual economic lunch at the Westin La Paloma Resort in Tucson.

In other highlights:

Housing construction accelerated in Tucson this year, growing 13.6 percent through the first nine months of the year, compared to the same period in 2016, according to preliminary U.S. Census data.

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Single-family home prices rose 7.6 percent in the third quarter in the metro Tucson area, according to the Federal Housing Finance Agency. That was above the national rate of 6.4 percent but below the statewide increase of 8.5 percent. Prices in metro Phoenix rose 9.1 percent.

But Arizona's exports aren't doing well. In the first nine months of the year, exports to Mexico fell 19 percent and those to Canada fell 12 percent, compared with the same period two years ago. They peaked in 2015.

Jobs

Tucson, like Phoenix and the rest of the state, lost jobs in the recession between 2007 and 2010 but then began adding them again. Unfortunately, federal defense cutbacks caused Tucson's job growth to slow to about one percent a year in 2013, 2014 and 2015. Tucson relies more on federal funding for jobs than metro Phoenix and the rest of the state. About a fifth of Tucson's jobs are federally funded.

But Hammond is suspicious that the state numbers have showed such a dramatic drop in Tucson jobs, especially because the number of professional jobs, such as accountants, lawyers and engineers, dropped by 2,000 in that period.

"This looks really weird," he said. Hammond believes that drop won't be so dramatic after the federal government revises the underlying data in March, using more accurate numbers. The monthly estimates rely heavily on surveys.

He predicts a job growth of 1.2 percent in 2018 and 1.4 percent in 2019 for metro Tucson. That is about in line with predictions for the nation.

At the 2016 outlook luncheon, Hammond predicted that metro Tucson's job growth would hit about two percent this year. He said Friday that, in part, that was because of expected federal tax cuts. This year, he did not consider federal tax policy in his forecast and is being more conservative.

The jobs that are growing the fastest here are those in health care and leisure and hospitality (restaurants, bars, hotels and resorts.)

Personal income growth

Personal income, an indication of how much people can spend, is projected to grow from 2.4 percent in 2016 to 3.2 percent this year because of the state's rising minimum wage and a tightening labor market, Hammond said. Personal growth should rise even faster in 2018 and 2018, at 3.8 percent and 4.8 percent.

Total personal income is expected to reach $41 billion in metro Tucson this year. Per capital personal income is $40,418.

Booming world economy

Chan said economies around the world, including those in developing countries, are seeing healthy business growth, corporate profits are growing and stock prices reflect that.

At the forecast lunch a year ago, he said people were surprised when he predicted that the Standard & Poor's 500 stock index would increase this year by 10 percent. The index is up over 18 percent.

Stocks are also up sharply in Japan, Europe and China.

The average expansion after a recession lasts 3.9 years. The current expansion has gone on for eight years, and Chan doesn't forsee anything that will stop it from lasting another two to three years. "Expansions die of old age," he said. They can also crash because of shocks, such as the rising housing prices and mortgage scandals that shocked the nation in 2006 and 2007.

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