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UA economist forecasts metro Tucson will gain 11k jobs in next 2 years

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UA economist forecasts metro Tucson will gain 11k jobs in next 2 years

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Metro Tucson is expected to gain another 5,500 jobs this year and 6,000 next year on top of 5,400 added in 2017, said George Hammond, a University of Arizona economist.

And that should lure more residents and especially boost the construction, real estate and retail industries and eventually, even everyone’s income, he told about 350 people attending a breakfast Wednesday at Loews Ventana Canyon Resort.

It is one of two major forecasts given every year by Hammond, a research professor at the university’s Economic and Business Research Center.

In addition to those relatively modest job gains, Tucson’s housing industry also continues to recover from the recession, Hammond said.

New-housing permits issued last year in metro Tucson reached 4,495, their highest point in a decade, according to the U.S. Census Bureau. That was largely driven, however, by permits for multi-family apartments and condos, Hammond said.

Tucson’s average single family house prices rose almost 8 percent over the year (at the end of March, 2018) and 32 percent over the past five years, according to Federal Housing Finance Agency.

While Tucson’s economy will grow at a similar pace to the nation’s, it will continue to lag metro Phoenix and the rest of Arizona, Hammond said. Tucson is just more vulnerable to the rise and fall of federal spending than they are.

“The federal government activity is much more important to the Tucson economy than it is to the state or nation,” he said. Military and defense spending account for 7.6 percent of Tucson’s gross domestic spending, and that is about double rest of state and nation.

The breakfast also included comments by Jesus Canas, a senior business economist with the Federal Reserve Bank of Dallas, about the importance of the North American Free Trade Agreement that President Donald Trump wants to renegotiate.

Tucson jobs and incomes

Tucson’s job growth last year was 1.5 percent, compared with 2.8 percent for metro Phoenix and 2.4 for all of Arizona.

Local job increases have been erratic in recent years, growing 1.2 percent in 2012, virtually not at all from 2013 through 2015 and then modestly for the past two years.

Hammond attributed that largely to federal spending that dropped a third in Tucson from 2012 to 2016 but rose last year. “So in 2017 we are back where we almost were in 2012,” he said.

While the economy seems to be solid again after the recession that ended in 2010, one disappointment is that wages and incomes have not risen as expected, Hammond said. Usually when jobs increase, employers have to compete more for workers and increase wages.

Hammond said there are two possible reasons, one is that the data showing weak income growth is preliminary and will be revised upward. Another possibility is the retirement of thousands of Baby Boomers: those born from 1946 through 1964.

“Baby Boomers are relatively high paid because they are senior, highly experienced people. As they retire and get replaced by younger, less experienced individuals, you’re replacing relatively higher paid Baby Boomers with lower paid, younger workers. And that can put downward pressure on this sort of measure of wages,” he said.

He forecast personal income to grow 4 percent this year and 4.8 percent next year in the state, helped in part by minimum-wage increases and increased funding for teachers

Housing and affordability

The 8 percent increase in average single-family home prices was faster than the national rate of 6.6 percent.

Hammond said that means Tucson housing prices are rising faster than inflation and income growth, which makes homes less affordable.

Tucson’s latest housing affordability measure was 71 the best rate among 11 comparable metro areas. That means that 71 percent of the housing sold in metro Tucson last year was affordable to a family earning the median income. It was 65.7 percent in metro Phoenix.

Trade with Mexico

Both Hammond and Canas stressed the importance of trade with Mexico. Mexico accounts for 36 percent of Arizona’s merchandise exports and Canada, for 9.9 percent. Both are NAFTA partners with the U.S.

“So two NAFTA partners account for 46 percent of Arizona’s merchandise exports. That is really key,” Hamond said.

Exports from Arizona to Mexico have fallen 17 percent over the past two years, largely because the dollar strengthened against the peso, making American goods more expensive for Mexicans. But Hammond said the decline is shrinking, and he expects exports to pick up.

Canas said that while NAFTA did cause job losses for U.A. manufacturing workers and Mexican agricultural workers, it also drew in many foreign companies that ended up more than compensating for the losses.

He said it is now hard to distinguish the benefits of NAFTA because they are so ingrained.

“The benefits of trade are so common now that we can’t forget them,” he said.

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