Economic Outlook 4Q 2012

As the threat of the fiscal cliff is resolved, 2013 is expected to slightly improve economically and recover from halted businesses decisions experienced at the end of 2012 due to the unknown outcome. With taxes rising less than previously anticipated, consumer spending is forecasted to inch upwards as things begin to settle post-election, expecting to rise at a 1.6% pace through 2013. While the impending economic Armageddon has been avoided for now and may brighten the short term outlook, the looming unknown may strike again as the March deadline for federal budget sequestrations approaches. The second half of 2013 should bring more real change as consumer confidence, already the highest it has been in five years, will likely continue to strengthen. Current home prices and employment figures continue to improve from the years of struggle that appear to be behind us.

On a regional level, Arizona began 2012 with an unemployment rate of 8.7%, above the US rate of 8.3%. As of November, Arizona caught up with the US average and ended the year at 7.8%. This marks a four-year low for the state, which brought in 22,700 new jobs in November. Nationally, the US expects to see around 2 million jobs added in 2013, up slightly from the 1.84 million gained in 2012. While this increase shows sustainment, the pace of job creation will need to improve significantly for the long-term unemployed statistics to improve.

Another positive throughout 2012 and continuing into the new year is Arizona’s changing housing market. Phoenix area home prices are up 34% year-over-year with new home sales increasing by a staggering 85%. In addition to the growth, the plaguing effects of foreclosure seem to be improving. As of November, there were 34% less completed foreclosures year-over-year, and a 43% drop in overall supply of distressed properties. While still low in comparison to 2004-2006 levels, residential permitting was up more than 60% in 2012. That trend is likely to continue into 2013. With construction and housing being the pulse of the Valley, the improving residential market provides a foundation for the commercial real estate market to continue its fight back and begin to make headway toward a full recovery.

Another factor that could help brighten the long term horizon for the Phoenix CRE market is the recent tax changes in California. A combination of increased income taxes, state sales taxes and multistate business taxes have created the perfect environment for businesses to further consider the Valley of the Sun as the next smart move. Arizona has spent the last few years making strong efforts to improve the business environment by lowering capital gains and corporate taxes, initiating business-friendly policies, and creating programs to support new or expanding businesses to excel in the Valley. GPEC (Greater Phoenix Economic Council) has created a California 50 program to bring interested CEOs to the city so they can tout the many benefits Phoenix has to offer. This effort, combined with a market on the verge of full rebound, adds optimism to a year full of possibilities.

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