(upbeat music) - Coming up next on this special edition of "Arizona Horizon," it's our annual Economic Roundtable.

We'll hear from three local economists as they look back on money matters in 2024, and forecast economic conditions for 2025.

Our economist roundtable next on "Arizona Horizon."

- [Announcer] "Arizona Horizon" is made possible by contributions from the Friends of Arizona PBS, members of your public television station.

(upbeat music) - Good evening, and welcome to this special edition of "Arizona Horizon."

I'm Ted Simons.

Each year, we invite three local economists to give us their take on economic conditions from the past 12 months and what to expect moving forward.

And joining us tonight, Dennis Hoffman, Director for the Center for Competitiveness and Prosperity Research at ASU's Seidman Research Institute, Mark Stapp, Director and Fred E. Taylor Professor in Real Estate Master of Real Estate Development at ASU, and Danny Court, Senior Economist at Elliott D. Pollack & Company.

Panel, good to have you all here.

Thank you for joining- - Great to be here, Ted.

- Thank you.

- All right, Dennis, we'll start with you, and then we'll start at a couple thousand feet here, and then get a little bit lower.

The economy in 2024, the economy in 2025, a tale of two economies?

- I think it's strong '23, strong '24, strong '25 as a baseline outlook the way I would see it, especially in Arizona.

We have a lot of momentum in place.

We've got businesses moving here.

Things look pretty good, Ted.

- All right, pretty good.

Mark, what do you think?

- I think our economy next year looks very good.

Barring anything, you know, that is gonna, I think, affect the rest of the country and the rest of the world, I think we're in good shape.

- Okay.

- Very diverse economy.

- A diverse economy.

- Yes.

- Which is a good thing.

- It's a very good thing.

- [Ted] A good thing?

- Yeah, I'd say we've outperformed previous expectations.

You know, I think earlier forecast for '24 was 1% growth, and we hit 2.7.

So, you know, a resilient economy that's expected to continue.

- Okay, expected to continue to big, all right.

Let's get down to certain factors.

Let's start with jobs, Dennis.

2024, the job gains looked pretty solid.

What sectors did well, what sectors not so much here in Arizona?

- Well, in Arizona, and interestingly, you know, data nerds worry about data revisions, and things like that.

There is some chatter about data revisions.

We're thinking it's a 2 1/2%, or so, job growth year, 2 to 2 1/2%, that kind of thing.

I've seen estimates on the high side, I've seen estimates on the low side depending upon how the revisions come out, the benchmarks, which will be next March.

But getting to what you're really interested is where are the jobs, and it's in, you know, health services, primarily professional technical services.

Our manufacturing sector has struggled a little bit, and I think that's the composition that's struggled.

We've had some of our tech firms struggle, others, you know, are poised to really boom.

I think manufacturing will be taking off in the next few years.

We've got a lot of construction in place, a lot of manufacturing firms moving here.

So, I mean, that's pretty (mumbles).

Professional services, education, and healthcare, that's where the jobs are this year.

- And Mark, as far as where the jobs are in terms of salary, in terms of wages, A, are they where they should be, are they increasing, and B, are they enough?

You're the real estate guy here.

Are they enough to be able to buy a house?

- So the answer is they are increasing, right?

And that is the good news.

I think the bad news is the cost of ownership has been going up sometimes greater.

Depends on where you are in that income level.

But it's really tough for somebody who's earning the median income, which has been rising, to still be able to buy a house.

Even if you're a two wage, two household wage earner, it's still very difficult.

And the other, I think the other issue with this is sometimes it's not if you can afford it, it's if you can afford something that suits your lifestyle and is anywhere near where you can work.

So there's a little bit of, "I can afford it, "but man, I gotta drive far."

- Yeah, the commute factor.

- Yes.

- Danny, it sounds as though we still rank pretty low.

We're still not doing all that well in terms of average salary and average wages.

First of all, is that accurate?

And secondly, what's going on here?

- Well, I mean, we have had increasing wages year-over-year.

Right now, you know, the wages are increasing faster than inflation, which is good news for quality of life issues.

When you compare it to what our cost of living increases have occurred, yeah, we are ranking lower and lower in terms of that when you compare our salaries to what our cost of living, and a lot of that has to do with what has happened in housing.

So, you know, we don't have that kind of tool in the economic toolbox to say, "Come over here, low cost of living.

"You don't need a high salary to have a great, "you know, great quality of life."

You know, all of those costs have risen, and we do need higher wages.

- We do need higher wages.

Dennis, are we gonna get higher wages?

- Oh, I think things are getting better, Ted.

You know, we've written over the years about the, you know, the education challenge.

We need a higher quality workforce.

We need to aspire to higher quality jobs.

I think the folks in the development community are really looking to have businesses relocate here that want to hire people and pay them well, and that's a change, I think, than, you know, 10, 20, 30 years ago.

I've been here forever, and it, you know, it used to be, you know, we'll take any jobs.

We'll take, you know, back, really back office kind of jobs, warehousing jobs, anything.

Now, I think that the quality is increasing, the engagement of the universities, especially ASU is really engaged in the economic development effort, and businesses that are coming here are really looking to the universities to supply them with talent.

- All right, but what about this idea, this talk of mass deportations?

How does that impact the overall job picture?

'Cause we keep hearing over and over that businesses are looking for workers and they can't find them.

- Yeah.

Listen, if the incoming administration follows through with what they've been saying, we have evidence of the effect of that simply by looking back at our own history, and when you see that kind of policy, the effect it's gonna have on the construction industry in particular is gonna be profound.

And if that does come to be, all you're going to do is exacerbate the already existing affordability, attainability issue, right?

So the ability to get labor, pay labor, schedule labor becomes extremely difficult, and that's the opposite of what we wanna have happen.

I hope they don't follow through with it, but sometimes, even the threat of it is gonna cause people to leave voluntarily.

I mean, we saw that when the last time we had a, quote, unquote, "ban on illegal immigration" in our own state, and we saw how that rippled through the construction industry, and it took a long time for us to recover.

So this is even more profound.

- Danny, manufacturing, construction, healthcare, retail, the talk of mass deportations, the actual deportations themselves, what's the dynamic there?

- I mean, I think Mark nailed it.

We're in a labor shortage right now.

I mean, it was the highest in 2022.

We had two job openings for every one unemployed person, and that was causing our wages, you know, there was a lot of price pressure there, wages going up 8%.

Once you get inflation into wages, you know, inflation will stick around for a long time.

So there's a lot of dynamic consequences of that, and again, you're taking away labor supply.

That's gonna create demand.

You know, the demand for looking for those workers creates price increases and it just has this ripple effect.

- Yeah, and I also wanna add that the thought that if you get rid of these folks, it's gonna open up more housing for those who now need it is a completely false narrative.

Anybody who understands what's exactly going on knows that that is not the case at all.

That is not gonna happen.

- Impact on the overall economy, Dennis, if something like mass deportations, if even the talk of it, the threat of it, the start of action of it that would, what are you seeing?

- So we, I (sighs), it's so absurd at the extreme.

I really hate to go to the extreme, but at the extreme, this is devastating.

I mean, I've talked with some people, and the response is, "Well, you know, do folks wanna eat?"

I mean, undocumented labor is a critical component of food production, and not only in agriculture, but in food production, you know, packing plants, or in light manufacturing.

It's deeply embedded there, but it's embedded in a way that appears at least to many employers to be legal, because there's fraudulent IDs.

So logically, how you're gonna ferret that out, how you're going to determine the, detect the fraudulent ID is really gonna be a challenge.

I think it's a challenge in Arizona, and we have E-Verify.

- Yeah.

- And E-Verify can't even sort this out.

But you're, I mean, you're talking 20 to 30% of the construction labor force.

It costs too much to build today.

These are devastating circumstances, and I think the challenge, Ted, is largely the winners of the last election whipped people up so much, and Arizonans voted their own initiative in in this as well, there's a political imperative in the minds of many to do something significant in this regard.

So I'm torn between people will come to their senses, employers will talk to politicians, and they'll get this figured out, and they won't wreak the havoc that, you know, that I, the picture that I just painted.

And I'm torn between that and the kind of the political momentum that they've brought upon themselves to get something done in this regard.

- Inflation, speaking of politics, inflation was a major issue.

Were you surprised that the cost of eggs made such a difference in this year's election?

- You know, what was surprising to me is that everything that had been put in place to combat this takes time, and it was working.

- It is working.

- But, it is working, but, you know, the average person didn't see it necessarily, and I think that that's an issue.

I think that if you continue to do some of the things, tariffs, the labor issues, it's gonna be impossible to keep inflation under control.

Even if it's just the temporary use of something like tariffs that is intended to be a negotiating tactic and it only lasts for a few months, these things take a long time to ripple through the economy and to fix themselves.

And so, you can really create a longer term problem, even with a short-term intention.

- Can the new administration do something about inflation?

I mean, how did we get to where we are right now, and what can a new administration do about it?

- Yeah, I mean they could sit and say, "Mission accomplished," when, you know, we're at sub-3% inflation now, but I think the point is well-taken is consumers are saying, "Yeah, it's 3% inflation, "but it's still 20%, you know, "more costly than it was three years ago."

I don't think that there is much, I think this is the new normal in terms of price targets.

We have, you know, some commodities go up and down in price, but I think we're at a level where it's gonna be, and the best we can hope for is, you know, a 2%, a 2% target going forward.

- And Mark mentioned, yeah, please.

- No, I was gonna say, I think you said the right thing is that we're at a level where we're gonna continue to go up from here.

You're not gonna see things dramatically get cheaper.

You're just not.

Those things that get cheaper are things like gas, 'cause they are commodities and they do fluctuate greatly, but that's historically been the case.

All of the other things that we pay for are at a level where they're gonna continue to go up more likely than they are to go down, and they're certainly not gonna be cut in half.

- With that in mind, I was gonna ask about tariffs, the concept of tariffs.

Do people understand what they are, what they mean?

And for those that do, and for those that don't, what's gonna happen if they threatened against Mexico, against Canada?

Obviously, China's in there as well.

What do you see happening?

- I hope by and large they're empty threats.

You know, some people tout them as quick revenue makers, you know, for the federal government, which is true, you know, when we charge those tariffs, but who pays for those tariffs is ultimately the consumer at the end of the day.

And so, I don't know, it's, again, the kind of a nationalism kind of rhetoric that we want to encourage, you know, onshoring and local manufacturing, local producing, but it kind of ignores the fact that we already have these trade systems in place, and that's how we get the prices we get now.

That would dramatically change if, you know, there's retaliation in tariffs and things like that.

- Tariffs, Dennis.

- So it was fascinating to me what won the day in the election was the argument, when this tariff issue came up, it was the argument, "We had tariffs in '18 and '19.

"We didn't have inflation.

"Ergo tariffs don't cause inflation."

It's a very different world today, an incredibly different world.

You see Mr. Trump coming out against Mexico and Canada, part of that reason is in '18 and '19, some of the tariffs on China that were imposed got circumvented, because the goods went to Canada and Mexico and came in, or Vietnam picked up the slack, or there was no pricing power back then anyway, or the middleman picked up the slack.

It is a very different world today.

Companies are poised to pass along the prices.

They are not gonna let any tariffs eat into their margins.

So this thing is, it's gonna get sideways very, very quickly, I think, if they're imposed, and I think one of you, or both of you mentioned trade war.

That, you know, that just kind of circles down.

If we have, if we enter into a trade war, it just gets worse on our exporters as well.

- So Dennis, you know, '18, '19, that time period, there were tariffs against Canadian import of lumber, and that import of lumber caused an effect in the housing industry, right?

Because most of what we build is with lumber, and a lot of that lumber comes from Canada.

So you start imposing those.

Again, back to this, what do we do to fix the cost of housing?

Well, that's not, that's just, again, another one of those things that's gonna exacerbate costs, which is gonna push prices up.

- See, see, Mark, the reason we taxed those lumber from Canada is we wanted to produce our own lumber here.

- Yeah.

- So we were gonna, you know, grow our own forests.

- Right, right.

- Grow our way up- - Of the right kind of wood- - Oh, yeah.

- But to take the argument that Trump is making and that those who support his policies make, and that is with these tariffs we do get more manufacturing, we may not be growing more forests, but we do get more manufacturing and more industry here, homegrown as opposed to offshore.

- [Danny] But look how long that takes, you know?

- [Dennis] And how much we'll pay for it - And how much more it costs us for those things that we manufacture.

- We need to do the things that we're efficient at.

That's the whole principle.

You know, I've said before, this tariff policy is stuck in the '70s.

- But so- - The 1770s.

- But (laughs), but is it bluster?

Is it just a negotiating tactic?

Is this the kind of, I mean, he's got to know that if this comes out the way these gentlemen are describing here, and you as well, that's not a good thing.

- No, but I just think he personally likes them.

I think he, you know, that's kind of what it comes down to- - [Dennis] He believes Chairman Xi is gonna pay them.

- And I don't think there's consensus on this.

So I don't even think the voters had consensus that they agreed with all of these policies.

- You know what they agreed with is they agreed with this notion, right, that we were being taken advantage of.

- Mm-hmm.

- That's it.

They agreed with the notion, and the vast majority of the population does not involve themselves in trying to understand the economic impact of some of these things.

And so, they're going with the emotional response.

- Were we, are we being taken advantage of?

- I don't think we're being taken advantage of.

There was a benefit that inured to all of us in terms of the cost of the goods that we were consuming.

- Right.

- That's the whole idea of the trade.

- In fairness to the argument on the other side, I think, Mark, is many, many jobs and many, many families were hurt badly- - Absolutely.

- In small (mumbles), in small manufacturing towns across this country, and there was not enough done to take the collective benefits that we got from globalization- - Disperse them.

- And drive those benefits to job training programs, or whatever.

And they would say, "We don't want government aid, "we just want a job."

- Yeah, right.

- Well, you know, it's government aid if what you just want is a job paying 50 bucks an hour, you know, doing something that could be done in another country for five bucks an hour.

That's welfare in its own right.

- Yeah, but that economic change has historically been painful for certain segments of the population.

And when you look at time, I think the general public ends up better off, but in the meantime, you've gotta make the changes, and it is painful, and one of the roles of government should be to try and lessen that pain.

- That's right.

- And we failed.

- And Danny, does this kind of conversation, does this kind of in the weeds kind of conversation, if you will, regarding the economy, and, you know, that two plus two sometimes equals four and sometimes it doesn't, is this, does the general public understand this, or did they just say, "No, they're taking advantage of us, "no, my job in Allentown went away," and that's as far as it goes?

- I think it's really difficult to say, 'cause I think you've, you know, I've watched news programs where, you know, he's gonna tax John Deere for, you know, moving manufacturing to Mexico, and, you know, that affects workers in America as well.

So, and it affects those that are gonna be purchasing that equipment and things like that.

So I don't, again, I don't know.

It is a really complex topic.

That is for sure.

I think our bottom, or my bottom line certainly is this is, you know, a trade war is never good for the long-term health of an economy.

- Okay, from zero to 10, zero, no trade war, 10 all out trade war, you think it, what do you think next year is gonna happen?

- I think that something will be executed on the promise, and I just hope that it's more, you know, decorative than, you know, has real teeth.

- Three, or four?

- That's my hope, yes- - Okay, what do you think, Mark?

- Yeah, I agree with Danny.

I think in the long run this is gonna be used as a negotiating tactic.

I think they may be in place in order to extract certain things from some of these other countries that support other ideas, or policies.

My concern is that even as I said earlier, for a short period of time, they can still have a big effect and it's not gonna reduce costs, by the way, for us in the long run.

- Your question with a question.

- Yeah, zero to 10.

- Did Mexico pay for the wall in 2017?

- [Ted] Is that, does that make it a two, or a three?

I'm trying to get a number out of you guys.

- All bluff and no stuff.

- Okay, so no trade war.

All right, let's get to real before, we're running out of time here.

We got so much to talk about.

Real estate in Arizona, define the 2024 housing market and what you expect for 2025.

- Oh.

So 2024 was bumpy, right?

And I think it was bumpy in most segments other than retail, which continues to do very well.

I think that the housing market was impacted still by high interest rates, construction loans, consumer-related issues.

Interest rates really didn't come down far enough to really goose the home-buying side of things.

But it still held up, right?

And I think that, you know, we'll probably build a few more housing, for sale housing units.

- Mm-hmm.

- We'll probably build a few less multi-family units than we did this past year, and I think the only reason for the multi-family decline in number of units maybe, and it's not a lot, is the fact we had so many in '22, '23, and even into this year.

Some of that's burn-off from decisions made in '21.

I think the single-family housing business is gonna see some improvement.

- Danny, what are you seeing, real estate?

- Yeah, the new home builders have done really well because of the high interest rates.

They're able to buy those interest rates down as an incentive.

So they're taking lower margins, but year-over-year, they're doing quite well.

I think they're 25, 30% up on permits on the new home side.

Multi-family, again, delivering a historic number of units this year, but also we're absorbing a historic number of apartments as well.

- I was gonna say, are there too many apartments being built around town?

- Transitorily, we will have more supply than demand for the next two years.

So I think we're on pace to deliver 24,000 apartments in 2024, probably another 20,000 in '25.

Historically, we've absorbed about 10,000 apartment units a year, but we're on pace to absorb 16,000, and that comes back to the affordability issue is- - Yeah, - We're gonna have more renters than homeowners, more and more renters than, you know, that percentage is growing, and that affordability issue is not being resolved.

And so, in my mind, it's, you know, it's the rental market is what we're gonna need.

- So, Danny, really quick, so your thoughts on this, because I believe that the ability to bring down rent, make that more affordable for people is the ability for us to continue to build more units.

So the question is are we building too many, and the answer is absolutely not.

- Correct, it's a great case study, because we've been saying for three years, "Build more units"- - Yup.

- "And we'll be able to moderate the price," and we're actually in negative rent growth right now- - That's exactly what's happened.

- Concessions are really high in apartments, 'cause everybody's competing for tenants.

And so, we are getting some more affordable- - We're running out of time here, Dennis, so what do you got to add for real estate?

- I'm gonna defer, these guys are local real estate, but very quick, if you're in the second home market, which many people in Phoenix are looking for a home in the High Country, beware.

It's very difficult for new home buyers in the High Country to get homeowners insurance.

- Whoa.

- We have, we're not treated like California is when it comes to the insurance companies writing new contracts- - [Ted] What's going on?

What's happening?

Why is this?

- Every property up there is now rated by the rating companies.

The one we sold had a nine out of 10 rating, even though there was clear-cut all around it.

It's difficulty, and once you have that kind of rating, the buyer can't get insurance.

- All right, we've got less than a minute, so I need a bear, or a bull for the stock market in 2025.

- Oh, boy, I think it's gonna be bull to begin with, then we'll just have to see what happens with policies.

- [Ted] All right, Danny, bear, or bull?

- Yeah, typically after an election like this, it's a bull market, I'd say for at least six months, and I think, over the year, I think it will be up.

- What do you think- - I'm going over the year, calf.

(Ted laughing) - Calf.

- Calf.

- A baby bull.

- A big- - Not, don't plan on 25%- - Yeah.

- Please, folks.

- Yeah, I agree- - Don't plan on 25% again.

- All right, gentlemen, great conversation.

Always a pleasure, always enjoy this.

This is always fun for me.

Good to have you all here, thanks for joining us.

- Thank you.

- That's it for now.

I'm Ted Simons.

Thank you so much for joining us.

You have a great evening.

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