What will 2017 hold for the Arizona economy? What can investors and business developers anticipate in the months ahead? For educated answers to those questions, Elevate AZ sat down with Joseph Brusuelas, chief economist for RSM, an audit, tax and consulting services firm for the global middle market. Bruseulas’s background in economics and finance is extensive. In addition to working in those fields in the Phoenix metropolitan area for the past two decades, he has worked in several capacities for banks and hedge funds, and also at Bloomberg LP, where he was a senior economic advisor.
Elevate AZ [EAZ]: Recently, the Eller Economic and Business Research Center made this forecast: “Arizona’s economy is well-positioned to outpace the U.S. during the next 30 years, and the outlook calls for the state, and the Phoenix and Tucson metro statistical areas, to grow faster than the nation across most major macroeconomic aggregates.” Do you agree with this assessment?
Joe Brusuelas [JB]: I do. When you look at the demographics and the diversification of the Arizona economy, away from an overreliance on residential investment, and you look at some of the innovations [happening in] Scottsdale with respect to life sciences, and [Mayo Clinic] and the ‘silicon desert,’ we are poised to perform ahead of the national economy over the next generation.
EAZ: The Center also said the economy isn’t going to grow as fast as it did before the Great Recession of ’08 and thereafter. Do you agree with that, as well?
JB: Sure. We had a profound, depression-like shock that has impacted the overall economy. In fact, when you take a step back and look at the U.S. economy, we’re likely to have slower rates of growth—probably one and a half to two percent—in the near to medium term, compared to the three to three and a half percent we saw on average between 1945 and 2005. That will also impact Arizona, albeit, to a lesser extent because of the diversification of our economy. It’s moving rapidly toward a high-tech economy.
JB: Tech and life sciences will have the higher rates of growth, although they’re smaller than residential investment. Those industries are likely to be the emerging stars, not just next year, but over the next decade.
As far as ones that will slow, commercial real estate development will somewhat, which is late in the cycle. Anyone who takes a look at what’s occurred along Central Avenue—well, it’s stunning. It’s really reshaping the entire face of Phoenix and not just in how it looks, but also in the way the economy operates. Of course, real estate works in fits and starts, and, as I said, we’re late in the cycle, so I would expect that growth to slow, although still reflect some respectable growth.
EAZ: Do you think that answers the questions of trends in business, as well?
JB: Well, we’re late in the business cycle; we’re eight years into the expansion and we’re seeing some late business cycle dynamics, even given the fact that business itself still remains slow—running between one and a half to two percent. In 2017, resulting from the new president and a new Congress, it could cause the economy to dip into a mild recession.
EAZ: What other factors will influence Arizona’s economy in the short term? For instance, the glut of baby boomers retiring has to be a factor, but what other evidence or examples do you see out there?
JB: It’s funny you mentioned that because we have a barbell demographic challenge occurring. On one side, we have 10,000 baby boomers retiring today, but we also have an emerging demographic of millennials. There’s 99,000 of them and right behind them are 60 million members of what we’ll call Gen Z. And they’re all competing interests for scarce resources. The sheer numbers of new people, that emerging majority demographic coming into the system, will demand changes that aren’t necessarily aligned with the boomers, going back to new housing.
EAZ: So what will that mean in terms of brick-and-mortar impact?
JB: Well, Phoenix, for example, is likely to see quite a bit more development in the out years—say over the next 5 to 10—of high-density, mixed-use retail. You can already see it. A group of people that I call the “millennial hipsters” have altered the face of downtown Phoenix. They’re responsible for new art galleries, restaurants, bars…which I find totally appealing! It’s what’s creating the growth, and supporting housing prices and redevelopment in some of the older neighborhoods that need investment. That’s how you get that organic growth. It’s the competition for scarcer resources and policy preferences, especially in Phoenix and Tucson, that will drive growth. The fact is, Arizona is about to undergo a profound change, just from the sheer numbers of young people who will overwhelm the retirees.
EAZ: Arizona was, for many decades, a booming magnet for new business startups and relocations. We’re clearly in a much different environment today, but do you think in 2017, the state—and especially its urban areas—can still be characterized as being business friendly?
JB: Yes, simply because the cost of living is lower, comparatively, to the states around it. To use a simple, descriptive term: it’s affordable. And, along with that, the regulatory framework favors the startup of small- to medium-size enterprises.
As we transform the state from a red state to a purple or even blue state, it’s going to be important those characteristics don’t change because they underscore the inherent vitality of areas like the Phoenix metroplex and even the greater overall Arizona economy.
Story by Bruce Farr
Photography by Mark Lipczynski