AGC Chief Economist Simonson Discuss Arizona
The Arizona Builders Alliance and the Arizona chapter of the Association of General Contractors held a Joint Economic Forecast Seminar Oct. 15 in Phoenix that featured AGC Chief Economist Ken Simonson who discussed Arizona’s construction industry and his forecast for the state’s 2015.
While much of the construction industry in America has been on a fairly steady upturn lately, Arizona remains one state is not following along with the trend, he said, citing such evidence as a loss of construction jobs and that spending had receded to early recovery levels. While Arizona construction firms might wish for greater growth, Simonson pointed out that the recovery has been stronger in Arizona — one of the most “sluggish” states in the U.S. — than in many other places.
“The U.S. is actually doing much better than most developed countries,” said Ken Simonson chief economist, Associated General Contractors of America. “One of the areas that is lagging is Arizona.”
He said there are three prime reasons for the slowing recovery, and especially in Arizona and New Mexico: Tight government spending; online shopping and the decline in needs for office space. He also noted that although Nevada has seen an uptick in activity recently, it is due to their economy being more tied to the economies of other states due to its reliance on the gaming industry and tourism.
As far as the future is concerned, he said he sees that movement to spur public spending is not likely to change thanks to a reticence on the federal and local levels.
“Public spending stayed steadiest early on in the recession due to TARP and BRAC,” he says.
After TARP expired and government spending was even further curtailed, that sector has been hit especially hard, he says.
“Public spending, whether it be federal, state, or on the local level, has been scraping by,” he said.
As far as online sales are concerned, he says it has contributed to the soft retail construction market which is not likely to change. However, there is one small benefit, although it does not make up for most of the retail decline.
“There is a greater need for massive distribution centers,” he says. “But that does not make up for the whole retail market.”
Office space is also influenced by the online world, he said, as there is less of a need for office space because many of the areas formerly held for files and file cabinets are now stored digitally. Also, many workers are now working from home.
And, while some of the other areas of the nation are doing well, it is because they are well-positioned in the sweet spot of prospering industries: Oil and gas; ports; and multi-family residential.
However, he said he does see an opportunity for Arizona to re-energize support for a land port of rail or trucks to handle the potential for cargo unloaded in a Pacific port such as Acapulco and transported through Arizona.
“Arizona and particularly the Phoenix area has the potential to come back strong again,” he said. “Not only do you have an attractive climate for retirees and cheap land, there is also a big enough population to attract industry.”
Corporate relocations that could spur new investment and construction are faced with impediments that would only improve when improvements are made to the “political climate,” he says. Such political changes — that would boost public education and make folks forget SB 1070, for example — would go along way to improving the state’s image.
He also says construction spending increases everywhere should be taken with a grain of salt since costs and productivity have increased substantially and that declining wages and demanding productivity increases rather than hiring new workers will eventually prove unsustainable.
“You can’t keep increasing the amount of hours individuals are working. Eventually, you have to add new people,” he said.
