Falling unemployment, rising federal spending and a strong labor report bode well for the economy of Southern Arizona. That’s the sentiment of longtime economist at the University of Arizona’s Eller College of Business, George W. Hammond.
Hammond laid out his prognosis for the region at a luncheon Friday, Dec. 7, delivering the good news to a packed crowd inside the Westin La Paloma.
“I think 2018’s going to turn out to be a good year [in Southern Arizona],” Hammond said. “I think we’ll carry that momentum into 2019 if the national economy avoids recession. 2020 will start to slow down as the national economy slows and that federal fiscal stimulus is really gone.”
Part of the reason why Hammond predicts an economic slowdown in two years is the continued departure of “Baby Boomer Generation” employees, whose higher wages are not replaced and positions are filled by younger, more inexperienced colleagues.
Locally, Hammond sees the economy continuing its upward trend, which included a 1.5 percent growth in jobs, with 5,400 being added during the year in Tucson alone. That 1.5 percent growth in jobs is the fastest yearly pace since 2012, though it trailed the national average of 1.6 percent.
Hammond also bases his confidence in the region’s 5.4 percent growth in personal income, ahead of the national average of 4.4 percent. Hammond has spent close to two decades forecasting the region and national economy for the college as the director of Eller’s Economic and Business Research Center.
The longtime economist said his positive outlook for the region’s economy hinges on the continued strength in federal employment, which contributes 7.4 percent of the region’s GDP.
Hammond believes the federal sector, in combination with a stabilization in exports to Mexico for the first time since 2015, paints a picture of positivity for the city and region.
“The main message is that Tucson back on track,” he said. “We’re generating really solid rates of job population and income growth that are either above or at the national rate. I think we’re going to carry that momentum into 2019. So overall, Tucson’s really back in the groove.”
An unforeseen obstacle to local and national economic growth is the Trump administration’s proposed tariffs on Chinese-made goods.
The proposal, which would add 50 percent tariffs on said goods on or around Jan. 1, would potentially derail the nation’s eight-year recovery from the Great Recession.
“Tariffs are always a cause for concern,” Hammond said. “Trade disputes are problematic, tariffs are not the way to deal with trade disputes. They make us worse off financially.”
The topic of the administration’s proposed tariffs came up when keynote speaker Anthony Chan, who serves as the chief economist at JP Morgan Chase & Co., took the stage.
Chan touched on the topic of tariffs multiple times during his speech, expressing optimism that the two sides will reach an agreement before the deadline.
Chan believes the American economy will continue at its current pace until 2020, when the combination of Boomers leaving the workforce and slowing federal stimulus could trigger the first economic recession since 2008.
“We’ve had a recession every decade, all the way back to the 1860’s when I was born,” he said. “Every single decade…I think that by 2020 there’s a possibility we get a recession. Do I think a recession is going to happen in the next six months, seven months, eighth months? I don’t.”
Chan highlighted the economic instability across Europe and Asia as being a possible flashpoint for an economic recession, with uncertainty around “Brexit,” as well as the Italian GDP deficit spending and French unrest sending shockwaves through the world markets.
“We're going to be hoping that these things sort of get themselves improved over time because right now it's not just equity markets that we have to worry about,” Chan said. “It's our prosperity. It's our economic growth. It's our jobs. But so far, the economy is doing well.“