Original Article Via East Valley Tribune
The economic forecast at East Valley Partnership’s annual SRP Thought Leader Forum projected a sense of measured optimism about the health of the economy at both a national and local level.
Gary Schlossberg, Wells Capital Management vice president and senior economist, presented the forecast and expressed confidence in the economic recovery. He noted that business investment is picking up speed.
“The sense of the economic recovery is that it is more entrenched than ever,” Schlossberg said.
Several positive indicators exist at a national level, including balance between manufacturing and non-manufacturing sectors and the working down of corporate debt.
The normalization of home values is another good sign, Schlossberg said.
He added that interest rates and inflation will grow gradually over time but should not have a negative effect on investment.
The Phoenix Metro area is poised to take advantage of this momentum nationally due its balanced economy – which includes the tourism, business services, financial services and tech sectors – and its competitive cost of living, which is considerably lower than other cities in the Southwest and West Coast.
The cost of living in San Francisco is 82 percent higher than in the East Valley. The cost of living in Los Angeles (46 percent), Seattle (47 percent), Denver (13 percent) and Salt Lake City (9 percent) is higher than the East Valley, according to East Valley Partnership’s 2018 economic profile.
Similarly, the East Valley also offers more affordable home prices than those cities. The average home price in the area is $187,600 compared to the national average of $265,600.
The East Valley also has the population to support business growth as projections have it adding 1 million new residents and 400,000 new jobs in the next 30 years, according to East Valley Partnership’s profile.
Despite the economy’s strengths, Schlossberg’s forecast did include some caveats.
He noted that wealth and income inequality is severe in the wake of the recession and both businesses and consumers are still acting with caution.
Schlossberg also said the economy will be sensitive to the rising interest rates that will likely continue in coming years, which could affect businesses and housing affordability.
Those rising interest rates will also likely prompt a realignment of investment portfolios from riskier to safer assets, a change that could cause some destabilization of the market.
“We can expect to see more volatility in the economic environment than we’ve seen (in recent years),” Schlossberg said.
However, he also said that the U.S. economy will eventually transition to a more normalized environment similar to that in the 1990s.
The polarized political climate in the U.S. is one factor that could negatively affect economic growth, Schlossberg said.
The lack of cooperation between political parties in the country “creates greater swings in economic policy.” That volatility makes it difficult for businesses to create strategic investment and growth plans for the future.
Additionally, the aging population – which will lead to an increase in entitlement payments – and aging infrastructure in the U.S. are causes for concern.