[September 04, 2008]

GYEDC speakers says nation in 'long, painful' recession

(The Sun (Yuma, AZ)(KRT) Via Acquire Media NewsEdge) Sep. 4--The food for the Greater Yuma Economic Development investors quarterly lunch was delicious, but the message of the keynote speaker was a little harder to digest.

Jim Rounds, vice president and senior economist for Elliot D. Pollock and Company, didn't pull any punches about the state of the economy, saying the "R" word that other economists have been avoiding.

"We're in a recession," he said, and probably have been since late last year or early this year. Furthermore, it likely will last through the remainder of this year, with a weak recovery in 2009 and finally picking up in 2010, he said.

"It will be a long and painful recession," he said. "We're sliding down. We're not at the bottom yet. Sorry to be pessimistic, but that's what it is."

It's due, he said, "to imbalances, combined with shocks, exacerbated by stupidity."

Elements that went into the economy's latest downfall, Rounds said, include credit practices, excessive housing supply, oil prices and inflation pressure.

With a touch of humor, he displayed an illustration that read: "Beer now cheaper than gas. Drink, don't drive."

While gas prices have come down a little, he said, "it will never get back to $1.85."

Not all is gloom, Rounds said. U.S. corporations are in good financial shape and exports are strong.

And as often is the case for Yuma County, he said that while hard data about the local economy is lacking, this area seems to be faring better than much of the rest of the country -- in particular the Phoenix area.

For one thing, he said, there was some residential overbuilding here but not nearly to the extent that occurred in the greater Phoenix area.

The Phoenix area probably needs about 35,000 new homes a year, but overbuilt by 75,000 units from 2003 to 2006, he said. That's been compounded by a slower than expected population growth, a lot of people trying to sell and the "idiot" builders who are still building.

"They've barely made a dent in excess housing," he said. "It will take a long time to get to an equilibrium."

Things look better for Yuma County, he said. "Yuma is a whole year ahead in recovery."

In addition to there being less overbuilding here, the population is continuing to grow and its job growth is in the positive side of the chart, although there's been a "massive" drop in construction jobs. But government jobs are still increasing, and the professional and business service sector is strong. That's likely due in large part to the Allstate Express call center that became operational this spring, and at full staff will have about 263 employees.

Rounds complimented the Yuma area with putting its best foot forward in attracting new companies. However, it is handicapped by what is going on around the rest of the state and with the state budget, he said.

He anticipates that the state will need to make an additional $500,000 revenue adjustment to the budget later this year.

"But there are no more bullets in the gun," he said. "They already did all they could to balance the budget. Two years ago the writing was clearly on the wall, but it was ignored by the state."

Likewise, he said, the federal government is out of options to correct the economy. The stimulus package produced only a small and temporary blimp.

Rounds sees other disturbing trends in the economy.

Credit is still tightening, he said. "There are tougher standards on residential loans, even for the most quality buyers. That's an excellent indicator banks are having a harder time getting money."

He's also concerned about Arizona's slide in the employment growth ranking. "Historically, the state has always led the nation. Now it's doing far worse," he said.

Arizona now is ranked 48th. "We're in unchartered waters," he said.

On a more positive note, he said, "The fundamentals haven't changed. We will recover. We will see a turnaround."

--

Joyce Lobeck can be reached at jlobeck@yumasun.com or 539-6853.

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