Arizona, the nation and the world are starting to see some economic recovery on the tails of a global recession caused by the COVID-19 pandemic.
Now, keeping that momentum going will rely on two major factors, including the willingness for governments to lend a helping hand to those who need it most, top economic experts said Wednesday during the Greater Phoenix Chamber’s annual Economic Outlook 2021 sponsored by Cox Communications.
The other major factor is how well countries can keep the virus in check, said presenters Elliott Pollack, CEO of Elliott D. Pollack and Company; Matt Stephani, president of Cavanal Hill Investment Management, and Scott Horsley, chief economics correspondent for NPR.
All three spoke about the impact of the virus and what lies ahead for the Phoenix region, the nation and the world.
Here are some of the key takeaways:
New round of relief is essential for the “have nots”
The U.S. has had more coronavirus cases per capita than most other countries, but it has been able to weather much of the financial toll because of the federal CARES Act passed in March.
Through the Act, Congress has provided $3.1 trillion in relief for businesses and individuals, which has carried both the “haves and the have nots” throught the financial turmoil, economist Pollack said.
But recent gridlock on a new round of relief could upend life for the “have nots,” placing them in a position where they are unable to pay monthly bills, he said.
“Congress, the House and the Senate, have let politics get in the way of the need of the public and they have essentially muted the benefit from the $3.1 trillion.”
He and Stephani both worry that Congress likely won’t act until after the election.
Virus makes forecasting difficult
The other major factor in recovery is the virus itself, the experts said.
“In just a matter of months, the coronavirus has spread to every corner of the globe and almost everywhere economic contraction has followed in its wake,” Horsely said. “This is the first time in 150 years so much of the planet has suffered a recession at virtually the same time.”
Countries like China, which has taken “draconian” steps to shut down society to keep the virus at bay, are seeing stronger recovery. China’s movie box office sales, for example, are now almost to where they were pre-pandemic, Horsely said.
But others like Mexico and India that are seeing surges in cases do not have the resources or the willingness to provide stimulus relief. Their future is less certain.
Personal savings to jump start recovery
Stephani, who spoke from a national perspective, was optimistic about a fairly quick recovery for the U.S. over the next year and a half.
Americans have piled up record levels of personal savings and money market assets under stay-at-home orders, he said. The nation’s personal savings rate is averaging about 24 percent. Coming into the pandemic, the rate was only around 6 to 7 percent.
In dollar terms, bank deposits are up $2 trillion from pre-COVID levels, Stephani said. Money market assets have risen from $3 trillion to $4.5 trillion.
If a vaccine or effective treatment arrives within the next year, consumer activity should explode with all that available cash.
“That is dry powder that is going to come into the economy and when it does, it will move the economic needle,” Stephani said.
Phoenix metro fastest growing major market
Meanwhile, the outlook for the Phoenix region is very promising, Pollack said.
For the most part, the recovery of jobs in metro Phoenix has been “miraculous,” he said. Phoenix has recovered more than half the jobs lost when due to the pandemic.
“While the United States was losing 98 percent of all jobs created between the last recession and February, greater Phoenix only lost 41 percent,” he said.
Many factors are responsible for the region’s healthier outlook, including federal relief from the CARES Act, a thriving economy prior to COVID-19, and Arizona citizens who have been masking up and social distancing to reduce the spread of the virus.
Millennials and people over 65 will be buying homes
Moving forward, most industries in the Phoenix region should see full recovery over the next two years.
Housing will continue to be one of the strongest sectors, in part due to the virus, Pollack said.
COVID-19 is causing people to want to leave high rents in small apartments in big cities to buy homes in more affordable locations like Arizona.
Demographics will also benefit the Valley and the state as the two largest population groups, millennials and people over 65, seek to purchase houses over the next decade.
Prospects for tourism, hospitality, restaurants
Industries that have been hardest hit, meanwhile, will come back in force once Americans can fully participate in the economy again, the experts said.
Prop. 208 tax hike biggest threat to growth
One potential drawback for recovery would be passage of Proposition 208 in Arizona in the upcoming election, Pollack said.
Known as the “Invest in Ed” initiative, it would put the state in the top-10 of the highest income tax states in the nation. Under the initiative, Arizona’s top income tax rate would be raised from 4.5 to 8 percent – almost an 80 percent increase.
In addition to deterring economic development here, thousands of small businesses that file their taxes under the individual tax code would be impacted. Many might not survive.
“I’m not saying education doesn’t need more money; I’m saying, this isn’t the way to do it. Besides the inequity, you’re going to hurt economic development,” Pollack said. “We would go from the 15th lowest marginal personal income tax rate in the country to the ninth highest.
“It’s something that would come back to bite us.”