The economy is expanding, real Gross Domestic Product is up but the economy is facing some headwinds which include housing, the public sector, and the lack of mobility, said Marshall Vest,  Director of the Economic and Business Research Center at the Eller College of Business, University of Arizona.  Vest spoke Thursday at the Tucson Association of Realtors Summit.

Vest sees 2011 to 2013 as continuing to be economically better, but that expansion of the economy will not begin until 2014.  Credit is still shrinking despite fiscal and monetary policy which are at “full throttle” .   The housing and public sector will be a drag on the economy which will impact growth, and mobility rates are at a 60 year low.

On the brighter side, the economy has registered six quarters of positive growth and the GDP numbers being released today (January 28) should show growth in the 3 1/2% range.  It is anticipated the growth during the fist quarter of this year will be in the 4 1/2% range, Vest said.  (Numbers released this morning show a 3.2% GDP growth rate for the last quarter of 2010-see report in Resources below.)

Corporate profits are high and business is thinking about hiring which should ameliorate the jobs condition somewhat.

Household credit continues to decline and consumer confidence is positive compared to the last few years, “up over five full points at 60” which is still a recessionary level.   Consumers remain concerned about the value of houses and are cautious and business is still uncertain about taxes, financial regulations being considered by Congress, health care costs,  and weak demand.

Arizona has “an enormous inventory of vacant houses”, 130,000 or 4.9% of  housing when the normal vacancy is 1.5%.  The credit squeeze and the inability of people to sell houses in other areas impacts Arizona.   Half of the migrants to Arizona are from California, and California has been hard hit by economic conditions.  Vest said half of all Arizona homeowners are “upside down” .

Housing is “bumping along the bottom”; the tax credit has ended, building permits are down as are existing homes sales, home prices are down, and although foreclosures show a 4% decline from 2009, they are still high. Comparing 2005 to today, building permits are 2,000 verses 12,000; existing home sales are at an annual rate of 10,500 compared to 19,000 in 2005, and the median price in Tucson is now $140,000 and $120,000 in Phoenix.

Tomorrow: More of Marshall Vest

Resources:

GDP Report January 28, 2010

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Tags: Consumer Education, Financing, Foreclosures

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