UA News

The annual economic forecast delivered by Gerald Swanson and Marshall Vest calls for some tough times for 2009.

Our already shaky economy is heading into unfamiliar territory, according to two noted economists at The University of Arizona.  Their best advice is to hold on until things get better.

Marshall Vest, director of Economic and Business Research Center, and Gerald Swanson, a professor of economics and the Thomas R. Brown Chair in Economic Education, both in the Eller College of Management, said there is little good economic news right now.

Vest and Swanson offered their analysis to area business leaders at the annual Economic Outlook luncheon in Tucson on Friday.

"I think we're on the tip of the recession," Swanson said. "I think it is going to get much worse before it gets better."

Consumers, he said,  have gone into the trenches. Black Friday, the big shopping day after Thanksgiving, initially offered hope of a decent retail season for the holidays. Instead, people came out and bought up the bargains and went back home.

Swanson said one local retailer told him he did $22,000 worth of business that Saturday, and hadn't touched the cash register since.

"One reason this is so unusual is that we have had downturns before, and they've been relatively easy to get out of.  But that is when the financial system worked," Swanson said. The five major world economies are all in a recession right now. Normally when one loses traction, others do well. The other economies of the world have to turn around with us, he said, and they don't show any signs of that right now.

Swanson also noted that one-forth of the current work force has never been in a recession.  Half of them have only been in one, in 2001, a recession so short and mild that "we didn't know we were in one until we were out of it," he said.

"We got into this problem by making bad loans. Banks are dying to make good loans, but people don't have the credit scores and businesses don't have the capital to make it happen. Until that straightens out, we're going to see fewer loans being made."

Marshall Vest also said he expects a severe recession, possibly the longest since the end of World War II and comparable to recessions in the mid-1970s and early 1980s.  
Vest said the recession, which began near the end of 2007, should last from 18 to 24 months. The bottom could come as early as mid 2009 and as late as a year from now.

Unemployment, currently just under six percent in Tucson and higher in Phoenix, will climb to as high as 8 or even 9 percent by next year. By comparison, unemployment during the recession in the mid 70s was 13 percent and 11 percent in the recession of the early 80s.  

Except for the higher education and health care sectors, job losses in Arizona are across the board. Vest expects Tucson lost about 6,000 jobs this year and will lose another 8,200 next year, at a rate of two percent. Phoenix can expect to lose about five percent of its jobs, due in large part to a much more volatile housing market.

"The good news is that the federal government is taking unprecedented steps in providing large amounts of money to the system, and I don't think it's too early to look for a break in that negative feedback loop between financial markets and the real economy," Vest said.  

Vest said financial assets are "looking really cheap" and provide a compelling reason for investors' appetites for risk to return at some point. The challenge for business owners and individuals, he said, is to remain solvent and pay the bills and survive for the for the next few months.  

"The sun will come out, and it will shine once again. If you have a job, for heaven's sake, hold onto it. Now is not a good time to change jobs. Make sure you can pay your bills and don't go on any spending binges. If you hang on and stay solvent, you can expect the economy to improve," Vest said.