/ Modified oct 19, 2015 2:37 p.m.

METRO WEEK: Economic Recovery Slow in Tucson

Reasons, ramifications and resolutions from Tucson and Phoenix economists.

The Tucson area is recovering from the recession at a slower rate than the rest of the state, economists say.

The area has lower job creation, lower median household income and slower population growth than the rest of the state and than the national average, according to economic data from the University of Arizona's Economic and Business Research Center.

That's not all bad news, but it must be put in perspective, said George Hammond, the director of the research center at the UA's Eller College of Management.

“Tucson is growing slowly, but it’s important to keep in mind that we are growing. We’re adding jobs. We’re adding residents," Hammond said.

The slow recovery and slow growth is not a result of how the metro area is specifically handling the recovery, said Jim Rounds, an economist in the Phoenix area.

"Tucson is bringing several decades of dysfunction in terms of politics,” Rounds said. “The community really hasn’t diversified its economic base over a longer period of time.”

That diversification is starting to happen now, he said.

“Not only does the Tucson area have to backfill some of the lost jobs that have happened over the last several years, but it then has to create new higher-value jobs, and that’s a lot more difficult,” Rounds said.

Government Funding Plays A Role
University employment and national-defense spending in Tucson help the economy.

But it’s that federal spending that Hammond cautions has hurt the Tucson economy more acutely than the rest of the state.

Hammond referred to the reduction in federal spending on jobs or contracts in the Tucson area as "fiscal drag."

“Due to cutbacks in federal spending, partially driven by the sequester, we saw declines in federal government employment and we saw also a big drop in overall federal procurement spending, purchases of goods and services from the non federal sector," Hammond said.

Yuma, Sierra Vista and Douglas are other southern Arizona economies heavily dependent on federal spending, Hammond said.

The Phoenix area economy is more diversified, Rounds said.

Federal spending reductions here are important are the multiplier effect. For every high-wage job, there are others created to support it. Reduced spending reduces all of those, Rounds said.

The slowdown in federal spending is largely attributable to the automatic federal budget reductions in 2013, known as sequestration.

The slow rate is also a consequence of reduced state spending, he said, citing recent years of state budget cuts to the University of Arizona.

International Economy Impact
"One thing that’s really changed over the past year is that we’ve seen the value of the U.S. dollar rise significantly against almost all currencies, but particularly against the Mexican peso and Canadian dollar,” Hammond said.

The dollar has gone up 27 percent against the Mexican peso and 20 percent against the Canadian dollar, he said.

While that's good news if you want to travel there, “it makes U.S.-produced goods and services more expensive to the rest of the world,” Hammond said.

“If the dollar stays relatively strong against those currencies over the next year, it’s going to start to be a drag on export activity," he said.

It may reduce Mexican tourism to the state, as it gets more expensive to spend a weaker peso against a stronger dollar.

Economic Outlook
"We’ll see growth accelerate in the next few years," Hammond said.

That will be attributed to less fiscal drag, even though there won't be a big federal spending boost to the local economy, he said.

Hammond also predicted that, as the rest of the country recovers from the economic recession, people will become more comfortable, and financially capable, of moving.

“While I think our growth will accelerate over the next couple of years, we’re not headed back to the kind of growth rates that we saw during the 30 years before the recession," Hammond said.

The Tucson-area's history will influence its recovery, Rounds said.

The Phoenix area was more proactive about economic development in the 1970s through the 1990s, Rounds said.

Tucson was weak on promoting high-wage jobs, but now has a consistent focus on it, with obvious city and county attention to that, Rounds said.

“Going through the downturn was a little bit of a wake-up call,” Rounds said.

It is the first time in 20 years Rounds said he can be optimistic about economic development in Tucson, but the region will have to be deliberate about its path, he said.

"I think that the Tucson area is going to have to be cooperating on economic development with Pinal County," he said.

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