Real estate market continues gradual slowing trend by myh13361


VOLUME 47 • NUMBER 12                                                                                            DECEMBER 2000


Real estate market continues gradual slowing trend
                    Based on lower mortgage interest rates and stable     mortgage rates allowed the new home affordability
                  home prices, the trend of declining affordability       index to improve to 92 from 89, but still was below last
                  was arrested during third quarter 2000. Housing         year’s 94. The resale home affordability index would
                  affordability in the Phoenix metropolitan area          be 115 if the home price stood at the third-quarter
                  rebounded a bit, but the indexes remained below         1999 level of $122,000 with the current income and
                  those of most of the 1990s.                             interest rate levels. In third quarter 1999, a household
                    The local housing market followed the historical      earning an annual income of $37,200 could afford
                  pattern of slowing in the third quarter, to 24,635      the median-priced resale home, but now it requires
                  recorded sales from 26,540 sales of second quarter      an income of $40,200. In the new-home market, the
Third Quarter     2000. Sales were also below last year’s third quarter
                  total of 26,560. The decline in activity was not
                                                                          annual income necessary to afford a median-priced
                                                                          home has increased from $45,300 to $46,800. Since
Home Sales/       unexpected, because recorded sales represent buying     home prices and incomes vary throughout the Valley,
                  decisions made months ago when mortgage interest        so does the affordability index. For example, in
Affordability     rates were higher.                                      the resale sector, the third-quarter values range
                                                                          from 71 in Scottsdale to 123 in Glendale and 127
                                     AFFORDABILITY                        in Chandler.
                     Earlier in the year when people bought the homes
                  recorded during the third quarter, mortgage interest               RESALE SINGLE-FAMILY HOMES
                  rates were higher — an average of 7.9 percent (as          With 14,075 recorded sales, the resale market had the
                  high as 8 percent in May). However, in response         lowest third quarter since 12,235 sales were recorded
                  to a slowing economy and competitive pressures,         in third quarter 1997. It also was down from the 15,795
                  the quarterly average interest rate for 30-year         homes recorded sold in second quarter 2000 (see Table
                  mortgages decreased to 7.4 percent (still above the     2). Even with slower activity, the year-to-date total
                  6.9 percent recorded a year ago). In buying a home,     of 42,240 sales is not far off the record pace of 1999
                  the primary consideration for most homebuyers           (43,625 sales). However, the monthly trend revealed
                  is the monthly payment, which reects both the          slowing: from 5,625 sales in July to 4,315 sales in
                  interest rate and the home price. With a combination    August to 4,135 sales in September.
                  of lower interest rates and stable prices, the              The combination of favorable interest rates and
                  monthly housing payment for a median-priced             a strong economy
                  home decreased from $970 in second quarter 2000         has allowed the ever-          I N S I D E
                  to $940, which still was above last year’s $870 and     condent consumer
                  the low of $650 of fourth quarter 1995.                 to consistently trade
                     Based on the improving nancial picture, the         up. In addition, as
                  resale affordability index improved from 103 to 108,                                Affordability and Home
                                                                          the housing cycle
                  but remained below the 114 of a year ago. The record                                Sales: Third Quarter.....1
                                                                          ages, more expen-
                  resale affordability index value of 148 was set in      sive homes typically        Poverty Clusters ............4
                  third quarter 1993 when the median sales price          sell in greater pro-
                  was $85,000, the effective mortgage interest rate       portions as move-up         Immigration...................8
                  (including fees and charges) was 7.1 percent and        buyers become more          Population Estimates:
 CENTER FOR       monthly household income stood at $3,015. Values        numerous. Although          Third Quarter..............10
  BUSINESS        for third quarter 2001 are shown in Table 1. Based on
                  the current median resale home price and household
                                                                          the median home
                                                                          price remained at
                                                                                                      Purchasing Managers
  RESEARCH        income, a 8.6 percent effective interest rate would     $130,000, nearly 25
                                                                                                      Index: October ............10
                  generate an index value of 100.                         percent of all homes        Leading Index:
                     Affordability is heavily inuenced by changes        sold for more than          August .......................... 11
                  in interest rates and/or home prices. Because the       $200,000 and only           Arizona Economic
                  median new home price increased only slightly,          5 percent were for          Indicators .....................12
                  from $150,335 to $151,525 (see Table 1), the lower      less than $70,000. In
AZB/ARIZONA BUSINESS •       December 2000                                                                                           1
third quarter 1996, 21 percent of resale                  family sector, the townhouse/condominium                        NATIONAL HOUSING MARKET
homes sold for less than $70,000 and only 10              sector has received greater attention from                 Like the local housing market, the national
percent for more than $200,000.                           owners and investors alike. Potential buyers             housing market provides support for both
  The median resale home price varied                     also appreciate the low maintenance,                     optimists and pessimists. In September, the
greatly throughout the Valley, from a high                recreational facilities and security offered             resale market posted a decline, after posting
of $812,500 (95 sales) in Paradise Valley                 by this housing style. Although this housing             a strong performance in August. Reversing
to $77,000 (180 sales) in Central West                    sector frequently is perceived as the source             the pattern, the new-home market, after
Phoenix. Active areas were Mesa with 1,625                of low-priced housing, many of the recent                very weak August, had its best performance
sales ($122,500), Glendale with 1,240 sales               new project announcements are in the high                in September of the last six months. Even
($120,000), Deer Valley with 950 sales                    end of the market. For example, the median               with lower interest rates, higher home prices
($138,950), North Scottsdale with 950                     price of a new unit is higher than a single-             and increasing economic uncertainty are
sales ($294,500), Maryvale with 660 sales                 family home at a record $156,505, in contrast            expected to drive both markets to sales
($84,000) and Mountain Park with 555                      to $138,070 a year ago. The main reason for              levels slightly under those achieved in
sales ($180,000).                                         this unusual occurrence is that nearly 50                1999. The overall strength of the national
                                                          percent of the 390 recorded sales were in                market is dependent on several key states,
        NEW SINGLE-FAMILY HOMES                           North Scottsdale at an average of $207,505,              especially California, Florida and Texas.
  The new-home market improved from                       in an area where new single-family homes                 More specically, strong metro areas include
6,760 recorded sales in second quarter 2000               are at $353,225. Other active areas were                 Atlanta, Dallas, Chicago, Washington, D.C.,
to 7,230 sales — only slightly behind third               South Scottsdale (10 sales, $90,000), East               and Houston.
quarter 1999’s 7,370 recorded sales. July                 Camelback (30 sales, $144,235), Superstition               Although the national resale median home
was the best month with 2,810 sales, while                Springs (30 sales, $123,940), and North Mesa             price increased from $138,020 to $142,775,
both August and September each recorded                   (40 sales, $114,635).                                    lower interest rates allowed the affordability
2,210 sales. The median home price of                       The resale townhouse sector recorded                   index to improve from 99 to 101, while it
$151,525 was another record, and 26 percent               2,940 sales in the third quarter, down from              was 104 a year ago. The same pattern was
of recorded sales were for more than                      3,615 in second quarter 2000 and the 3,220               evident in the national new-home market
$200,000. Among the more active new-                      sales recorded a year ago. The median                    as the median home price increased from
home markets, the highest median price                    sales price for a resale unit decreased from             $162,700 to $165,400, and the affordability
was again in North Scottsdale, with 465                   $87,500 in second quarter 2000 to $85,875                index improved from last quarter’s 84 to
homes sold at a median price of $352,225.                 — 66 percent of the median sales price                   87 (compared to last year’s 90). In rst
The lowest median sales price was $123,040                for a resale home ($130,400). In the resale              quarter 1994, it had been 79 percent. The
in Avondale (255 sales). Other active                     market, the median square footage was                    median resale home price in the Phoenix
markets were Deer Valley with 1,150 sales                 1,145 ($75.95 per square foot), in contrast              metropolitan area was 91 percent of the
($164,740), Superstition Springs with 1,140               to 1,635 ($83.85 per square foot) in the                 national median price. In the new-home
sales ($140,360), Gilbert with 570 sales                  single-family market. The most active                    market, the ratio has increased from 90
($168,375) and Mountain Park with 100                     resale areas were: North Scottsdale with                 percent to 92 percent of the national level.
sales ($170,245).                                         300 sales ($145,250), South Scottsdale
                                                          with 350 sales ($112,500), Sun City/Peoria                           LOOKING AHEAD
     TOWNHOUSE/CONDOMINIUMS                               with 180 sales ($70,000) and South Mesa                    One key factor for the future is the
  With lower affordability in the single-                 with 210 sales ($74,000).                                emergence of the West Valley communities

                                                                                  TABLE 1
                                                                    HOUSING AFFORDABILITY INDEXES
                                                                   Metropolitan Phoenix, Single-family Only
                                                                                   Resale Homes                                     New Homes
                                        Median Gross   Effective         Median      Monthly                              Median                      Monthly
                                          Monthly      Interest          Sales       Housing    Affordability             Sales      Housing      Affordability
      Quarter                             Income         Rate             Price      Payment       Index                   Price     Payment          Index
       First Quarter 1998 ...........      $3,470          7.0%        $110,000         $730            133              $137,210      $910           106
       Second Quarter 1998......            3,470          7.0          114,000          760            128               140,000       930           104
       Third Quarter 1998..........         3,490          6.8          113,900          740            132               138,600       905           108
       Fourth Quarter 1998........          3,490          6.6          115,000          735            133               140,000       895           109
       First Quarter 1999 ...........       3,500          6.7          115,000          740            132               142,060       920           107
       Second Quarter 1999......            3,500          7.1          122,000          820            120               147,930       995            99
       Third Quarter 1999..........         3,535          7.7          122,000          870            114               148,150     1,055            94
       Fourth Quarter 1999........          3,545          7.7          121,715          870            114               147,745     1,055            94
       First Quarter 2000 ...........       3,550          8.0          124,400          915            109               148,075     1,090            91
       Second Quarter 2000......            3,580          8.2          130,000          970            103               150,335     1,125            89
       Third Quarter 2000..........         3,600          7.8          130,000          940            108               151,525     1,090            92

      Source: Arizona Real Estate Center, L. William Seidman Research Institute, College of Business, Arizona State University.

  2                                                                                             December 2000 •             AZB/ARIZONA BUSINESS
— including Avondale, Goodyear, El Mirage                   to buy because they are concerned that               a very broad-ranging market. In addition
and Surprise — as dynamic housing markets.                  they will lose the opportunity. Others are           to a focus on new housing, there must be
Numerous forces are contributing to this                    withdrawing from the market because they             an increasing concern with preserving and
growth: the opening of the freeway system, a                are increasingly concerned about their               enhancing our aging housing stock within
good local economy, availability of land, and               economic futures and do not want to take             existing neighborhoods.
affordable housing. The last two factors are                on the risk of a new home.                             Both the economy and the real estate
especially important for many nontraditional                  As often occurs in the stock market,               market have performed exceptionally well
households. While the median price of a new                 consumers are reacting to the latest news            over the last several years. There is always
home for third quarter 2000 for the Greater                 in the absence of a clear-cut trend. This            the unstated belief that the good times must
Phoenix area was $151,540, it was $123,040                  results in a volatile market, despite the fact       come to an end. The uncertainty of change
in Avondale, $93,445 in El Mirage, $149,700                 that current sales levels show that all local        does not disappear within a good market,
in Goodyear, and $132,600 in Surprise.                      housing sectors are on track for another             but is enhanced. While technology will be
   Currently, the local economy remains                     great year. Even amid mounting concerns              at the vanguard of change, the signicant
strong. People remain condent that they                    that the housing market may nally be slow-          uncertainty is the impact of the potential
will retain their jobs (or could nd another                ing, it is important to note that the Greater        approaches to managing growth (sprawl).
or even a better one, should the need arise).               Phoenix housing market traditionally has             Despite the defeat of Proposition 202, the
Thus, even with weakening affordability,                    outperformed expectations.                           recent success of movements opposing
people still have the condence to make the                   In addition to the uncertainty about               specic development projects, along with the
long-term nancial commitment in buying a                   the economy, the housing industry is                 united power of homeowner associations,
home. Although one month does not make                      confronting changing demographics of the             leave little doubt that concerns about the
a trend, a potential concern is a recent                    homebuyers. The potential market ranges              nature and quality of growth will enmesh the
report that consumer condence, on the                      from the increasingly ethnically diversied          industry for the coming years.
national level, had fallen sharply. Declining               younger generation, to an increasing number
consumer condence when combined with                       of nontraditional households, to the graying                                   — Jay Q. Butler
a cooling economy could lead to slower                      baby boomers. Thus, the physical design                                                 Director
market activity. Some people are moving                     and construction of housing must satisfy                              Arizona Real Estate Center

                                                                            TABLE 2
                                                                METROPOLITAN PHOENIX HOME SALES
                                                        Single-family                                   Townhouse/Condominium
   Median Sales Price                      Resale            New            Total             Resale            New             Total        Grand Total
     First Quarter 1998.................. $110,000         $137,210       $120,000            $77,000         $118,000         $81,500       $115,290
     Second Quarter 1998............. 114,000               140,000        121,500             77,500          117,935          82,500        116,500
     Third Quarter 1998................. 113,900            138,600        121,940             75,000          124,925          80,000        117,410
     Fourth Quarter 1998............... 115,000             140,090        124,060             79,900          119,230          85,000        118,900
      First Quarter 1999..................   115,000        142,060        124,940             81,370          127,185          85,500        119,900
      Second Quarter 1999.............       122,000        147,930        129,900             82,000          134,600          86,000        124,940
      Third Quarter 1999.................    122,000        148,150        131,000             81,000          138,070          85,000        125,600
      Fourth Quarter 1999...............     121,715        147,745        132,000             82,150          142,400          88,000        127,500
      First Quarter 2000..................   124,400        148,075        133,095             85,000          150,145          90,000        128,400
      Second Quarter 2000.............       130,000        150,335        136,700             87,500          151,435          91,000        131,000
      Third Quarter 2000.................    130,000        151,525        138,875             85,875          156,505          90,000        133,000

   Number of Sales
     First Quarter 1998..................     10,470          5,775         16,245              2,520               330          2,850         119,095
     Second Quarter 1998.............         15,075          6,895         21,970              3,500               440          3,940          25,910
     Third Quarter 1998.................      14,575          7,225         21,800              2,850               465          3,315          25,115
     Fourth Quarter 1998...............       12,955          7,705         20,660              2,880               490          3,370          24,030
      First Quarter 1999..................    12,035          6,230         18,265              2,845               405          3,250          21,515
      Second Quarter 1999.............        16,040          7,080         23,120              3,485               470          3,955          27,075
      Third Quarter 1999.................     15,550          7,370         22,920              3,220               420          3,640          26,560
      Fourth Quarter 1999...............      12,740          7,435         20,175              2,935               460          3,395          23,570
      First Quarter 2000..................    12,370          6,690         19,060              2,925               445          3,370          22,430
      Second Quarter 2000.............        15,795          6,760         22,555              3,615               370          3,985          26,540
      Third Quarter 2000.................     14,075          7,230         21,305              2,940               390          3,330          24,635

   Source: Arizona Real Estate Center, L. William Seidman Research Institute, College of Business, Arizona State University.

 AZB/ARIZONA BUSINESS •                                December 2000                                                                                       3
Poverty is highly clustered within the Phoenix area
   This article summarizes two working                         “concentrations of poverty” in published            high poverty areas, the increases were in line
papers that were prepared for the Morrison                     articles. A cluster of tracts with high to          with the metro area’s overall growth.
Institute for Public Policy, School of Public                  extreme poverty rates is deemed to be                 Poverty in the Phoenix metropolitan area in
Affairs, College of Public Programs, Arizona                   signicant in that the problems associated          1989 was highly concentrated, particularly in
State University. The Morrison Institute                       with poverty seem to be intractable. Such           central and south Phoenix. This geographic
received funding from a multitude of local                     problems include crime, drug use, and low           distribution is very much tied to settlement
sources to participate in a study of urban                     educational attainment.                             patterns that date from the earliest develop-
growth under the auspices of the Washington                       The national poverty rate was 13.7 percent       ment of the Valley.
D.C. based Brookings Institution. Several                      in 1969, 12.4 percent in 1979 and 13.1 percent
other metropolitan areas from around the                       in 1989. (Income and poverty in decennial               HISTORICAL SETTLEMENT PATTERNS
country also participated in this study. As part               censuses are reported for the calendar year            Phoenix was the rst of the Valley’s towns.
of the project, the Morrison Institute prepared                prior to the census date.) Thus, the standard       From the beginning in the 1870s, north
a report for the Brookings Institution that will               break at 20 percent represents a poverty            was the preferred direction of Phoenix’s
be a chapter in a forthcoming book.                            rate about 50 percent higher than average.          growth as the south edge of town (south of
   The Morrison Institute also prepared a                      Poverty rates in the Phoenix metro area (11.9       Jefferson Street) consisted of warehouses and
separate report for the local community.                       percent in 1969, 10.5 percent in 1979 and           inexpensive housing. The railroad, which
It is available at the Morrison web site                       12.3 percent in 1989) have been lower than          arrived in the 1880s, passed through this
at Working                          the national average.                               part of town, causing it to further develop
papers produced by the Center for Business                        Poverty rates vary with the economic             with lumberyards, industry and railyards.
Research are available from the CBR web                        cycle. Fortunately, 1969, 1979 and 1989             Minorities were conned to this area by
site at This is                      are directly comparable in that each year           discrimination and economic factors. Farther
the last of a series of summaries of CBR                       represents the end of a period of economic          south, the oodplain of the Salt River (which
working papers that have appeared in                           expansion – recessions began in December            ooded severely in 1890 and 1891) discour-
AZB/Arizona Business.                                          1969, January 1980 and March 1990. Thus,            aged all but low-quality development.
                                                               the poverty rate unaffected by the economic            Growth to the east was negatively inu-
  Neighborhoods with a high percentage                         cycle fell a little in the 1970s but increased a    enced by the “insane asylum” (now the
of residents living in poverty are clustered                   little in the 1980s.                                Arizona State Hospital at Van Buren and
within the Phoenix metropolitan area,                             A large increase occurred in the land area       24th Streets). In contrast, the Indian School
particularly in central and south Phoenix.                     of high-poverty tracts in the Phoenix metro         to the north (at Central Avenue and Indian
The most afuent neighborhoods (“favored                       area between 1969 and 1989, but this increase       School Road) was an attraction to businesses
quarters”) also are clustered, with the                        matched the metro area’s rapid growth.              and afuent housing because of prospects of
largest cluster in the northeast quadrant                      High poverty tracts as a percentage of the          cheap labor and a market for Anglo merchants.
of the Valley.                                                 metropolitan total follow the pattern of the        Initially, high-end growth proceeded to the
  Poverty rates are calculated as the percent-                 overall metro poverty rate: an improvement in       northwest (most notably in the Encanto district
age of persons living under the poverty level,                 the 1970s followed by worsening conditions          northwest of 7th Avenue and McDowell
an income level that varies by household size                  in the 1980s such that the 1989 gures were         Road), drawn by plans for the Territorial
and is adjusted annually by the ination rate.                 slightly worse than the 1969 gures (see            Capitol to be built to the west and by the
Discussions of poverty usually consider a                      Table 1). However, the percentages in the           availability of public transit (mule-drawn
rate of 20 percent or more to denote an area                   extreme poverty category were a little less in      trams) to the northwest. Floods along Cave
of “high poverty.” Areas with poverty rates                    1989 than in 1969. Thus, while the number           Creek, however, stopped outward movement
of 40 percent or more commonly are dened                      of people living in areas of high poverty           of high-end housing in this direction.
as “ghettos,” “extreme poverty tracts” or                      increased, as did the square mileage of these          Thus, a favored residential quarter became
                                                                                                                   established to the north and northeast of
                                              TABLE 1                                                              downtown Phoenix. This area was attractive
                            PERCENTAGE OF THE PHOENIX METROPOLITAN AREA                                            because of irrigated elds, the early planting
                          IN CENSUS TRACTS WITH HIGH POVERTY RATES, 1969-89                                        of shade trees, the establishment of orange
                                                                                                                   groves along the flanks of the Phoenix
                        Extreme Poverty                      High Poverty                     Total                Mountains (especially Squaw Peak and
                      (At Least 40 Percent)               (20 to 40 Percent)          (20 Percent or More)         Camelback Mountain), views of the moun-
                    Number       Persons      Total  Number Persons        Total  Number        Persons   Total    tains, and the cooling summer breeze coming
                    of Tracts   in Poverty   Persons of Tracts in Poverty Persons of Tracts   in Poverty Persons   off of the mountains. Price-related deed
  1969...........      5.6%        1.8%       4.2%     13.3%      3.5%     12.4%     18.9%       5.3% 16.7%        restrictions began in the 1920s, keeping out
  1979...........      3.8         1.3        2.9      10.1       2.3       8.4      13.9        3.6  11.3         lower-value housing. Sunnyslope, established
  1989...........      4.9         1.7        3.7      14.2       3.8      13.8      19.1        5.5  17.5         in 1919 as a community of lower-value
                                                                                                                   housing populated by many tuberculars,
 Source: Center for Business Research, L. William Seidman Research Institute, College of Business, Arizona         stopped the expansion of the favored quarter
 State University, calculated from decennial censuses, U.S. Bureau of the Census.
                                                                                                                   to the north (at the Arizona Canal north

  4                                                                                                 December 2000 •       AZB/ARIZONA BUSINESS
of Northern Avenue). Thus, the expansion         Transportation played a major role in the       population quadrupled between 1950 and
of the favored quarter proceeded only to      location of development within the extensive       1960 to 439,000 as its land area soared from
the northeast.                                Salt River Valley. Phoenix as well as the          17 to 190 square miles. Tract housing, rare
  Other towns were started from the 1870s     three next most populous towns – Mesa,             until after the war, accommodated the more
into the 1890s: Tempe, Mesa, Peoria,          Tempe and Glendale – were connected by             rapid postwar pace of growth.
Glendale and Scottsdale. Damming of           the railroad and then along the same route           After the war, the central business district
watercourses and further development of       by U.S. 60, the Valley’s main highway until        began to move north of downtown Phoenix
the canal system shortly after the turn       the 1960s. The Phoenix airport was located         along Central Avenue. The rst high-rise
of the century allowed several “planned”      along the Salt River, just south of the railroad   outside of downtown opened in 1955,
communities, each with an adequate            and close to downtown Phoenix and Tempe.           followed in 1957 by the opening of Valley’s
supply of water, to start between 1910 and    Scheduled air service began in 1927.               rst shopping mall (Park Central at Osborn
1920: South Phoenix, Tolleson, Chandler,         The pace of growth picked up signicantly       Road and Central Avenue). Many retailers
Gilbert, Litcheld Park and Ocotillo (south   after World War II. Nearly all of the              and other businesses left downtown after
of Chandler). More informal settlements,      urbanization in the 1950s was focused on           this, with the downtown evolving into a
consisting mostly of housing for farm         the city of Phoenix or on lands annexed by         legal, nancial and governmental center.
workers (primarily low-income minorities)     the city during the 1950s. The proportion            During the postwar period, the northeast
began at the same time: Guadalupe, Higley     of the county’s population living in the           remained the preferred quarter. Its appeal was
and Queen Creek in the southeast and          city of Phoenix jumped from 32 percent             enhanced by new resorts, the development
Laveen and Cashion in the southwest.          in 1950 to 66 percent in 1960. The city’s          of Scottsdale as a tourist mecca, and the
                                                             MAP 1
                                       POVERTY CLUSTERS AND FAVORED RESIDENTIAL QUARTER
                                                 IN METROPOLITAN PHOENIX, 1990

 AZB/ARIZONA BUSINESS •                 December 2000                                                                                      5
opening of elegant shopping centers in the                     GEOGRAPHIC DISTRIBUTION OF POVERTY              excess of 40 percent in 1989.) In the 1970s,
early 1960s (what is now Biltmore Fashion                        In Maricopa County, 89 census tracts          poverty rates rose substantially (more than
Park and Scottsdale Fashion Square).                           had poverty rates of at least 20 percent in     5 percentage points) in 11 of the 23 tracts,
   The northwest became the “popular”                          1989, of which 23 had rates of at least 40      even though the metro area’s poverty rate
quarter during this period, with the construc-                 percent. Rather than a random distribution,     decreased. Poverty rates in this area in the
tion of affordable homes for the working                       these tracts were geographically clustered      1980s typically rose 10 to 15 percentage
class. A classic example is Maryvale, an                       (see Map 1).                                    points, though ve tracts had increases of at
early planned community started in 1957.                                   The Major Cluster:                  least 20 percentage points while another six
Growth was spurred by the opening of the                                 Central-South Phoenix                 showed little change in rate.
rst segments of the I-17 freeway in 1957.                       An extensive cluster of high poverty was         The portion of the Central-South Phoenix
(More generally, housing across the Valley                     centered on Downtown Phoenix in 1989.           cluster that lies south of the river had less
has followed the construction of freeways                      Fifty-two contiguous census tracts made up      extreme poverty rates that were increasing
and other infrastructure, such as sewers.)                     this cluster. The cluster included nearly all   less rapidly. Only three of 14 tracts had
In addition, Youngtown, a forerunner of                        of the city of Phoenix south of McDowell        poverty rates greater than 40 percent in
modern retirement communities, began in                        Road. Between I-17 and 43rd Avenue, the         1989 while one-half had rates less than 30
1954 to the northwest of the urbanized area.                   cluster extended north, as far as Bethany       percent. The highest rates were in the area
Adjacent Sun City opened in 1960.                              Home Road between 27th and 35th Avenues.        north of Southern Avenue and east of 7th
   The southeast Valley began to grow more                     The cluster also extended north between         Avenue. Over time, changes in poverty rates
rapidly in the 1960s, aided by the construction                7th Street and 32nd Street in an irregular      in South Phoenix have been highly variable
of the I-10 freeway, which ran north-south                     pattern, as far north as Camelback Road         from tract to tract. The median increase
along the west edge of this quadrant, meeting                  between 7th and 16th streets.                   was 3 percentage points in the 1970s and 6
the I-17 freeway in Phoenix. The I-10/I-17                       The most serious poverty problem was          percentage points in the 1980s.
freeway was completed in 1968. East Mesa                       located in the 23 tracts between the Salt          The 12 tracts of the Central-South Phoenix
also had an early retirement community:                        River and McDowell Road west of 32nd            cluster extending north of McDowell Road
Dreamland Villa, opened in 1954.                               Street, in which 15 tracts had a poverty rate   all had 1989 poverty rates between 20 and
   South Phoenix was still largely agrarian                    in excess of 40 percent in 1989, with nine      30 percent. Two of three tracts extending
but had areas of extreme poverty populated                     of these in excess of 50 percent. (All but      east of 32nd Street along Van Buren Street
especially by minority groups. It and the                      one of the tracts in the area encompassed by    had rates above 30 percent. Increases in these
southwest quadrant grew less rapidly than                      35th Avenue, the river, 24th Street and         15 tracts were minimal during the 1970s, but
the rest of the Valley.                                        Van Buren Street had poverty rates in           increases in the 1980s mostly were between
                                                                                                               10 and 15 percentage points.
                                         TABLE 2                                                                              Small Clusters
                    HIGH-POVERTY CLUSTERS IN METROPOLITAN PHOENIX IN 1989                                         Several localized clusters of high poverty,
                                                                                                               separate from the Central-South Phoenix
                                             Number of High-Poverty Tracts in 1989      Median Change          cluster, were scattered across the county in
                                                       by Poverty Rate                  in Poverty Rate        1989. A summary is provided in Table 2.
                                                                                                                  Three clusters of high poverty were within
                                                 20-29.9 30-39.9 40-49.9  50 +                                 the developed portion of the West Valley.
                                                 Percent Percent Percent Percent      1969-79    1979-89       At the northwest fringe, a pocket of high
 Central-South Phoenix .............               22     12       8      10             4         11          poverty (rates in the 30s) was centered on
  Salt River to McDowell ..........                 2      6       6        9            5         12          Surprise and El Mirage. Poverty in the
  South of the River..................              7      4       2        1            3          6          area was stable, in rate and in geographic
  East Van Buren .....................              1      2       0        0            4        15           extent. Poverty rates for 1999 will be lower in
  Northwest ..............................          8      0       0        0            3         11          Surprise since it is experiencing considerable
  Northeast...............................          4      0       0        0            3          9          growth of moderate to moderately high-
                                                                                                               priced housing. Downtown Glendale had
 Downtown Chandler .................               0      3        0          0        NA         NA           four tracts with poverty rates between 26 and
 Mesa.........................................     4      0        0          0        NA           5          39 percent. The increase in each was about
 Downtown Tempe.....................               2      1        1          1         10          8          10 percentage points in the 1980s.
 Guadalupe................................         0      0        1          0        -10         -1             At the southwest fringe, one census tract
 North Phoenix ..........................          3      0        0          0          1        12           in Avondale had a 1989 poverty rate near 40
 Downtown Glendale .................               1      3        0          0          3         11          percent, while six others had rates between
 El Mirage-Surprise ...................            2      2        1          0         -1         -1          20 and 30 percent. Only two of the tracts
 Avondale-Goodyear .................               6      1        0          0         -2          2          experienced much of an increase in the
 Western Maricopa County........                   3      0        0          0        -10          6          1980s. In Cashion, the rate fell from 40
                                                                                                               percent in 1979 to 23 percent in 1989;
 NA: not available due to changes in census tract geography                                                    in Tolleson, the rate decreased from 31
 Source: Center for Business Research, L. William Seidman Research Institute, College of Business, Arizona     percent in 1969 to 19 percent in 1979 and
 State University, calculated from decennial censuses, U.S. Bureau of the Census.
                                                                                                               18 percent in 1989.

  6                                                                                             December 2000 •      AZB/ARIZONA BUSINESS
   In north Phoenix, two adjacent tracts in        fell modestly during the 1970s and rose a         particularly to the northwest, north of the
Sunnyslope had 1989 rates above 20 percent         little during the 1980s, with the 1989 rates      growing expanse of high poverty in that
as did a lone tract centered on 28th Street and    generally comparable to those of 1969.            direction. (The highest concentration of
Paradise Lane. Each experienced a rise in the                                                        blacks, however, remained in the poverty
1980s of about 10 percentage points.                            FAVORED QUARTER                      cluster.) The small Native American share
   The Southeast Valley had four locations of         The idea of a “favored quarter” was            held largely steady in the poverty cluster at
high poverty rates. The town of Guadalupe’s        pioneered by Robert Charles Lesser and            about the average for the metro area.
rate was 40 percent in 1989, down from 50          Company. The favored quarter of a metro-             Hispanic proportions have been highest
percent in 1969. Three tracts in downtown          politan area is that with the greatest presence   in the poverty clusters and have climbed
Chandler had poverty rates in excess of 30         of executive housing, high-end retail malls,      the most in the northeast and northwest
percent in 1989. Three tracts in downtown          recent highway improvements, employment           extensions of the Central-South Phoenix
Mesa had 1989 poverty rates in the 20s.            growth, low commercial real estate vacancy        poverty cluster. Few Hispanics have lived
One other tract in East Mesa, consisting           rates, and a high share of regional economic      in the northeast favored cluster where
entirely of mobile home parks, had a rate          growth. This discussion focuses on favored        the racial/ethnic composition has changed
just above 20 percent in 1989. Increases           residential quarters – in essence, the opposite   little since 1970, remaining predominately
in the poverty rate in these Mesa tracts           of the poverty clusters.                          non-Hispanic white.
generally were small.                                 Favored residential quarters are dened by        Poverty cluster residents in 1995 were
   The high-poverty area in Central-South          low poverty rates, high household incomes         a little younger than average, with above
Phoenix extended east along old Highway            and high home values. The vicinity of             average proportions of children and average
60 (Van Buren Street) through Tempe                Camelback Mountain formed the core of             proportions of senior citizens. The age
(Mill Avenue and Apache Boulevard). Two            the northeast quadrant’s favored quarter in       distribution in the northeast quadrant’s
of ve tracts in this part of Tempe had            1970. More generally the favored quarter          favored quarter tilted toward the older
1989 poverty rates in excess of 40 percent.        encircled Squaw Peak and Camelback                population, but the age distribution in
Poverty rates in this area rose roughly 10         Mountain. Moon Valley and a short stretch         the southeast favored quarter included
percentage points in the 1970s, but the            along North Central Avenue were the only          more children and fewer elderly than the
increases in the 1980s were a bit smaller.         non-adjacent areas with relatively high           metro average.
The Tempe poverty cluster was different            incomes and home values.                             Households headed by women with
from the others in several demographic                Over time, the northeast quadrant’s            dependent children were found in high
aspects, including lower proportions of            favored quarter expanded considerably to          proportions in high-poverty areas in 1990.
Hispanics, those unable to speak English           the northeast. Only a little of what was the      Female-headed households with children
well, and female-headed households.                favored quarter in 1970 was not part of           ranged from a low-to-average share across
Educational attainment and migration               the favored quarter in 1990. In addition, a       the favored quarter.
into the cluster from outside Maricopa             secondary favored quarter began in south             Household size ranged across the poverty
County were higher than in other poverty           Tempe and expanded to include the Foothills       cluster from a little below to above the
areas. Though students living in university        area south of South Mountain. A portion of        metro average. Average household size in
dormitories are excluded from the poverty          Arrowhead Ranch in north Glendale also            the favored quarter shifted from above
rate statistics, other students are included.      showed characteristics of a favored quarter       average in 1970 and 1980 to average-to-
Many may be living below the ofcial               in 1990, along with portions of Moon Valley       below average in 1990 and 1995, the result
poverty level, but the income measure on           and North Central Avenue.                         of the population aging in place.
which poverty is based does not include               On some characteristics – household               Educational attainment was quite low
nancial help the students may be receiving        size, age distribution, employment rates,         in the poverty clusters. Relatively high
from parents, scholarships and student             population densities – the favored quarters       proportions of residents of the favored
loans. Nearly all of these students will leave     were not significantly different from the         quarters received a college degree, more so
poverty when they cease to be students.            poverty clusters. The large variances             in 1990 than in earlier years.
Thus, it may be misleading to consider this        started with educational attainment, such            The proportion of the adult population
part of Tempe a cluster of poverty.                that occupation, income, unemployment             that worked was somewhat below average
   Much of the outlying parts of Maricopa          rates, and quality of housing were much           in the poverty clusters with very few
County also had high poverty rates. The            different in the favored quarters than            working in white-collar occupations. The
Fort McDowell and Gila River Indian                in the poverty clusters. Related to the           unemployment rate was above average.
Reservations experienced very high poverty         low educational attainment of minorities,         While a little below average in the heart
rates, though the 1989 rates still were a little   a shar p difference was seen in the               of the favored quarter, the employment-to-
below those of 1969 as large increases in          racial/ethnic composition.                        population ratio has shifted over time to
the 1980s did not offset substantial declines                                                        higher than average in the rest of favored
in the 1970s. The western part of Maricopa                       DEMOGRAPHICS                        quarter. Unemployment rates were low
County, extending from the fringe of the             In nearly all of the Central-South Phoenix      and the percent working in white-collar
developed area to the county line, had             poverty cluster, the population became            occupations was high.
poverty rates in 1989 of more than 20              increasingly Hispanic between 1970 and
percent, but less than 30 percent in most          1995. Black, white, and the small Asian                                      — Tom R. Rex
tracts. In most of this region, poverty rates      proportions decreased, with blacks moving                                 Research Manager

 AZB/ARIZONA BUSINESS •                      December 2000                                                                                    7
Immigration to Arizona is less than 10,000 a year
  Arizona is not a primary destination of          percent of the total) through the 1850s,           origin began during World War I. The
legal immigrants to the United States, but         but Germany became the second greatest             share from Europe fell while that from the
the state has a disproportionately large           origin in the 1830s and the top source in the      Western Hemisphere rose to more than 30
share of the nation’s illegal immigrant            1850s with 37 percent of all immigrants.           percent from the 1920s through the 1940s
population. This article discusses data            Through the 1880s, more people moved to            (it had never exceeded 14 percent prior
reported in the 1997 Statistical Yearbook          the United States from Germany than from           to the 1910s). While immigrants from the
of the Immigration and Naturalization              any other country.                                 Americas came primarily from Canada
Service (INS).                                       Nearly all migrants in these early decades       during this period, the share of immigrants
                                                   of the nation originated in Ireland, the           from Mexico and the Caribbean began to
         HISTORICAL IMMIGRATION                    United Kingdom, Canada or Germany.                 accelerate. Numbers were low, however, as
  The annual INS data series on the number         France prior to 1850 was the only other            few immigrants entered the United States
of legal immigrants to the United States           country of note. In the latter part of the         during the Great Depression of the 1930s
begins in 1820. In the rst half of the 1820s,     19th century, immigrants began to arrive           and during World War II.
less than 10,000 immigrants per year entered       in greater numbers from other European                Another shift in immigration began
the country. Although considerable year-           countries as well. Norway and Sweden               after World War II, as Asia became an
to-year uctuations occurred, immigration          began this period of greater diversity in          increasingly important source. The Asian
accelerated from the late 1820s until              the 1870s. Beginning in the 1880s, larger          share surged from less than 5 percent prior
peaking between 1905 and 1914 at nearly 1          numbers arrived from eastern European              to 1950 to more than 30 percent after 1970.
million per year. For 10 consecutive decades       countries: Austria, Hungary, Russia and            The Philippines, Korea, Vietnam, China
between 1831 and 1930, total immigration           Italy. Between 1891 and 1920, more                 and India have been the largest Asian
was equal to between 4 and 12 percent              immigrants came from Italy than from               sources since 1970. The percentage from
of what the American population had                any other country, accounting for about 20         the Americas expanded further to around
been at the beginning of each decade (See          percent of the total.                              50 percent and has held at that level
Figure I).                                           The increased immigration ows from              since the 1960s. Mexico has become an
  In all but one decade from 1821 through          many countries were relatively short-lived,        increasingly important source, while the
1910, Europeans accounted for at least 89          with the percentage coming from Norway             number immigrating from Canada fell
percent of the immigrants; Canadians —             and Sweden decreasing around the turn              after 1970. The European share fell from
nearly all of European descent — made up           of the century and those from Austria,             60 percent in the 1940s to less than 20
most of the rest. The primary European             Hungary and Russia dropping sharply                percent after 1970, with no European
countries from which the United States             during and after World War I. Germany went         country accounting for more than 3 percent
received immigrants varied over this period,       from sending the most immigrants between           of all immigrants.
however. In the 1820s, Ireland accounted           1851 and 1890 to being an insignicant                Immigrants during the latter half of the
for nearly 50 percent of the total and the         source between 1901 and 1920 — but again           20th century came from many countries.
United Kingdom almost 25 percent. Ireland          was top ranked from 1931 to 1960.                  Since the 1970s, Mexico has been the only
remained a major source (more than 35                A signicant shift in the countries of           country with a share of at least 10 percent;
                                                                                                      its share exceeded 20 percent in the 1980s
                                         FIGURE I                                                     and 1990s.
                             IMMIGRATION TO THE UNITED STATES
                                        By Decade                                                                RECENT IMMIGRATION
  Annual Average in Thousands (Bars)
                                                                                                         During the post-World War II period the
                                                                                   Percent* (Line)
                                                                                                      number of immigrants steadily rose. While
  1,000                                                                                          14
                                                                                                      the ofcial number peaked between 1989
                                                                                                12    and 1991 at the highest level in history, this
                                                                                                10    was a result of the Immigration Reform and
      600                                                                                       8     Control Act of 1986 (IRCA), which allowed
                                                                                                6     immigrants who had previously entered the
                                                                                                4     country illegally to become legal residents.
      200                                                                                             Apart from this, legal immigration during
                                                                                                      the 1990s was about 800,000 per year — less
        0                                                                                       0
                                                                                                      than the historical peak in number and far
            1830   1850     1870       1890       1910      1930     1950        1970      1990       less as a percentage of the population.
                                               End of Decade                                             In 1997 (the latest data), 19 percent of
 * Total immigration during the decade as a percentage of the total population at the beginning of    all legal immigrants to the United States
 the decade.
                                                                                                      came from Mexico, a share triple that of
 Note: Figures for the 1991 to 2000 decade are projected based on actual data for 1991 to 1997.
                                                                                                      second-ranked Russia (including other
 Source: Center for Business Research, L. William Seidman Research Institute, College of Business,
 Arizona State University from U.S. Immigration and Naturalization Service and U..S. Bureau of the
                                                                                                      former Soviet countries). The next highest
 Census data.                                                                                         numbers came from the Philippines, China,

  8                                                                                  December 2000 •        AZB/ARIZONA BUSINESS
Vietnam and India. Other countries in the        immigrants has been steady except during          Arizona, New Mexico and Texas were
top 10 in 1997 were Cuba, the Dominican          the peak of the IRCA program in the early       the only states in which illegal residents
Republic, El Salvador and Jamaica.               1990s. The state’s 8,632 immigrants in 1997     were disproportionately large compared to
   Immigrants from many countries locate         ranked 15th among the states and District       legal immigration.
disproportionately in certain metropolitan       of Columbia. California was the intended          More than 95 percent of the illegal
areas. The New York metro area (MA) was          destination of one-fourth of the nation’s       entrants (deportable aliens) to the United
the intended residence of 13 percent of          immigrants. Other major destinations were       States that are located by the Border Patrol
all immigrants in 1997, but two-thirds of        New York and Florida.                           pass through the U.S.-Mexico border. The
the immigrants from the South American              Arizona ranked 18th with 1.9 immigrants      number in the Southwest rose gradually
country of Guyana and half from Bangla-          per 1,000 residents in 1997. The national       through the 1990s. However, major differ-
desh, Ecuador, Trinidad and the Dominican        average was 3.0. New York had the               ences occurred by Border Patrol sector. In
Republic chose the New York MA as their          highest gure at 6.8, with the District         1991, one-half of the deportable aliens were
new home. The New York MA also was the           of Columbia, California, Hawaii, Florida        located in the San Diego sector; this sector’s
intended residence of large proportions of       and New Jersey all receiving more than 5        share in 1997 was down to 21 percent. The
Jamaicans and Ukrainians. Nearly three-          immigrants per 1,000 residents. Only 11         El Paso sector also experienced a sharp
fourths of Cuban immigrants settled in the       states had a per capita gure greater than      drop off, with its share falling from more
Miami MA — more than half of that                the national average.                           than 20 percent to less than 10 percent. In
metro area’s total immigrants. More                 Mexican immigrants made up more than         contrast, the Tucson sector’s share rose from
than a third of Polish immigrants chose          half of the total immigrant ow in 1997 in      6 percent in 1991 and 1992 to 20 percent in
Chicago, the destination of only 4 percent       Arizona, Idaho, New Mexico and Texas,           1996 and 1997; the numeric gain was from
of all immigrants. In contrast, Mexican          and nearly half in Nevada. A third of the       60,000 to 300,000. Most of the other Border
immigrants dispersed across the country,         immigrants to California were Mexicans.         Patrol sectors also had an increasing share.
with Los Angeles and Chicago the most            Nearly half of all Mexican immigrants           However, the Yuma sector’s share held
popular destinations.                            settled in California, with 21 percent moving   steady at about 2 percent.
   Two-thirds of the legal immigrants to         to Texas.
the country during 1997 were “family                The ranking of countries from which                                          — Tom R. Rex
sponsored.” Forty percent were spouses,          immigrants moved was different in Arizona                                    Research Manager
parents or children of U.S. citizens. Another    than the national average. Arizona received
27 percent were siblings or adult sons and       few immigrants from Caribbean nations,
                                                                                                                  FIGURE II
daughters of U.S. citizens, or spouses and       but relatively more from Canada, the United
                                                                                                         OCCUPATIONS OF IMMIGRANTS
children of alien residents. Most of the rest    Kingdom and Iran.
                                                                                                         TO THE UNITED STATES, 1997
were refugees or asylees, or had received an        In 1997, the Phoenix-Mesa MA ranked
employment-based preference (primarily           33rd among metropolitan areas (compared
those with an advanced degree, other             to a population rank of 14th) in the number            Mexico
professionals, or skilled workers). The age      of immigrants (just more than 5,000). A
distribution of the immigrants was heavily       little less than half came from Mexico.           Rest of North
weighted to those 25 to 34 years old, with the   Five countries each accounted for between            America
percentage between 10 and 24 also higher         2 and 5 percent of the total: Canada, the              South
than that of the entire U.S. population.         Philippines, China, India and Vietnam.                America
   The occupational prole of immigrants
in 1997 differed somewhat from the entire                  ILLEGAL IMMIGRATION                           Africa
U.S. population, with a greater proportion         The number of illegal immigrants entering
of immigrants working in non-professional        the United States is unknown. The INS                     Asia
white-collar occupations (sales, services,       estimated that 5 million people were residing
administrative support) and fewer in blue-       in the country illegally in October 1996.              Europe
collar elds (production, laborer). High         A little more than half were from Mexico.
proportions of immigrants from Europe,           Forty percent of the total were living in              ALL
Asia and Africa were occupied in profes-         California, with signicant numbers in          IMMIGRANTS
sional, technical and administrative elds,      Texas, New York, Florida and Illinois. An
with few in blue-collar elds (see Figure        estimated 115,000 were living in Arizona,         TOTAL U.S.
II). In contrast, fewer immigrants from          2.3 percent of the national total. The state
the Americas, especially Mexico, had             ranked seventh.                                                   0     20          40        60
professional occupations.                          These 115,000 people represented 2.5                                       Percent
                                                 percent of Arizona’s residents in 1996. The               Blue Collar          Professional
     LEGAL IMMIGRATION TO ARIZONA                proportion was higher in just four states:
                                                                                                  Source: Center for Business Research, L. William
   Arizona was the intended residence of just    California, District of Columbia, Texas
                                                                                                  Seidman Research Institute, College of Business,
1.1 percent of the nation’s legal immigrants     and New York. Only eight states had a            Arizona State University from U.S. Immigration
in 1997, smaller than its 1.7 percent share      gure greater than the national average          and Naturalization Service and U..S. Bureau of
of the U.S. population. Arizona’s share of       of 1.9 percent.                                  the Census data.

 AZB/ARIZONA BUSINESS •                    December 2000                                                                                       9
Net migration to Arizona slows during 2000
    Net in-migration to Maricopa County             lation estimates for Arizona and Maricopa                          estimates and projections.
 slowed during 2000, with revised estimates         County were higher than those issued by                              By law, the Census Bureau must release by
 of 11,000 per quarter for the first three          the U.S. Bureau of the Census (as of July                          December 31, 2000, unadjusted 2000 census
 quarters of the year, the least since 1992.        1, 1999) but lower than those issued by the                        counts by state. These gures determine the
 While housing construction remains strong,         Arizona Department of Economic Security                            number of seats each state will have in the U.S.
 rising vacancy rates point to reduced popula-      (as of July 1, 2000). All of these estimates                       House of Representatives. By April 1, 2001,
 tion growth.                                       are subject to revision based on the results                       census counts must be produced down to the
    The population of Maricopa County rose          of the 2000 census.                                                block level to use in the redrawing of districts
 18,000 during third quarter 2000, matching            In the past, most population estimates were                     for the House and for state legislatures.
 the lowest quarterly rise since 1992. The          benchmarked to official decennial census                             This redistricting data will be available
 number of Arizona residents advanced               (and where available special census) counts.                       to the public on the Internet. While very
 29,000. At the end of third quarter 2000, the      These counts were not adjusted to reflect                          detailed geographically, it will include
 estimated population of Maricopa County            the estimated undercount of the population.                        only total population, total housing units,
 was 2,978,000. Arizona’s population was            The CBR’s estimates are benchmarked to the                         population age 18 years or older, and counts
 4,986,000. From third quarter 1999 through         1980, 1985 and 1995 censuses.                                      by race/ethnicity. Other data collected
 third quarter 2000, Maricopa County’s                 Thus, existing estimates will be compared                       from all households, such as age detail and
 population rose 75,000 (2.6 percent) and           to unadjusted gures from the 2000 census.                         homeownership, are scheduled for release
 the state’s population increased 117,000           For the rst time, however, the Census Bureau                      beginning next summer. Data from the long
 (2.4 percent). While net migration was             also will release census counts adjusted for                       census form sent to a sample of households,
 responsible for most of the gain, net natural      the undercount as an ofcial product. In the                       such as income and occupation, are not
 increase (the difference between births and        future, the Census Bureau intends to base its                      scheduled for release until 2002.
 deaths) reached an annual gure of 30,000 in       estimates on these adjusted gures. The CBR
 Maricopa County and 42,000 statewide.              will review the data before determining how                                                               — Tom R. Rex
    The Center for Business Research’s popu-        to incorporate the 2000 census results into its                                                        Research Manager

Purchasing Managers Index declines in October
  The Arizona Purchasing Managers Index
fell slightly to 59.5 in October, remaining                                                          TABLE 1
within the 58 to 62 range of the last six months.                                ARIZONA PURCHASING MANAGERS INDEX AND PRICE INDEX
An index reading of over 50 percent indicates                                                         Oct.     Sept.        Aug.          July           June         May
that the local economy is growing; below 50            Overall Index ............................     59.5     60.8         61.7          59.2           58.0         60.2
percent suggests a slowdown in the overall               Delivery Times......................         63.3     63.2         63.9          66.0           62.6         55.1
level of economic activity in the near term.             Purchased Materials
                                                           Inventory Level ..................         52.8     58.1         61.1          53.8           52.0         55.2
                 ANALYSIS                                New Orders ..........................        60.8     58.1         59.5          59.7           54.2         59.4
  Although the overall index slipped, the                Production ............................      56.6     63.1         62.3          55.1           59.0         65.5
reading suggests that the economy will                   Employment..........................         61.4     61.3         62.5          61.0           61.9         61.3
continue to expand for at least several                Price Index................................    68.3     66.9         66.8          65.8           65.5         64.3
more months. The production component
of the index was responsible for much of                                                                 FIGURE I
October’s decline, but was offset somewhat                                                  ARIZONA PURCHASING MANAGERS INDEX*
by an increase in new orders. Lower levels            Midpoint=50
of inventory in purchased materials also                   70
were reported.
  The price index rose to 68.3 in October,
suggesting some upward price pressure in                   60
the economy. Thirty-eight percent of the
rms surveyed responded that prices were                   55
higher in October than they had been in
September, while 2 percent reported lower
prices. The price index slowly rose over the               45
last six months.                                                Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct.
                                                                1999                                                  2000
                      — Dawn McLaren                  *Excludes Price Index
                                                      Source (Table 1 and Figure I): Bank One Economic Outlook Center, L. William Seidman Research Institute, College of Business,
                     Research Economist               Arizona State University.
        Bank One Economic Outlook Center

 10                                                                                                  December 2000 •            AZB/ARIZONA BUSINESS
Bank One Arizona Leading Index moves up in August
  The Bank One Arizona Index of Leading            rates are not expected to change much over                                      consumer condence than observing how
Economic Indicators rose in August 2000 to         the next several months since the pressure on                                   people spend during the holidays. The best
110.3. The number was 0.5 percent above the        the Federal Reserve Board to raise interest                                     guess is that holiday spending levels will
109.7 number for July 2000 and 1.3 percent         rates is evaporating, and it is also unlikely                                   be good but not spectacular, both nationally
above the August 1999 number of 108.9              that interest rates would move aggressively                                     and locally. The mix of spending will be
(1987 = 100).                                      in the opposite direction.                                                      nearly as important as the amount. Spending
  The ination-adjusted value of the money            The majority of forecasters seem to                                          on big-ticket items tends to be greatest
supply M2, materials inventories, the ina-        believe that the Arizona economy will slow                                      during the early to middle portions of an
tion-adjusted value of Maricopa County             in 2001 and 2002, but the moderation will                                       expansion. Spending on smaller personal
residential building permits, production, and      not be dramatic. Considering that forecasts                                     items tends to pick up in the late stages
employment from the purchasing managers            of the economy have been too conservative                                       of an expansion. Big-ticket spending has
survey were positive. Hours worked in              during most of the current expansion, it is                                     held up quite well so far in this expansion;
manufacturing, delivery times, new orders          likely that the differences between 2000 and                                    when that changes it will be a sign that the
and sensitive materials prices had negative        2001 could be even smaller than expected.                                       economy is slowing down.
impacts on the leading index in August.               We will know more about how 2001
                                                   is likely to shape up after the holiday                                                                 — Tracy Clark
                   ANALYSIS                        shopping season is over. Consumers drive                                                              Senior Economist
   After exhibiting an upward trend from           approximately two-thirds of the economy,                                               Bank One Economic Outlook Center
April 1999 through April 2000, the leading         and there is no better way of gauging
index fell for three straight months (see
Figure I). The gain in August offset about                                                                   TABLE 1
half of the three-month cumulative loss.                                                NET CONTRIBUTION OF INDIVIDUAL COMPONENTS TO THE
Particularly with much of the recent ups                                                  ARIZONA INDEX OF LEADING ECONOMIC INDICATORS
and downs resulting from high volatility in                                                                                                  Net Contribution+
building permits (see Table 1), the index is                                                                                    May         June          July      August
not sending a clear signal as to the direction          Delivery Time* ....................................................    –0.29        0.16          0.12      –0.10
of the economy in coming months. However,               Inventory Levels*................................................      –0.09       –0.07         –0.02       0.27
some slowing seems likely.                              New Orders*.......................................................     –0.14       –0.13          0.16      –0.05
   The most consistent signal from the com-             Production*.........................................................   –0.06       –0.19         –0.03       0.11
ponent indexes has come from sensitive                  Employment* ......................................................     –0.05        0.01         –0.04       0.11
materials prices, which has been up three               Residential Building Permits...............................             0.50       –0.50         –0.20       0.22
times, at twice, and down in seven of the              Average Workweek, Manufacturing....................                     0.04        0.00          0.00      –0.28
last 12 months. The negative direction of the           Money Supply.....................................................      –0.01        0.02          0.04       0.31
sensitive materials index is consistent with            Change in Sensitive Materials Prices .................                 –0.10       –0.06         –0.09      –0.04
the general lack of inationary pressure on             OVERALL INDEX ...............................................          –0.20       –0.76         –0.06       0.55
the goods side of the economy. However,             +
                                                      The net contribution of each component is calculated by multiplying the monthly percent change in
it is inconsistent with the recent direction        its index by its relative importance.
of industrial production, which is growing          * Based on indicators from the Purchasing Management Association of Arizona, Purchasing Management
faster so far this year. Sensitive materials are    Association of Southern Arizona and the Northern Arizona Group.
the most basic inputs into manufacturing.
Declining prices should mean falling demand
                                                                                                              FIGURE I
and eventually falling production of final
                                                                                           ARIZONA INDEX OF LEADING ECONOMIC INDICATORS
goods. The importance of the sensitive
                                                         Index (1987=100)
materials index may be changing since the
products represented in the index are old
economy rather than high technology. High-                      111
tech industries use fewer raw materials — as                    110
well as different ones.                                         109
   The least consistent signal has come from                    108
building permits, which have been up in
six and down in six of the last 12 months.
The net change in the last four months is                       106
a miniscule .02. The trend in the number                        105
of single-family permits clearly is down,                                Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug.
with a drop of 7 percent year-to-date through                           1999                                               2000
September. However, even with a decline,                   Source (Table 1 and Figure I): Bank One Economic Outlook Center, L. William Seidman Research
                                                           Institute, College of Business, Arizona State University.
activity remains at a very high level. Interest

 AZB/ARIZONA BUSINESS •                     December 2000                                                                                                                    11
                 AZB/ARIZONA BUSINESS
                    Larry Edward Penley, Dean
                 Timothy D. Hogan, Center Director
                     Nancy A. Maneely, Editor
AZB/ARIZONA BUSINESS (ISSN 1079–4255) is published monthly
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                                                         A R I Z O N A                          E C O N O M I C         I N D I C A T O R S
                                                                                    Month or       Current   Previous    Percent Change    Percent Change               Percent Change
                                                                                    Quarter         Value     Value      Previous Period    from Year Ago      Value     from Year Ago
     LEADING ECONOMIC INDEX (1987 = 100)
         Arizona................................................................      August        110.3      109.7r         0.5               1.3               NA         NA
         Arizona................................................................     October         59.5       60.8         –2.1              11.8               NA         NA
     BUILDING PERMITS (Thousands of $)
         Maricopa County................................................           September      664,243    699,597r          –5                –9         6,648,226          1
         Pima County.......................................................        September      123,926     94,614           31                34           989,758          3
         Balance of State.................................................         September      107,034    133,155          –20               –14         1,237,548        –15
         Arizona................................................................   September      895,203    927,366           –3                –6         8,875,532         –1
         Maricopa County................................................           September        4,009      3,514r          14                 2           34,916          –6
         Pima County.......................................................        September          622        680           –9                 4            6,325          –4
         Balance of State.................................................         September          903      1,045          –14               –15           10,435         –19
         Arizona................................................................   September        5,534      5,239r           6                –1           51,676          –9
         Maricopa County - Number...............................                   September        7,310      7,490         –2.4              –3.6           73,600        –2.1
         Maricopa County - Median Price($)..................                       September      133,000    133,600         –0.4               4.6          130,500         5.3
         Metropolitan Phoenix - New Homes.................                           3rd Qtr.          92         89          3.4              –2.1               NA         NA
         Metropolitan Phoenix - Resale Homes ............                            3rd Qtr.         108        103          4.9              –5.3               NA         NA
     MORTGAGE RATES (30-year Fixed)
         Maricopa County................................................             October          7.4        7.5         –1.3               0.0               NA         NA
         Maricopa County................................................             3rd Qtr.       2,978      2,960r         0.6               2.6               NA         NA
         Arizona................................................................     3rd Qtr.       4,986      4,957r         0.6               2.4               NA         NA
     RETAIL SALES (Millions of $)
         Maricopa County................................................           September        2,483      2,363          5.1               9.9           22,056          9.5
         Arizona................................................................   September        3,592      3,487          3.0               8.7           32,154          8.9

     Note: The above gures reect the latest data available as of date of publication and are subject to revision. NA = Not Applicable r = Revised
     Source: Center for Business Research, Arizona Real Estate Center, and Bank One Economic Outlook Center, afliates of the L. William Seidman Research
     Institute, College of Business, Arizona State University. Retail sales data are from the Arizona Department of Revenue.

12                                                                                                                     December 2000 •          AZB/ARIZONA BUSINESS

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