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Ariz. economy continues to mend

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Posted: Saturday, November 16, 2013 7:45 am

Arizona’s economy continues to mend, spurred largely by people buying cars and parts. Newly released figures from the Department of Revenue show retail sales reported to the state in September topped $4.2 billion. That reflects purchases made in August.

The last time August sales were that high was in 2007, prior to the recession.

Driving much of that was more than $666 million in sales of new and used cars. That’s 16 percent above what it was a year ago — and 60 percent higher than in 2010 when, in the words of economist Dennis Hoffman of Arizona State University, “seemingly, nobody wanted a car.”

Economist Elliott Pollack said the boom in car sales is not surprising, what with Arizonans having hunkered down during the recession and opted to keep what they had running.

“The average auto is now ancient,” he said. “There’s a point where they almost have to” replace it.

And Pollack said that situation has forced consumers to go into debt for a new car or truck even as they are spending less on other items — and even working to pay off credit cards.

But that raises the obvious question: How long can this double-digit year-over-year increase in auto sales continue?

Hoffman said he sees no sign of sales leveling off, at least for the near future.

“What you’ve got going here is historically low automobile loan interest rates,” he said. That, in turn, creates an opportunity for people to buy new cars that may get up to 15 miles more per gallon than what they are currently driving.

“You’re mixing fuel efficiency with really low interest rates,” Hoffman said. “I think it’s a catalyst for people continuing to purchase automobiles.”

Pollack said cars and trucks became a priority because of that aging fleet. But he believes that as the economy improves — and with it, employment and income — people will loosen the grip they have on their wallets.

“There’s pent-up demand for other things,” he said.

Hoffman said it used to be that consumer spending was tied to people moving to the state.

“Historically, we’ve had 50,000 to 60,000 new entrants rolling into the state,” he said. “They buy a car, they buy a house, they buy furniture.”

That inflow slowed to a trickle during the recession, at least in part because people elsewhere were “upside down” on their mortgages, could not sell their homes and, therefore, were unable to migrate.

Hoffman said that is beginning to change. But he said that, for the foreseeable future, any increase in consumer spending in Arizona, of all types, is more likely to be tied to how people feel about what’s happening in the economy.

“People make decisions like this based on job security,” he said.

The new report also shows a nearly 24 percent increase in the value of residential construction this year versus the same period a year earlier.

That, however, is still less than a third of housing activity in 2006, before the real estate bubble burst.

Pollack said that year-over-year increase is only partly due to increased construction. He said the number of permits is only about 8 to 9 percent higher than it was a year earlier.

“The rest would be prices,” he said.

But Pollack said he is not worried about creating another real estate “bubble,” where prices went up to unsustainable levels.

“It’s like if you were a retailer or a manufacturer and you found yourself with excess inventory,” he said. “The first thing you’d do is put it on sale.”

Pollack said what buyers had been paying represented those sale prices.

“And now that that excess inventory is getting whittled down, prices are going back up,” he said. “But they’re still way below the previous peak.”

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