Arizona Daily Wildcat
PHOENIX - The economy is indeed slowing down, but Arizona has no reason to expect a recession, a UA economist assured state lawmakers yesterday.
Marshall Vest, forecasting director of the University of Arizona's Eller College of Business and Public Administration, spoke before the House of Representatives Committee on Ways and Means at the request of Rep. Gabrielle Giffords, D-Tucson.
Vest, who has been studying the Arizona economy for 30 years, said that a year ago, the economy was "really smoking" and the growth rate was too high.
"We are in the midst of a slowdown," he said. "The economy is pausing to catch its breath, which it needs to do. I don't think the economy is in trouble by any means."
"We are nowhere close to being in a recession," Vest said.
After an unprecedented 10 years of economic expansion, Vest said the economy got ahead of itself. With a slowdown, economists in turn got ahead of themselves in predicting a recession.
"There was very little restraint," Vest said. "A tremendous amount of money was put into technology stocks."
He added that the question remains whether there is "still air left in the bubble."
The economy is still strong, Vest said, with record levels of virtually any measure. As an example, he said Arizona's metro areas - Phoenix and Tucson - have an extremely low unemployment rate of about 2.5 percent.
"The question, I think, is whether the slowing - which is welcome - might actually turn into a recession," Vest said.
Currently, Vest said the economy is heading toward a "soft landing" as it drops from about 5 percent growth to 2 percent or 3 percent.
Economists had predicted an economic "speed limit" of 2.2 percent, above which the economy cannot sustain an extended period of growth. With the explosion of the technology-based new economy, Vest said economists have revised that "speed limit" to 3.5 percent or 4 percent.
"It's far, far too early to call it a recession, but it could feel like a recession because the economy has been so good," Vest said.
Some industries that have been particularly healthy in the last year or two, such as auto manufacturing, may have to adjust back to normal levels - re-enforcing the relative feel of an economic downturn.
"If enough industries contract, it could technically be a recession," Vest said.
He added that during the past year, the growth was "clearly at a level that couldn't last."
Another risk is allowing people to talk themselves into a recession, Vest said, which could affect key consumer confidence levels.
"Perspective is important," Vest said. "I'm optimistic going forward. The economy is slowing down, and it needs to, but it's far too early to worry about it slowing down too much."
Rep. Jeff Hatch-Miller, R-Paradise Valley, said he has seen the drop in consumer confidence as rapid enough to feel like a recession, and asked if the market slowing is mechanical or psychological.
"It's entirely psychological," Vest answered. "People lose confidence and decide to postpone spending decisions and investing decisions.
"A year ago, we were flying high, and now we're just returning to normal."
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