Expert: Economy outlook is bright, no recession | Marana News

Dr. Christopher Thornberg told bankers, home builders, real estate agents and other business professionals that there is no recession.

He spoke at the Nov. 9 Tucson Economic Forum hosted by Union Bank of Arizona.

“We’re here to talk about Arizona, we’re here to talk about Tucson, we’re here to talk about the economy,” said Thornberg, founder of Beacon Economics. “We’re here to discuss what the hell is going on out there.”

Thornberg, a nationally renowned economist, pointed to the media headlines on the big screen.

“It’s very frustrating,” he said. “If you look at the headlines, the Wall Street Journal, their next recession survey[shows]a 60 percent chance of a recession next year, which is modest; this firm,[says]the chance of a global recession is 98%.”

Mark Zandi, chief economist at Moody’s Analytics, “just called it a full-blown housing correction,” he said.

Housing is a big concern in Tucson and Phoenix due to rising rents and median home prices in both cities.

“Over the past two years, the housing market has been another strength for the Arizona economy. However, rising interest rates and higher prices have led to a significant slowdown in the economy in 2022,” said Union Bank of Arizona.

“Against this backdrop, home prices in Arizona continue to rise rapidly. From July 2021 to July 2022, the median home price in Phoenix rose 21.2% to $480,567. In Tucson, July 2022 Median home prices rose to $347,157, up 17.6 percent year-over-year.” According to Alliance Bank, home prices in Tucson and Phoenix “grow faster than the U.S., where median home prices rose 13 percent over the same period.”

Also, as this chart shows, apartment demand is surging in Tucson and Phoenix.

In Phoenix, the apartment vacancy rate fell to 4.2 percent, down 1.0 percentage points from last year. Tucson’s apartment vacancy rate fell 3.7 percent, down 0.2 percentage points from a year ago.

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“Additionally, average asking rents increased 21 percent in Phoenix and 26.2 percent in Tucson,” noted Alliance Bank. The pace of growth puts the Phoenix and Tucson metro areas ahead of the nation’s 16.7 percent growth rate.

However, the average asking rent in Tucson is $1,152 and in Phoenix is ​​$1,494, despite significant price increases in the last year. Still, rents in Tucson and Phoenix are below the U.S. average of $1,724.

“Building permit activity in Arizona also increased slightly last year. Residential permit activity in Arizona was up 0.7% in the first eight months of 2022 compared to the same period in 2021.” Notably, “multifamily permit growth of 28.6% drove This increase was slightly offset by a 9.1% decline in single-family home permits.

“Some of it I can get. It’s been an unusual year so far,” Thornberg said. “The economy contracted in the first half of the year and consumer confidence fell sharply.”

Thornberg said that just after the first half of the year, newspaper reporters said that negative growth in two quarters was a recession.

“Right now, that’s the newspaper’s definition of a recession,” he said. “Essentially, the newspapers will reduce everything to the point of stupidity … two quarters of negative growth, and no credible economist uses that definition to define a recession for several reasons.”

Thornburg explained: “First of all, if that’s your definition of a recession, it turns out the pandemic isn’t a recession because that’s about four weeks of negative growth. Mind you, there’s a lot of negatives, but after that it starts to grow .”

A better definition of a recession is an economy not living up to its potential, he said.

“That is, it can produce more goods and services, but because of some kind of market failure in the economy, it cannot realize its potential output.”

The best way to see a recession, he explained, is to find idle resources.

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“For example, when people want to find a job and can’t find a job, that’s when unemployment goes up,” Thornberg said. “Or, if a factory wants to sell a product but can’t find a buyer, that’s lower utilization.”

The U.S. unemployment rate was 3.7% in October: However, for the past 50 years, “the unemployment rate has been below 4%, about four years later,” Thornberg explained. “It’s a pretty tight labor market.”

As for how industrial production is doing, he said capacity utilization has returned to 80%.

“Industrial production is at an all-time high right now,” Thornberg said. “If this is a recession, long live the recession. But, of course, this is not a recession. That’s not what’s happening in our economy.”

Even with negative headlines, Thornberg said, he previously noted, people have to be cautious about them.

“The same people who told us the bad news about the state of our economy right now were the same people who told us two years ago when the pandemic started that the pandemic was going to cause a depression,” he said.

“Remember those horrible headlines? 30% of Americans will stop paying their home loans, 300-40 million people will be evicted, house prices are going to drop any minute now.”

When you start to see this pattern, he said, with every “headline telling us how horrible and dire everything is, you have to start realizing that something is wrong, not so much the economy as much as the headlines.”

Thornberg pointed to a book by Robert Shiller, Narrative Economics, in which the author blamed the economics profession for losing its way. Economists, Shiller writes, are too obsessed with models, data, and assumptions of rational behavior.

“In the modern world of mathematical economics, we believe that people internalize as much information as possible and make the best decisions appropriately,” Thornberg said. “But it’s hard to imagine, and over the past decade, I’ve noticed over and over again that no matter how good the data, the headlines keep getting worse.

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“When you think about the state of our economy today, it’s not because there’s anything fundamentally wrong with our economy. Rather, it’s our policymakers who don’t seem to understand what’s going on inside our economy.”

For clarification, Thornberg said to look at our economy in 2019. For all the bad press, horror stories, and stories of misery and recession, the reality is that the economy is as good as ever.

“But don’t let reality get in the way of a good story,” he said. “When the pandemic hit, there were these ridiculous calls for depression. It caused the federal government, our policymakers to overreact. The stimulus they put on the economy in response to the pandemic was insane.

“So, what happens when you put too much money into the economy? You overheat the economy. When the economy overheats, what happens? Inflation. There’s no mystery here—except why the Fed suddenly doesn’t recognize inflation as a The mystery of the results of their own actions.”

Thornberg once again told the audience that there is no recession.

“We’re not in a recession, we really aren’t. There’s no way this could turn into a recession,” Thornberg said. “Yes, I know interest rates have gone up. Yes, I know the housing market has really started to retreat on the asset side, but the main source of growth in the U.S. economy is the U.S. consumer, and the consumer is alive and well.”

Thornberg, founding partner of Beacon Economics, is director of the Center for Economic Forecasting and Development at UC Riverside and an adjunct professor there. He also serves on the advisory boards of Wall Street hedge fund Paulson & Co. Inc. and the Los Angeles Area Chamber of Commerce.


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