Why Forbes projects Arizona to lead U.S. in job growth

Stefan Modrich | Cronkite News

Forbes Magazine has named Arizona the best state for future job growth, but one local economic expert said the distinction does come with some caveats.

The magazine in October used forecasts from Moody’s Analytics to call Arizona one of the “brighter spots in a slumbering U.S. economy thanks in part to renewed migration.”

The Moody’s report projected a job growth rate of 3.1 percent through 2019.

As the U.S. economy slowly recovers from the Great Recession, experts said Arizona has become a landing spot for expanding businesses because of its skilled workforce, available real estate and diversified economy.

“It’s never been a problem getting people to relocate to Arizona,” said Lee McPheters, a professor of economics at Arizona State University’s W.P. Carey School of Business. “They might very well look at Arizona as a good place to be moving. As a company tries to expand, you can get people to move from the Midwest or from California.”

State and local officials recently announced several expansions into the state: Northern Trust Bank, Home Depot and Santander Consumer USA Holdings Inc.

But the Forbes article and McPheters warn that forecasts can change quickly. For example, a blow to a major industry such as tourism in Arizona could significantly change the state’s prospects, as could competition from other states.

Development on the upswing

Large companies headquartered in the Midwest and Southeast are expanding in the Valley and bringing plenty of jobs with them.

Chicago-based Northern Trust Bank expects to add 1,000 jobs at its new Tempe operating center by 2018. Home Depot Inc., headquartered in Atlanta, will add about 800 jobs to its Tempe call center in an existing warehouse in 2016. Dallas-based Santander Consumer USA Holdings Inc., a consumer finance firm, plans to hire up to 970 employees at a new facility in Mesa, according to the Greater Phoenix Economic Council.

Even McDonald’s plans to hire 2,000 people during a job fair on Wednesday.

Home Depot spokesman Matthew Harrigan said CEO Craig Menear saw the Tempe center as opportunity to build on the company’s retail presence in Arizona.

“These investments are advancing our interconnected retail strategy, which allows our customers to engage with Home Depot however they choose,” Menear said in a statement. “We’re also pleased to contribute to the economic growth of these communities.”

In an increasingly service-based economy, Tempe Online Contact Center Director Bill Parhar said large retail stores like Home Depot need to accommodate a growing online customer base.

“Arizona has always done well in attracting call centers,” McPheters said.

Companies like General Motors, which opened an IT center in Chandler in September 2014, are bringing higher-wage jobs.

A GM software developer in Chandler makes $77,000 on average, 16 percent more than the average GM salary, and $10,000 more than a typical software developer earns, according to Career Bliss.

GM Chief Information Officer Randy Mott said the opportunity to hire coders and engineers from universities in the region helped sway GM officials to move to Arizona. The expansion will bring 500 more jobs to the center by 2018, in addition to the 500 already hired, officials said.

Economic oasis in the desert

Arizona’s job outlook has been in large part shaped by a steady influx of baby boomers retiring to the desert, McPheters said.

“There’s a path toward economic recovery (in Arizona),” McPheters said. “We’re a lower cost state than our neighbors, one that continues to attract retirees, which creates jobs in food service and health care.”

McPheters said the Valley’s combination of available infrastructure and a talent pool of young college graduates also work in the state’s favor when companies look to leave an economic footprint in Arizona.

“We have office space,” McPheters said. “We have a readily available labor force with a lot of young, reasonably well-educated, capable workers.”

That availability of college graduates incentivized Home Depot’s expansion.

“Tempe just rose to the top,” Parhar said. “The higher education here and having a strong recruiting base is important when you’re trying to ramp up a new site.”

GM officials also cited the educated workforce as a plus.

“The majority (of new hires) have come from Arizona State, University of Arizona, Brigham Young University and Northern Arizona University,” Mott said in a statement. “GM is targeting recruitment efforts at up to a dozen key universities within each geographic region.”

Another reason Arizona has become a popular option for companies looking for presence in the West is the outreach and involvement from local civic groups like the Greater Phoenix Economic Council and Arizona Chamber of Commerce, Parhar said.

“They were very eager to help us, which you don’t always see in other communities,” Parhar said. “In the process of selection, they were actively involved with our real estate partners and providing us data.”

As competition increases, challenges lie ahead

While Moody’s projected to lead the U.S. in job growth in 2016, Arizona had the 10th-best job growth rate in 2015, according to the Bureau of Labor Statistics. Arizona’s neighbors – Utah, California and Nevada – were ranked higher in 2015, according to the bureau.

McPheters said future projections may not account for competitive growth from other Western states.

“Arizona certainly is going to be one of the stronger growth states,” McPheters said. “But it’s really not likely that we’re going to be the top growth state in 2016.”

Utah is attracting high-tech jobs, and like Arizona, isn’t dependent on energy like Texas, whose growth subsided with falling oil prices and lessened demand, McPheters said.

In Arizona, however, the unemployment rate, at 6.3 percent as of September, remains higher than the national average of 5.1 percent and has continued to increase since May.

Post-recession, the Arizona housing market prospered, but if the Federal Reserve raises interest rates, housing prices could be affected, he said.

There’s also competition from Oregon and Washington, which had higher job-growth rates in 2015, according to the Bureau of Labor Statistics.

But McPheters said the progress Arizona has made is encouraging to both local and regional businesses with an eye on expansion opportunities.

“There aren’t a whole lot of obstacles in Arizona,” McPheters said. “The opportunities outweigh the obstacles significantly.”