With 2009 upon us, we can expect the downward economic trend from 2008 to continue. Nationally, the economy will continue to lose jobs, the unemployment rate will continue to rise, and housing and credit markets will continue to falter, at least through the first half of the year and quite possibly longer. Most economists don’t expect conditions to improve until at least the second half of the year, and many don’t expect significant improvement until 2010.

Although inflation has moderated somewhat in recent months, as is typically the case in economic downturns, it remains a concern for 2009. The various iterations of economic stimulus packages and bailouts have to be paid for somehow. Since national policymakers will be reluctant to increase taxes or cut spending elsewhere in the economy, at the risk of making the current downturn worse, there is likely to be some expansion of the money supply, which is the classic definition of inflation.

There will be various factors pulling prices in opposite directions. Lower consumer demand for goods and services, reduced energy consumption, and general recessionary conditions will pull prices downward. In fact, this has caused some economists to fear the economy will experience deflation—a widespread decline in prices that can actually worsen recessionary conditions by providing a disincentive to production. The likely expansion of the money supply and cuts in oil production will push prices upward. The direction prices move is largely unknown and will depend on the net effect of those opposing forces. In either case, price level stability will be a top concern in 2009.  

At the state level, the budget deficit will continue to dominate the legislative agenda. During the boom years, state government spending increased at unsustainable levels. To bring the budget back into balance, we should expect both cuts in spending and increases in taxes and fees. The Phoenix consensus at the moment seems to be toward spending cuts, but the size of the deficit may well make tax and fee increases unavoidable.

State spending cuts will impact revenues that flow to cities, counties, and schools. This means local budgets will be strained, threatening infrastructure projects, education, and other local government functions. This will create a ripple effect whereby local elected officials will be forced into some combination of tax and fee increases and spending cuts. These actions, while unavoidable, tend to make recessionary conditions worse.

In Cochise County, areas will be affected disparately. Sierra Vista, because it is home to Fort Huachuca, will not be hit as hard as some other areas. Although the city has seen recessionary conditions since November 2007, the declines in economic activity have not been as bad as in other areas of the state. New construction in the city rebounded in 2008 and is likely now on a path of normal growth after weeding out the excesses of speculative building and buying. Home price declines in the city have been modest compared to other areas of the state, and that is likely to hold in 2009. Part of the reason is that real estate in the city prior to the housing boom was likely undervalued. The construction of the new Wal-Mart Supercenter and Sam’s Club will also help the city reduce business leakage to other areas.

Benson is also likely to fare relatively well. Despite the housing decline at the national, state, and county levels, new residential construction in Benson saw strong growth in 2008 and is well above historic trends. The Wal-Mart Supercenter, which opened in late 2006, continues to draw shoppers from other cities and neighboring counties; however, the opening of the new Wal-Mart Supercenter in Sierra Vista projected for late 2009 may cut into Benson’s retail market, especially those consumers residing in areas south of the city such as Whetstone and Tombstone. Benson has taken a fiscally conservative approach to managing recent increases in revenue resulting from Wal-Mart and increased residential and commercial construction, leaving the city relatively well poised to weather the current economic storm.

Douglas is also well positioned, with the recent addition of the ACT call center projected to create 600 jobs in the city. This, however, will be largely dependent on the success of the call center, which may be impacted by broader economic conditions.

Northeast Cochise County is also likely to be well positioned in 2009. As construction moves forward on the new Bowie Power Station, this will give a boost to jobs, income, and development in the area, including nearby Willcox.

Areas of the county likely to fare less well are Bisbee and Tombstone. As the county experienced a significant economic slowdown in 2008, Bisbee and Tombstone weren’t hit as hard as other areas due to their status as tourist destinations. Higher gas prices and a weak dollar on the foreign exchange market were a boon for tourism. However, declining gas prices and a strengthening dollar, along with general recessionary conditions, will threaten this industry in 2009.

If you have any questions on the economy, please contact the CER at (520) 515-5486 or email us at cer@cochise.edu. Be sure to check out the CER’s website at www.cochise.edu/cer.