Members of the Student Managed Investment Fund had the chance to hear experts at the annual Economic Outlook Conference. From left are faculty advisor David Allen, Adrien Gonzalez, C.J. Allen, Dale Richardson, Scott Fellows, Jen Ming, Kelly Gosselin and Bobby Poll.

Economic conference
sees positive outlook

Arizona's housing market took center stage during the 30th annual Economic Outlook Conference, hosted by the College of Business Administration and the Center for Business Outreach.

County, city and state officials rubbed shoulders with local business professionals and Northern Arizona University business students to listen to local, state and national experts predict the economy for the next few years.

In addition to the housing market, topics included oil prices, interest rates, inflation, stock mark, economic growth and the possible effects of the 2006 election.

Keynote speaker Anthony Chan, managing director and chief economist for JPMorgan Private Client Services, said the U.S. residential housing market remains weak and to expect this trend to reduce discretionary consumer spending. Chan said investment opportunities remain in high-quality, income-based real estate.

Keynote speaker Anthony Chan makes a point before a packed house at the Radisson Woodlands Hotel.

Ronald Gunderson, NAU professor of economics, predicted a moderate slowing in the local housing market due to a backing away from its "irrational exuberance," a high-level of consumer debt and the fact that wages are not keeping up with home prices. However, he said, the slow-down is primarily due to higher interest rates over the past two years.

Gunderson said that to afford a home in Flagstaff, buyers would have to make an hourly wage of $57.31; in order to rent, hourly wages would have to be $ 17.44. The average hourly wage in Flagstaff is $11.98.

Elliott Pollack, president of Elliott D. Pollack and Co., an economic and real estate consulting firm in Scottsdale, agreed that the rise in housing prices was due to irrational exuberance, but more to the point, demand exceeded supply.

Prices have been falling in 2006, but because builders increased supply; there are about 20,000 excess units in the marketplace. It will take time to work off the excess, but 2006 should be the third best housing year in Greater Phoenix history.

Housing aside, Gunderson said outlook for Flagstaff is still positive: Gross retail sales have increased more rapidly in each year since 2002, construction activity has increased 52 percent over the past three years, tourism has continued to strengthen, and the mall expansion, Wal-Mart Supercenter, and the NAU-City of Flagstaff hotel-conference center complex should contribute to long-term growth.

Dennis Foster, senior lecturer in economics, predicted that interest rates will continue to rise, but quite slowly, and if the economy stalls a bit, rates may even come back down. Economic growth will follow the current trend of a 3.5 percent annual average since 2003, he said, with some volatility from quarter to quarter. Inflation will likely stabilize at 3 to 3.5 percent; the unemployment rate, at 4.6 percent in September, may bump slightly and the stock market will continue to do well, Foster predicted.

Reflecting on oil, Chan said inventories are high, but price risk remains because of limited production capacity and geopolitical risks. He said he expects oil prices to rise to reflect this risk.

For business, Chan told the audience that "the best days are behind us for profit growth…look for high single digit profits in 2006, but don't ignore balance sheet strength." Despite the decline in the dollar, trade deficit continues to worsen, which is primarily a sign of under-consumption abroad rather than over-consumption in the United States.

The Economic Outlook Conference was sponsored by Chase, which is now part of JPMorgan Chase.

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