Recovery from recession is gaining momentum in Arizona
shared from the AZCentral website.
The Great Recession technically ended in June 2009, a period that is finally starting to feel as distant as it should.
For too long, the downturn in Arizona traced a path much like the Grand Canyon itself. Economic measures such as gross domestic product, corporate profits, population and job growth fell off like the South Kaibab Trail: steep and unforgiving. The path out has been more like the hike up the gentler Bright Angel Trail. And just as that path is sharpest close to the rim, Arizonans are hoping for a spike in growth.
"Arizona was among the states hardest hit by the recession," says Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at Arizona State University's W.P. Carey School of Business. "The national economy lost 6 percent of jobs. Arizona lost 12 percent, so by that standard alone, we were hit twice as hard."
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Since then, McPheters says, Arizona's economy has been running at half-speed, with about 2 percent job growth, half the state's long-term average. But the Arizona Department of Administration forecasts a slow acceleration, with a projected growth of 2.2 percent in 2015 and 2.4 percent the following year. And a few economic sectors are on a fast track.
"You can find lots of bright spots," McPheters says. "Health care never lost jobs in the recession. It just kept growing. Food service has gotten back all the jobs lost. We rank among the leading states for adding jobs in finance, which is amazing, because nationally, finance jobs are not growing very fast."
Gas prices are relatively low, which should fuel spending. And consumers are taking on more auto and student loans, McPheters says.
"Those are important stories about what people want to do," McPheters says.
The tech sector has also been "a real spark of growth and excitement," says Michael Goul, chairman of the Department of Information Systems at W.P. Carey, with tech companies bringing both talent and high-paying jobs to Arizona.
February even brought new momentum to the housing market.
"Buyers are finally coming out of the woodwork," says Mike Orr, director of the Center for Real Estate Theory and Practice at W. P. Carey. In the $175,000 to $600,000 range, signed contracts were up in February about 30 percent over the previous year. They doubled on luxury homes of $3 million or more. And when the number of homes going under contract increases, sales tend to follow.
The question remains whether it will last. But Orr says the real-estate market seldom turns on a dime.
Below, we'll share the stories of how the recovery looks from the perspective of five of Arizona's top businesswomen and their companies.
Finding recovery through balance
Elva G. Vivas has seen many ups and downs in the grocery business, but none as difficult as the recession that put Bashas' into bankruptcy.
"It was a very bad period for everybody," Vivas recalls. "Everybody was struggling. Like any other company, we had to become lean. We had to restructure. And we closed 30 stores that were unprofitable. It was really sad and hard, but it needed to be done."
Vivas went to work for Bashas' in 1986 as a cashier. She earned an accounting degree from ASU and a CPA certification. Over 29 years, she worked her way up to director of finance, planning and treasury.
Ironically, the recession inspired Vivas' best work.
"As an accountant, that's when the company needs you the most," she explains. "Our team worked really hard. We pulled together. It was hard, but very satisfying to help the company."
It was also rewarding to see the community rally around Bashas', an Arizona-based, family-owned grocer, which vowed to repay all of its creditors — 100 percent, with interest. When those checks went out, a number of companies refused to cash them.
"It was a testament to how they like doing business with us," Vivas says. "And I'm talking about small vendors. For me, it wasn't the dollar amount, it was that we'd done good. And the fact that we paid everybody back. That says a lot about this company."
Vivas says the company emerged from bankruptcy stronger.
"We have the right number of stores to keep us profitable," she says.
Today, Bashas' has 120 stores that serve different segments of the market. In addition to Bashas' grocery stores, AJ's Fine Foods offers gourmet and specialty items. Food City serves the Hispanic market; Bashas' Dine Markets serves the Native American community.
"That's what makes us strong," Vivas says. "They all do what they're supposed to. We have a very good balance."
And a recovering economy is beginning to show up at the register.
"We can see the customer is spending a little more," Vivas says, echoing an industry trend.
"In 2014 and early 2015, we started to see some sales growth," says Tim McCabe, president of the Arizona Food Marketing Alliance. He attributes the increased spending to the Super Bowl, lower fuel prices and an improving economy.
"If business continues to grow through 2015, I believe you will see (better) employment numbers grow in our industry," McCabe says.
Aligned with another grocery-chain trend in Arizona, Bashas' is investing its capital in remodeling existing stores.
"We've done 16 so far and we'll do about 10 more this year," Vivas says. "We're ready to compete. We've been here 83 years and we're still thriving."
Banking growth leveraging technology
Eleanor Millwood had a front-row seat through the financial crisis.
Millwood, an Arizona-area executive for Bank of America, was working at Wachovia National Bank at the height of the crisis. By the end, Wachovia became Wells Fargo through merger, as the banking landscape shifted. Bank of America recruited her in 2014.
"It was a very stressful time," Millwood says. "But it was also a time I grew tremendously as a leader. I learned to keep my message to the associates very clear, but also support them in getting information to clients because, at the end of the day, our clients just wanted to know what was happening and how it would impact them."
Nationally, 530 banks have failed since 2007, including 18 in Arizona. But in recent years, recovery in the sector has gained momentum.
A recent Federal Reserve stress test found that the 31 banks tested, including Bank of America, were stronger than at any time since 2008. And Forbes reported that 2014 proved the best period for the sector since the downturn, measured by loan growth.
Bank of America mirrors that trend. While figures were not available for Arizona, on a national basis, Bank of America lent $270 billion to businesses last year, compared with $224 billion in 2012. The assets of Bank of America's Merrill Edge grew 18 percent in 2014, while those of the Merrill Lynch and U.S. Trust components of Bank of America's corporate portfolio combined rose 6 percent, according to a company representative.
"We're definitely seeing our business banking teams doing a lot more lending," Millwood says, "especially as customers take advantage of interest rates to support their business growth."
Banks in general, and Bank of America in particular, she says, have become leaner and stronger through mergers and by shedding non-core businesses, and also by leveraging technology.
Brick and mortar will never go away, she says. But more customers will be taking advantage of technology, mirroring the way the airline industry persuaded travelers to print boarding passes on their own.
"Banking is moving in the direction of routine transactions being done through alternative channels: mobile, ATMs, online," Millwood says. "And business owners are going to be using remote deposit options to process (deposits) at their place of business, instead of paying a runner to come to the bank."
In addition, banks will not simply provide credit to businesses, she says. They will play an increasingly advisory role, with CPAs and attorneys to give advice. Bank of America began placing more local experts inside branches, hiring an additional 35 business bankers in Arizona.
"It's going to be efficiency, relationship building and a fully integrated approach," Millwood says. "That's where I see banking growing."
Diversification and need drive expansion
Health care looked vibrant against Arizona's bleak recessionary landscape, growing throughout the downturn.
The state added nearly 7,000 health care jobs in 2014, says Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at ASU's W.P. Carey School of Business, making it one of the few sectors to grow more than 2 percent and providing wages higher than the national average.
UnitedHealthcare's Beth Soberg watched that growth firsthand as CEO of UnitedHealthcare of Arizona, Colorado, New Mexico and Wyoming. The company, which serves 1.7 million Arizonans, added about 500,000 members in the past five years.
That's partly because the company serves a broad population with its insurance products, including individual and employer-sponsored health care plans, Medicare and Medicaid, and benefits to veterans and service members through its TRICARE contract.
"Regardless of our economy, Americans need health care," Soberg says. "We may have seen a shift in elective procedures during those times. But as employers were looking for creative ways to keep comprehensive benefit plans for their employees, we helped them innovate."
Part of that innovation came through UnitedHealth Group, which provides health-management services, health information technology and pharmacy-benefits management under the Optum brand.
"The diversification of our business allowed us to provide solutions across the continuum of needs," Soberg says. "That's a strength that drove our growth during those difficult times."
And while the company does not disclose its exchange membership, the Affordable Care Act also played a role, bringing "tremendous opportunity for expansion of coverage and more affordable coverage."
Through participation in Arizona's federally facilitated exchange, Soberg expects to see a continued increase in individual membership as well as the workforce needed to support those members. That workforce grew from about 2,100 employees in 2010 to around 5,600, serving members beyond Arizona's borders.
"It's actually a hub of ours," Soberg says, for many reasons.
Arizona is a place people want to live, she says, which is a plus in recruiting. In addition, the company is able to tap into a diverse and highly skilled workforce, shared by the tech industry, around customer service and call-center support.
The company is contributing to the state's workforce through United Health Foundation's Diverse Scholars Initiative, which provides scholarships to low-income minority students.
"Especially in health care, people want care from people they understand and are like them," Soberg says. "Across Arizona, we've got almost 100 scholars right now."
Soberg also feels optimistic about the University of Arizona College of Medicine in Phoenix, and the growth in the biomedical campus downtown.
"I think those will continue to attract talent to Arizona, support our workforce and keep Arizona as a strong economy as it relates to health care," she says.
Mortgage business has doubled
Jamie Korus started her mortgage banking company at the start of the worst housing and financial crisis since the Great Depression. The mortgage lender she had been working for failed in the downturn.
So, in 2006, Korus and two partners took over Alliance Home Loans' dormant license, seeing it as a way to get into business more quickly than having to incorporate from scratch.
"It was very challenging," she recalls, adding that the industry and regulatory landscape changed quickly and dramatically. "It was very exciting. It was very scary."
"It was challenging to obtain approvals as a startup company," Korus recalls. "We rely heavily on warehouse facilities to finance our transactions, and a number of facilities had gone out of business. So there were not many places to find the financing just to daily operate."
At the same time, net worth requirements continued to increase.
"It was a constant game of, OK, we've got to that next point but now we need to meet the next requirement," she says. "It was very challenging. It was also very rewarding as each milestone we needed to achieve, I was able to do so."
The company began with six employees. Today, it employs 175, with several offices in Arizona, including its corporate office; offices in California and New Mexico; and planned offices in Colorado and Nevada. Korus has been the sole owner since 2011, and is now seeing a rebound in the housing market.
"Our business is double what we were doing last year," she says. "And our loan amounts have increased. Last year in Arizona, our average loan amount was $183,000. Our average loan amount this year so far is $199,000."
Wanting a voice in the industry's transformation, Korus became involved in the Mortgage Bankers Association.
Korus is the chair of MORPAC, the trade association's political-action committee. She sits on MBA's board of directors and the residential board of governors, as well as on the advisory board for the MBA Open Doors committee, a charitable foundation that helps families in need.
While the housing crisis gave Korus pause, ultimately, she believes Arizona remains a good place for her company's home office.
"It's still a very affordable place to live," she says. "Phoenix has one of the lowest average down payments of larger cities in the U.S. Our quality of life is phenomenal. Our weather is great, and thankfully, we have no natural disasters. It's just a very safe place to have a corporate headquarters.
"Arizona's always thrived on construction and I think we're going to see that coming back greatly. And we've got more jobs. I think it's just an overall good solid place to be."
'Silicon Desert' changing, growing
Even in the depths of the recession, Arizona's "Silicon Desert" experienced half the unemployment of other sectors, says Steven Zylstra, president of the Arizona Technology Council. These days, tech companies can't find enough talent to fill openings.
The state's semiconductor and electronics industry remains the fourth-largest in the nation, as does the aerospace and defense industry. But Arizona has also become second for data centers and is an up-and-comer in health and bioscience. An IT component is growing, and smaller businesses are proliferating.
GoDaddy, Zylstra says, is a good example of what can happen.
The company, which began with a handful of people at a ranch house in north Scottsdale, went public April 1. Its stock rose 30 percent on its first day of trading.
Last year, GoDaddy announced plans to hire 250 workers when it opened its global technology center in Tempe — a 150,000-square-foot facility with a game center, indoor-climbing wall, go-kart track and a giant slide from second-floor offices into a kitchen with on-site chefs.
The company, known for its edgy, irreverent Super Bowl ads, now employs 4,000 worldwide. And it owes a lot of that growth to Barb Rechterman, longtime chief marketing officer who recently was named chief customer officer.
Rechterman worked with GoDaddy founder Bob Parsons for 11 years at Parsons Technology. She followed him to Arizona in 1997, when he sold Parsons Technology to Intuit and founded what was then called Jomax Technologies, after a street he drove by every day.
Parsons tells people he picked Arizona because the weather was nice and you could golf year-round, Rechterman says. The company sold software at first, then launched a website builder.
Parsons believed the domain-name space was "overcharging and underserving," Rechterman says.
"So we built a solution that made it easy for people to name their business, register a domain name and build a website," Rechterman says.
Under CEO Blake Irving, the company has refocused on another underserved market: very small businesses.
"Only about half of small businesses in the U.S. have a website," Rechterman says. "Internationally, the stats aren't any better. This puts GoDaddy at the 'sweet spot' of helping solve a need in high demand. Over the past 18 months, we've been working to expand internationally. We are now in 37 countries and 17 languages, and we're really just getting started."
Ironically, the economic downturn fueled GoDaddy's business because many who lost jobs started businesses.
"We grew at a double-digit pace throughout the recession," Rechterman says.
A similar dynamic is gaining momentum in the state's technology sector.
"When I arrived in 1997, Arizona's tech community was primarily semiconductors and aerospace," she says. "Now, we have startups of all kinds sprouting up all over and it's great."
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