State's economy shifting direction

Published: 01.05.2004
By Tim Steller
ARIZONA DAILY STAR


The great outdoors drove Arizona's economy in the 20th century, but like the rest of the country, our biggest industries are moving inside.

The "Five C's," as the state's economic engines were called, will remain part of Arizona's future for decades to come. One of them - climate - is still a powerhouse for the state, while the other four - copper, cotton, cattle and citrus - are reduced to minor ingredients in an alphabet soup of industries such as business services, aerospace, health care, transportation and technology.

Most of those 21st-century industries are growing here and elsewhere, gradually making the state's economy more like the nation's. Arizona's sunny climate, which helps fuel continued growth in tourism and growth-related industries such as construction, will be one of the state's relatively few uniquely regional economic characteristics.

"The urban areas have already become very similar to the national economy and are going to become more so," said Tracy Clark, an economist at the W.P. Carey School of Business at Arizona State University. "The national economy tends to be very service-oriented, very information-oriented."

The service sector accounted for about 12 percent of Arizona jobs in 1929, a figure that swelled to 29 percent in 2001. That same year, 31 percent of the national labor force worked in the service sector - so many that economists switched to a job-classification system that breaks down the service sector into more detailed categories.

In addition to services, other sectors that already have replaced the old, extractive industries in terms of statewide prominence include manufacturing of electronic components, aerospace and defense. Future dominant players include health care and related biotechnology, transportation and warehousing, and high-technology, economists say, though they disagree which technological sectors will soar.

Arizona's climate should help the state expand some of those emerging sectors, predicted Bob Treadway, a futurist and forecaster who lives in Washington state and San Diego.

"High-income jobs will continue to disappear into the neighborhoods of Tucson," Treadway said via e-mail. "As long as an individual can get to an airport with reasonable ease and their skills are marketable and not location-dependent, that person will choose where they live with an eye to lifestyle, not location. Arizona looks like an inviting place."

Gilbert M. Segovia couldn't imagine such a shift in Arizona's economy while welding earthmovers during his 34 years at the Phelps Dodge copper mine in Morenci. But Segovia, now 89, knew he didn't want his children working 26 days on for two days off, as he did during most of his career.

"I'm glad they can work a five-day week," Segovia said last week, taking in an old-timers baseball game at Morris Udall Park.

Not only can his son, Arnold P. Segovia, take weekends off, but he also can enjoy some job security in one of the state's largest, most promising industries. In 1976, Segovia earned a bachelor's degree in industrial engineering, and he now works as a supervisor in the Maverick missile program at Raytheon Missile Systems.

Arnold Segovia's industry of choice - aerospace - is the high-technology industry in which Arizona has the greatest concentration of jobs compared with the rest of the country. In 2001, Arizona had three times the proportion of aerospace jobs as the national work force, according to a study released in September by the Carey school.

By contrast, mining jobs - once a symbol of Arizona's economy - now make up about the same proportion of jobs here as they do nationally.

In the Tucson area in November, aerospace manufacturing accounted for 11,800 jobs - 27,400, or 1.08 percent of jobs statewide - while mining accounted for 1,400 jobs - 8,500, or 0.33 percent of jobs statewide, according to the Arizona Department of Economic Security

Current events make it likely Arizona will maintain its position in aerospace and the related defense industry, Clark said.

"Given the way the international situation is going, there's going to be a steady stream of spending on defense-related goods, and that's going to boost some firms in Arizona," he said.

Such a development likely would benefit two generations of Segovias. Arnold's son, Gilbert A. Segovia, also works at Raytheon, in supply-chain management, but he is studying to take advantage of the next wave of technological developments.

Segovia, 31, is pursuing a bachelor's degree in business from the University of Phoenix with an emphasis on e-business. The idea, he said, is to use the Internet to manage processes like the supply chain he works on at Raytheon.

"It's potentially useful pretty much anywhere," he said. "I wanted to make myself marketable in case I needed to do something outside of the defense industry."

He will be marketable, if current trends hold. University of Arizona economist Marshall Vest points to professional and business services - the category in which computer services fits - as one of the area's strongest job categories.

Global Insight, an economic forecasting firm based in Waltham, Mass., projects that in the Tucson area, jobs in professional and business services will grow by about 5 percent per year through 2010.

That's something Tucson businesswoman Carol Ritter is banking on. Ritter owns a local franchise of the Pridestaff employment agency. Such firms supply more than 40 percent of the jobs in the business services subcategory, according to a report on Arizona's economic future prepared last year for the state Commerce Department by Economy.com.

Ritter's employees work entirely in white-collar positions - administrative, accounting and information technology, among other areas, she said. Insurance is too expensive for the physical-labor jobs, Ritter explained.

"I think what a lot of employers are looking for is a more flexible work force," she said. "As we come out of a recession, a lot of employers tend to bring temporary employees on to fill their production demands."

A big question as Arizona moves from economic recovery to expansion is which high-technology businesses will boom.

Bob Hagen, chairman of the Southern Arizona Tech Council, points to three areas with great potential for growth in the next five to 10 years. Advanced communications, advanced manufacturing, and optics and photonics look promising over the short term, he said.

Looking forward 10 to 15 years, Arizona's biotechnology industry may hit its stride, Hagen predicted. But that won't necessarily translate into high employment.

"High-tech sectors don't really have many employees, but they continue to increase productivity, so their dollar impact continues to grow," said Tom Rex, research manager at the Center for Business Research in ASU's Carey school.

In 2001, high-tech businesses employed about 8 percent of Arizona's 1.9 million private-sector workers, according to the September study by the Carey school. Those businesses had a payroll of $54,383 per employee, as opposed to $28,564 per employee in all other private-sector businesses.

The opposite could be said of another one of Arizona's growing sectors - retail trade. The number of employees in retail trade rivals the professional and business services category in the Tucson area, at around 40,000.

But because the jobs pay relatively little, and because the industry tends to recycle money already in the economy, Rex said, the retail trade's impact on the state economy is disproportionately small.


* Contact reporter Tim Steller at 434-4086 or at steller@azstarnet.com.