Arizona Officials Plan For Changing Economy

Arizona officials are mapping a new long-range economic strategy based in part on a study warning that the driving industries of the past — cotton, copper, cattle, citrus and climate — may not sustain the state’s economic health in the future.

The first components of a five-part statewide economic study, a comprehensive base analysis and economic future report, provide a current snapshot of the state’s economic climate and identify regionally-specific opportunities and challenges.

The base study was developed by a team of government and business leaders led by economists at Arizona State University, the University of Arizona and Northern Arizona University. The data was then analyzed by Philadelphia-based Economy.com, whose report shows the state’s economy entering a new era, with traditional areas of strength giving way to new sectors.

“Like many states, Arizona is transitioning from an industrial and agricultural economy to a services and high tech economy,”said Lisa Danka, director of economic information and research at the Arizona Department of Commerce.

While industries such as tourism and manufacturing are suffering the type of downturns that can be reasonably expected during recessionary times, dramatic changes in other areas like the copper and cattle markets indicate more fundamental shifts in the state’s economy, she said.

“The statewide economic study allows us to create strategies for economic growth that are based on accurate data, and the base study and the analysis by Economy.com clearly delineate our opportunities and the areas we need to work on,” she said.

As the study moves forward and the state’s long range strategy takes shape, officials have begun new initiatives that address the most serious challenges outlined in the Economy.com analysis.

While noting such economic advantages as Arizona’s reasonable business costs, which are lower than those of neighboring high-tech haven California, the Economy.com report also points to factors that threaten to inhibit the state’s future growth, including a shortfall of skills among the local workforce, a tax structure that deters expanding firms from relocating in the state, and a dearth of venture capital.

Anticipating some of the challenges, the Arizona Commerce Department has developed a new emphasis on workforce development and launched efforts to attract small businesses and to increase the state’s competitiveness in the global marketplace. The agency has also created an Office of Innovation, Technology and Entrepreneurship as part of its response to the changing economic realities.

Foremost among the state’s efforts, however, is the innovative study itself.

“This study for Arizona is rather unique because it was specifically designed to be very forward thinking, to look at Arizonas opportunities for the future given the outlook for the U.S. and global economies,” said Steve Cochrane, Director of Regional Economics at Economy.com, Inc.

“Few take it the next step and try to identify specific opportunities going forward,” he said. “So in this regard, I think it is quite significant for the State of Arizona, and could serve as a model for other states.”

While the timing of the study — the state’s first comprehensive base analysis in more than a decade — is aimed at capturing the changes in Arizona’s economy, it also reflects a historic moment in the evolution of economic data, as the North American Industry Classification System (NAICS) replaces the U.S. Standard Industrial Classification (SIC) system.

An outgrowth of the North American Free Trade Agreement , the NAICS system was developed jointly by the U.S., Canada and Mexico to provide statistical comparability about business activity throughout North America.

NAICS is dramatically different from SIC, so it won’t be possible to take NAICS data from 2005 and compare it with 1995 SIC data,” Danka said. “This study represents our last chance to take a thorough look at the Arizona economy under the SIC system, and the first opportunity to compile data using the NAICS system.”

“In addition to developing strategies for our economic future, one of our ancillary goals is to insure that we can gather more timely and accurate data for future decision-making at all levels,” the Arizona Commerce Department official said.