A little New Years outlook for you from the Arizona Republic. Looks like we are in for a rough few years. Tourism and construction (brought on my migration into our state) are still the big economic drivers. Comments about ‘diversifying out states economic base’ are encouraging for Phoenix but not as exciting south of the Gila.

As Arizona enters its third year of recession, recovery remains elusive.

Despite its increasing diversification, Arizona’s economy needs new residents to fill all the empty houses. It needs tourists and business meetings to fill resorts and hotels.

Arizona will bounce back economically only as quickly as its core industries revive, and that is projected to take four or five years.

But the fundamental strengths that have made the state one of the nation’s fastest-growing for decades haven’t evaporated.

Among them: sunny, scenic deserts; affordable housing; respectable clusters of semiconductor, bioscience, aerospace and defense industries; and the opportunity for year-round golf and other outdoor activities. And, of course, the Grand Canyon.

The recession has hurt Arizona more deeply than most states, and most economic analysts expect the state’s rebound to lag the nation’s largely because of severe government budget deficits and the weak real-estate market.

People must come to the state

What Arizona needs most to come roaring back is more residents. Newcomers would generate more businesses to absorb all the empty buildings and spark the construction industry.

Population growth and construction have been the core of Arizona’s economy for at least 50 years. Currently, a shortage of jobs here and an inability to sell homes elsewhere have contributed to a stunning population stall.

Economists with both Arizona Public Service Co. and Salt River Project estimate that, based on meter readings, population growth is virtually flat. The U.S. Census Bureau estimates Arizona’s net migration fell to about 42,000 in 2009, less than half of what it was every year since 2002.

Pete Ewen, an APS economist, said, “I haven’t seen this (flat population growth) before. . . . We have to go back probably to the 1920s to see something quite like that.”

He estimates there are 60,000 to 70,000 empty houses in the Phoenix area.

Without more people, commercial construction is unnecessary….

Consumers are anxious

Next, consumer spending must rise to boost businesses and replenish state coffers with sales-tax dollars.

A large reason the state’s economy is hurting and budgets are out of balance is that consumers, whose spending makes up two-thirds of the economy, have less to spend and remain hesitant to shop.

If they continue to hold back, said Jay Butler, realty-studies director at Arizona State University, Arizona’s economy could even contract again in what is known as a W-shaped recovery.

But consumers can’t be blamed, as they face layoffs, furloughs and reduced hours…..

There are reasons for hope

Finally, all the fundamental strengths must come into play.

Because Arizona has a history of recovering nicely from past recessions and it’s still a state likely to attract people who are tired of cold weather, experts expect growth to resume eventually.

Some signs to watch for: declines in the foreclosure and unemployment rates and initial claims for unemployment insurance, and increases in building permits and taxable sales.

As the global economy recovers, businesses will travel again and consumers will vacation farther afield, sparking the tourism industry.

Of course, Arizona’s economy today is broader than construction and tourism.

Topper said that when he compares Arizona’s job sectors with national averages, Arizona has slightly more construction workers than the national average but also more professional and business jobs, such as lawyers, accountants, financial experts and corporate managers.

“I think professional-business services is a position of strength for Arizona’s economy going forward,” Topper said.

Plus, it remains a state famous for offering a fresh start.

Jeff Morhet, president and chief executive officer of InNexus Biotechnology in Scottsdale, said Arizona is a mixing bowl with new residents who bring fresh visions and are not bound by tradition, past mistakes or loyalty to one industry such auto manufacturing or gaming.

Morhet, a Gilbert resident who came to Arizona 12 years ago from Texas, said, “It has got a population that is not burdened by any significant legacy or any single industry that it has to grow its way out of.”

Dennis Hoffman, also an ASU economist, harkens to a similar time, the severe recession of the late 1980s. Commercial real estate was overbuilt, savings-and-loan associations were seized by the federal government and billions in real-estate holdings were wiped out.

“People said real estate was a wasteland and no one would venture into it,” Hoffman said. “The state was in a budget mess. We threatened to raise taxes, which some people thought would doom us forever.

“We thought that people would never come back, that real estate was a bust. . . . What happened after that was five of the fastest-growing years we have ever seen.”