ECONOMY OFSCOTTSDALE

January 2008Prepared by

Center for Competitiveness and Prosperity Research L. William Seidman Research Institute

W. P. Carey School of BusinessArizona State University

Tempe, Arizona

ECONOMY OFSCOTTSDALE

January 2008

Prepared by:Center for Competitiveness and Prosperity Research L. William Seidman Research Institute W. P. Carey School of BusinessArizona State UniversityTempe, Arizona

Peer reviewed by the Arizona Department of Commerce Economic Research Advisory Committee:

Dan AndersonAssistant Executive Director forInstitutional AnalysisArizona Board of Regents

Brian CaryCorporate EconomistStrategic Economic ServicesSRP

Lisa DankaAssistant Deputy Director, Finance and InvestmentArizona Department of Commerce

Kent EnnisDeputy DirectorArizona Department of Commerce

Wayne FoxDirector, Bureau of Business andEconomic ResearchNorthern Arizona University

James B. NelsonEconomic Development ManagerSalt River Project

William P. Patton, PhDSenior Research EconomistEconomic & Business Research CenterThe University of Arizona

Elliott D. PollackElliott D. Pollack & Co.

Brad SteenChief EconomistArizona Department of Transportation

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ECONOMY OF SCOTTSDALE(ZIP CODES 85250-52, 85255, 85257-62, 85266, 85267 AND 85271)

Scottsdale has a diverse and large economy. Tourists and seasonal residents are major driving forces. High-technology activities in wholesale trade, information, and professional, scientific and technical services make major contributions. Telemarketing also contributes. Retail trade provides the most employment of any sector in Scottsdale.

Zip codes 85250-52, 85255, 85257-62, 85266, 85267 and 85271 are used as an approximation for Scottsdale. These zip codes include pieces of the Salt River Pima-Maricopa Indian Community, but do not include small parts of Scottsdale, particularly those areas west of Scottsdale Road between Chaparral and Thunderbird roads, which are included in Paradise Valley or Phoenix. The 403-square-mile land area of the zip codes is greater than the 184 square miles of the city. The 2000 decennial census count of 200,749 residents in the zip codes was 1 percent less than the city’s population of 202,705. The 2004 population of Scottsdale, as defined by these zip codes, is estimated at 220,327.

THE ECONOMY IN 2004

Total EmploymentTotal employment in Scottsdale is estimated to have been approximately 147,150 in

2004. Total employment was a high 668 per 1,000 residents — 40 percent more than the national average and 56 percent higher than the Arizona average, and the fourth-highest value of 83 incorporated cities and towns in Arizona. Excess employment was about 41,800 relative to the U.S. average and 52,925 versus the state average.

The high per capita employment resulted from the number of jobs located in Scottsdale (in 2001) being a third more than the 102,850 employed Scottsdale residents counted in the 2000 census. Thus, Scottsdale is an employment center to which many residents of other communities commuted to work.

Agriculture and GovernmentAgriculture largely is a basic activity that includes agricultural support activities as well

as farming and ranching. Agriculture employment in the Scottsdale zip codes in 2004 is estimated to have been about 150. Agriculture’s employment per capita was approximately 89 percent less than the national and state average.

The government sector represents a mix of basic and nonbasic activities. Most federal government employment (both civilian and military) is basic to both the community and the state. State government employment may be basic to the community, but is it not basic to the state. Similarly, county government and community college employment may be basic to the community (for example, a portion of the employment at the county seat is basic in that some workers serve other communities in the county), but not to the county or the state. Other local government — municipal, tribal, school district and special district — only rarely is basic to a community.

Government employed approximately 5,500 in Scottsdale in 2004. Government employment per 1,000 residents was only 25 in Scottsdale — 65 to 69 percent less than the state and national averages, and one of the lower values in the state.

The bulk of the government employees worked for either the city of Scottsdale or the portion of the Scottsdale Unified School District within Scottsdale, each of which employed nearly 2,300. Both were among the larger employers in Scottsdale.

Nonagriculture Private-Sector EconomyNonagriculture private-sector employment in Scottsdale was approximately 141,475 in

2004. Employment was a very high 642 per 1,000 residents — 64 percent more than the national average and 84 percent more than the state average. Excess employment was nearly 55,275 calculated against the national average and 64,500 versus the state average.

Employment estimates for 2004 for the broad sectors of the Scottsdale economy are shown in Table 1. Retail trade provided the most employment, followed by and accommodation and food services, and health care and social assistance. Per capita employment was above the national average in a high 13 of 20 sectors (see the “location quotient relative to nation” column of the table). The per capita figure was at least twice the national average in six sectors. Accommodation and food services employment was considerably more than if the sector’s per capita employment had been equal to the national per capita average (see the “excess employment relative to nation” column of the table). Several other sectors also had considerable excess employment.

Scottsdale had excess employment in some largely basic sectors, though per capita employment in agriculture, mining, manufacturing, and transportation and warehousing was far below the national average. The location quotient was less than 0.5 in six of the 20 sectors.

More sectorally detailed data show that 13 industries provided excess employment of at least 1,400 in Scottsdale in 2004, eight of which have at least a moderate basic component (see Table 2). The only export-oriented sector with more than one industry listed was accommodation and food services.

The discussion in the remainder of this section is organized by sector. Most of the information comes from the Census Bureau, but company names were provided by local sources. In some industries, the excess results from activities in Scottsdale serving both the rest of the region and the rest of the state. These are basic to the city, but not to the broader areas.

Mining. This sector is largely export oriented, but very little employment was present in Scottsdale.

Utilities. Some of the activity in this sector can have a basic aspect. Employment per capita was not quite half the national average.

Construction. The construction sector primarily serves local businesses and residents. A small portion in Scottsdale is basic due to some customers being seasonal residents, in-migrating retirees, and export-oriented businesses. It had the eighth-highest location quotient and the seventh-most excess employment. Four construction industries, including two related to new residential housing, had excess employment of between 700 and 950.

Manufacturing. This sector is largely export oriented, but its per capita employment was considerably less than the national average. However, the Census Bureau data appear to understate the employment since the large General Dynamics facility on McDowell Road is not included among the Scottsdale zip codes. Otherwise, no manufacturing industry provides much excess employment.

Wholesale Trade. The nature of this sector is that it is partially basic, with some industries more or less export oriented. This sector had the 12th-highest location quotient and excess employment. The two wholesale industries with the most excess employment were high-

TABLE 1WAGE AND SALARY EMPLOYMENT BY SECTOR

Scottsdale (Zip Codes 85250-52, 85255, 85257-62, 85266, 85267 and 85271), 2004

Relative to Nation Relative to Arizona

SectorNumber of

Establishments EmploymentLocation Quotient

Excess Employment

Location Quotient

Excess Employment

TOTAL 9,842 147,140 1.40 41,812 1.56 52,915AGRICULTURE 29 155 0.11 0 0.12 0GOVERNMENT 8 5,512 0.31 0 0.35 0TOTAL, NONAGRICULTURE PRIVATE SECTOR 9,805 141,473 1.64 55,265 1.84 64,491Mining 7 18 0.05 0 0.06 0Utilities 2 233 0.49 0 0.59 0Construction 760 8,945 1.79 3,957 1.28 1,975Manufacturing 240 3,947 0.38 0 0.63 0Wholesale Trade 639 6,232 1.41 1,799 1.80 2,769Retail Trade 1,185 20,656 1.79 9,137 1.85 9,511Transportation and Warehousing 94 991 0.32 0 0.36 0Information 182 4,573 1.76 1,967 2.39 2,656Finance and Insurance 952 10,439 2.15 5,576 2.28 5,864Real Estate and Rental and Leasing 834 5,198 3.32 3,633 3.14 3,543Professional, Scientific and Technical Services 1,672 13,087 2.30 7,407 2.98 8,698Management of Companies and Enterprises 80 4,007 1.89 1,887 1.81 1,791Administrative, Support, Waste Management, Remediation Services 597 13,838 2.12 7,304 1.89 6,521Educational Services 135 1,458 0.67 0 1.07 100Health Care and Social Assistance 1,025 19,337 1.63 7,470 2.12 10,211Arts, Entertainment and Recreation 183 3,694 2.61 2,277 2.28 2,075Accommodation and Food Services 593 19,705 2.44 11,639 2.35 11,306Other Services (except public administration) 576 5,031 1.24 967 1.64 1,961Unclassified Establishments 49 84 2.05 43 3.33 59

Source: Nonagriculture private sector estimated from U.S. Department of Commerce, Census Bureau, Zip Business Patterns 2004. Agricultural production employees, most government employees, railroad employees, self-employed individuals and employees of private households are not included in this data source. The agriculture and government sectors are estimated — see Chapter I for details. The concept of establishment for agriculture and government differs from that used for the nonagriculture private sector.

TABLE 2NONAGRICULTURE PRIVATE-SECTOR INDUSTRIES WITH EXCESS WAGE AND SALARY EMPLOYMENT OF AT LEAST 1,400*

Scottsdale (Zip Codes 85250-52, 85255, 85257-62, 85266, 85267 and 85271), 2004

Relative to Nation Relative to Arizona

IndustryNumber of

Establishments EmploymentLocation Quotient

Excess Employment

Location Quotient

Excess Employment

Full-service restaurants 258 8,801 2.75 5,602 2.70 5,537Hotels (except casino hotels) & motels 44 6,230 5.90 5,175 3.97 4,660All other outpatient care centers 11 4,372 21.11 4,165 14.82 4,077Computer systems design services 64 3,784 11.02 3,440 10.66 3,428Telemarketing bureaus 9 3,082 12.37 2,833 5.61 2,532Data processing, hosting, & related services 31 2,598 9.46 2,323 9.04 2,310New car dealers 41 3,158 3.57 2,273 3.13 2,149Golf courses & country clubs 33 2,435 10.69 2,208 5.96 2,027Direct property & casualty insurance carriers 22 2,282 5.19 1,842 5.29 1,851Ambulance services 12 1,619 17.01 1,524 9.88 1,455Corporate, subsidiary, & regional managing offices 55 3,480 1.75 1,487 1.68 1,407Custom computer programming services 105 1,674 5.13 1,348 6.42 1,413General medical & surgical hospitals 2 4,161 1.14 496 1.55 1,480

* Relative to either the national or Arizona average

Note: Those entries in bold with a gray background have a high proportion of sales to customers outside the region and are considered basic (export) economic activities. Those not in bold with a gray background have a moderate proportion of sales to non-residents. Other industries largely serve local residents.

Source: Estimated from U.S. Department of Commerce, Census Bureau, Zip Business Patterns 2004. Agricultural production employees, most government employees, railroad employees, self-employed individuals and employees of private households are not included in this data source.

technology electronics industries and drugs, each with excess employment between 975 and 1,125.

Retail Trade. Little of this sector is basic. Its location quotient was eighth highest, while its excess employment was second greatest at more than 9,100. The new car dealers industry is listed in Table 2. Four other industries had an excess of between 775 and 850: pharmacies, electronics stores, supermarkets, and family clothing stores.

Transportation and Warehousing. The nature of this sector is that it is partially basic, with some industries more or less export oriented. Employment per capita was less than a third of the national average. No industry had much excess employment.

Information. Some industries in this sector have a basic component. Its location quotient and excess employment each ranked 10th. The data processing industry is listed in Table 2. It included an employer of more than 1,000, one of 10 private-sector establishments of that size. The software publishing industry had a moderate level of excess employment.

Finance and Insurance. Some activities in this sector serve a market larger than Scottsdale and the Central region. It had the fifth-highest location quotient and sixth-most excess employment. The property insurance carrier industry is listed in Table 2; it included an establishment with a workforce of more than 1,000. Local sources identify this as Scottsdale Insurance Company. The real estate credit industry had excess employment of 1,100 and the mortgage loan brokers industry had an excess of about 675. These industries are assumed to serve the region’s rapidly expanding real estate activities and thus not have much of a basic component.

Real Estate and Rental and Leasing. Most of this sector’s activities serve local residents and businesses. It had the highest location quotient at 3.3 times the national average and supplied the eighth-highest excess employment. The residential property management industry provided excess employment of more than 1,325 and the real estate agents and brokers industry had excess employment of about 925.

Professional, Scientific and Technical Services. This sector is a mix of export and local support activities. It provided the fourth-highest location quotient and excess employment. The computer systems design industry is listed in Table 2 and included an establishment of more than 1,000 employees. The architectural services and management consulting industries each had excess employment of slightly more than 500.

Management of Companies. This sector consists of establishments, such as headquarters, that function primarily in support of other company operations, rather than provide goods or services to customers. Thus, depending on the activities of the company, this may or may not be a basic activity. It had the seventh-highest location quotient and 11th-most excess employment.

Administrative Support. Though largely serving local businesses and residents, some activities are export oriented. This sector provided the fifth-most excess employment and had the sixth-highest location quotient. The telemarketing industry, included in Table 2, has a large export component and included an establishment employing more than 1,000 (DMS Direct Marketing). Four industries had excess employment of between 550 and 825: other support services, landscaping services, office administrative services, and temporary help.

Educational Services. This sector, which consists only of private-sector establishments, largely serves the local population. Its location quotient was less than 0.7. None of its industries had much excess employment.

Health Care and Social Assistance. Few of this sector’s activities are basic. It provided the third-highest excess employment and its location quotient was 11th highest. Three of its industries are included in Table 2: outpatient care centers (with an establishment employing more than 1,000), ambulance services (with an establishment employing more than 1,000), and general hospitals (with two establishments with at least 1,000 employees). The homes for elderly industry provided moderate excess employment.

Arts, Entertainment and Recreation. The portion of this sector’s activities that serve tourists and seasonal residents is basic. Its location quotient was second highest and its excess employment was ninth. Nearly all of its excess employment was in the golf courses and country clubs industry.

Accommodation and Food Services. Much of this sector serves tourists and thus is basic. It provided the most excess employment and had the third-highest location quotient. Two of its industries provided the most excess employment in Table 2: hotels and motels (which included two hotels that employed more than 1,000) and full-service restaurants. The limited-service restaurants and drinking places industries provided moderate levels of excess employment.

Other Services. Most of this sector’s industries serve local businesses and residents. Its location quotient and excess employment each ranked 13th. The beauty salons industry provided moderate excess employment.

Thus, Scottsdale has a diverse and large economy. Tourists and seasonal residents are major driving forces. High-technology activities in wholesale trade, information, and professional, scientific and technical services make major contributions. Telemarketing also contributes.

Scottsdale v. Comparison CitiesEmployment per 1,000 residents in Scottsdale in 2004 was 48 percent more than the

regional average. In the nonagriculture private sector, employment per 1,000 residents was 67 percent more than the regional average. Scottsdale ranked fourth among the 33 geographic areas in the Central region on both measures (see Table 3).

Average nonfarm private-sector payroll per employee in Scottsdale in 2004 was $42,000 — 16 percent more than the national average, 31 percent more than the Arizona average, and 22 percent more than the regional average. Scottsdale’s figure was the second highest in the region and sixth highest in the state (second among the incorporated places and the highest among populous places).

In most sectors, location quotients in Scottsdale were average or below average among the region’s nine cities. Scottsdale ranked second in government, utilities, and transportation and warehousing, but with location quotients well below 1 in the two latter sectors. Its high location quotient in accommodation and food services was less than the figures in Jerome and Sedona.

Five comparison areas were selected, independent of region. Cities and towns of similar size (between 50 percent and 150 percent of the 2004 estimated population of Scottsdale) located nearby (within 50 miles) generally were selected. These comparison areas were supplemented as necessary with larger nearby cities and towns, smaller nearby cities and towns, and similarly sized cities and towns more than 50 miles away. The magnitude of the difference in city size, distance, and industrial mix also was considered.

Per capita employment in Scottsdale was the fifth highest of the six cities in this comparison group, greater than in Chino Valley and the unincorporated area. Per capita nonagriculture private-sector employment in Scottsdale was in the middle of the group, less than in Cottonwood and Williams and about the same as Parker. Though low from a state and national perspective, payroll per employee in Scottsdale was similar to that of most of the comparison cities.

Some of the export sectors are shown in Chart 1. Scottsdale’s location quotient was in the middle (ranked third or fourth) in each of these sectors. Except in accommodation and food services, export activities are rare in this group of cities.

CHANGES IN THE ECONOMY BETWEEN 2001 AND 2004Between 2001 and 2004, Scottsdale’s employment rose approximately 10,300 (8

percent). Employment per 1,000 residents also advanced, as did the location quotients relative to the national and state averages.

Scottsdale also experienced an increase of 8 percent in nonfarm private-sector employment between 2001 and 2004, greater than the Arizona average of 5 percent, the regional average of 3 percent, and the barely positive national change. The location quotient relative to the U.S. average rose 0.08 between 2001 and 2004 in Scottsdale, much superior to the decreases in the regional and state averages.

The town’s employment growth was accompanied by an increase in inflation-adjusted payroll per employee of 7 percent. In contrast, the regional, state and national figures all declined.

Several sectors had a moderate-to-large change in location quotient and excess employment between 2001 and 2004 (see Table 4). The health care and social assistance sector posted the largest increase in excess employment, though its gain in location quotient was only sixth highest. Large increases were registered in the outpatient care centers and ambulance services industries. The administrative support sector provided the second-largest gain in excess employment, led by the telemarketing industry. A net loss occurred in the three industries comprising employment services.

Retail trade had the third-most increase in excess employment, led by the electronics stores and pharmacies industries. Professional, scientific and technical services had the next largest gain, with a very large boost from the computer systems design industry and a large increase in custom computer programming. In contrast, the marketing consulting, executive search consulting, and engineering services industries suffered declines in excess employment.

The information sector ranked fifth in the gain in excess employment, followed by the management of companies sector. These two sectors ranked first and second on the increase in location quotient. Lesser gains in excess employment were registered in arts, entertainment and recreation (primarily in the golf courses and country clubs industry), wholesale trade, and real estate and rental.

The accommodation and food services sector suffered a large decline in excess employment and had the largest drop in location quotient, primarily due to the full-service restaurants industry. Construction, and finance and insurance also had sizable losses. In the latter sector, a very large decline in the third party administration of insurance and pension funds industry was partially offset by a gain in the property insurance carriers industry. A small loss in excess employment occurred in the other services sector.

TABLE 3SCOTTSDALE’S RANKS ON EMPLOYMENT PER 1,000 RESIDENTS

Rank in Central Region TOTALNonagriculture Private Sector Government

All 33 Areas 4 4 27t27 Incorporated Cities and Towns 3 3 23t14 Smallest Incorporated Places 2 2 11t21 Incorporated Places in Maricopa County 3 3 18t

Notes: A rank of 1 is highest. In agriculture, Scottsdale tied (‘t’) for 22nd among all 33 areas.

CHART 1LOCATION QUOTIENTS IN 2004

Selected Sectors in Scottsdale and Comparison Cities

Source: Estimated from U.S. Department of Commerce, Census Bureau, Zip Business Patterns 2004. The agriculture sector was separately estimated — see Chapter I for details.

TABLE 42001-TO-2004 CHANGE IN WAGE AND SALARY EMPLOYMENT BY SECTORScottsdale (Zip Codes 85250-52, 85255, 85257-62, 85266, 85267 and 85271)

Relative to Nation Relative to Arizona

SectorNumber of

Establishments EmploymentLocation Quotient

Excess Employment

Location Quotient

Excess Employment

TOTAL, NONFARM PRIVATE SECTOR 905 10,681 0.08 8,271 0.11 9,571Forestry, Fishing and Hunting, and Agricultural Support Services 5 -10 -0.09 0 -0.11 -4Mining -1 -13 -0.04 0 -0.02 0Utilities -5 201 0.42 0 0.51 0Construction 74 -917 -0.29 -1,170 -0.21 -1,300Manufacturing -28 -2,871 -0.21 0 -0.27 0Wholesale Trade 18 309 0.08 357 0.08 287Retail Trade 13 2,901 0.16 2,245 0.15 2,153Transportation and Warehousing 4 -432 -0.20 0 -0.13 0Information -12 1,776 0.73 1,910 1.15 2,127Finance and Insurance 184 -728 -0.30 -1,033 -0.25 -891Real Estate and Rental and Leasing 152 387 0.05 291 0.19 360Professional, Scientific and Technical Services 265 2,378 0.25 1,918 0.65 2,579Management of Companies and Enterprises -3 1,333 0.62 1,314 0.18 761Administrative, Support, Waste Management, Remediation Services -11 2,438 0.39 2,514 0.36 2,542Educational Services 29 59 -0.06 0 -0.25 -239Health Care and Social Assistance 205 4,929 0.27 3,666 0.28 3,637Arts, Entertainment and Recreation 56 818 0.39 699 0.18 568Accommodation and Food Services 34 -1,265 -0.44 -2,057 -0.26 -1,619Other Services (except public administration) -9 -27 -0.05 -173 0.04 64Unclassified Establishments -57 -66 0.08 -31 0.97 -28

Source: Nonagriculture private sector estimated from U.S. Department of Commerce, Census Bureau, Zip Business Patterns 2004 and 2001. Agricultural production employees, most government employees, railroad employees, self-employed individuals and employees of private households are not included in this data source. The agriculture and government sectors are estimated — see Chapter I for details. The concept of establishment for agriculture and government differs from that used for the nonagriculture private sector.