The Arizona Republic reports on an economic study. "The University of Arizona's Eller College of Management said Wednesday that the state's economy will experience a major slowdown in the second half of 2006 as inflation pressures mount, interest rates rise and the housing market cools."

"'Consumer budgets are also being squeezed, and that's going to force (them) to curtail their spending as we go forward,' said Marshall Vest, director of Eller's Economic & Business Research Center. 'Housing is backtracking as it returns to some sense of normalcy.'"

"Vest said the best-case scenario has Arizona's economic growth continuing at a 'fairly high level,' just slower. His worst-case scenario: The economy sinks into a short, mild recession."

"'The economy has been growing well beyond its potential and now we're feeling some inflationary pressures,' said Vest. A slowdown is normal and overdue, he said. Last year, Arizona experienced its largest economic activity surge in history, Vest said."

"That momentum lasted into early 2006, but Vest predicts a rapid slowdown that will result in a 'growth recession,' or growth at a rate slower than the long-term trend, in 2007 and 2008."

"As consumers begin to worry about jobs, they'll cut spending and repay debts, he said. 'The party is over for consumers,' Vest said. 'They're going to have to pay back some of that debt.'"

"The 'housing market mania' is ending, becoming a neutral force or a drag on the local economy, Vest said. Tucson markets will spend the next couple of years 'adjusting to a frenzy-less environment,' he said. 'It's an orderly retreat from the excesses of the frenzy days,' Vest said."

"The number of homes sold in Tucson is down, representing fairly significant, almost scary declines, Vest said."

"Tucson, Phoenix and Flagstaff made national lists of overvalued housing, becoming some of the only inland cities to earn that distinction."

"Current economic conditions strongly favor renting, which means rents could quickly soar, Vest said. Rents haven't gone up significantly in five years, housing is less affordable and condo conversions have shrunk the supply of apartments. Builders will soon see demand for new apartment complexes and could change some condos back to apartments, Vest predicted."