Business year in review - 2008: Gas prices drive economic slump

Every time we thought things couldn't get worse in 2008, they did.

Arizona's economy was already weak, as home sales and prices continued to fall. Then the state and nation were hit by two serious shocks:

• Gas prices, which had climbed over $3 a gallon in 2006 and again in late 2007,continued to rise. But this time, the average stayed above $4 a gallon for six weeks in June and July, wreaking havoc on the trucking, airline and tourism industries, commuters and delivery services, and especially on consumer confidence. Gas prices dropped to under $2 by the end of the year.• The economic tsunami that started over the Labor Day weekend and lasted five weeks brought credit markets to a standstill, destroyed retirement and stock portfolios, created fears of a worldwide depression and drove the U.S. government deeper into debt.

The world learned too late that not only were thousands of people owing more than their homes were worth and letting their mortgages go delinquent or into foreclosure, but that some of the largest mortgage and insurance companies were losing billions of dollars. By the time the worst was over, the federal government had taken over mortgage giants Fannie Mae and Freddie Mac and American International Group,the world's largest insurer.

Three of the five biggest investment firms were gone or sold. Merrill Lynch and Bear Stearns were bought by banks, and Lehman Brothers went bankrupt. Washington Mutual was seized by the federal government and taken over by JPMorgan Chase Bank. Wachovia was sold to Citigroup.

The effect in Arizona was devastating. .

As the year closed, there were 13,817 bankruptcy filings in the Phoenix area, a 92 percent increase from the year before. Valley home-building permits in 2008 fell 60 percent from the year before, to 12,582.

The 2008-09 state budget deficit grew to $1.2 billion by the end of the year.