The Arizona Economy: A Snapshot of Recent Trends and Future Projections
The Arizona economy has been experiencing a slower-than-usual growth pace, but there are signs of improvement on the horizon. Here's a breakdown of the current situation and what the future may hold.
Current State:
- Employment: Job growth has been sluggish, with a 0.3% increase in Arizona since 2019, significantly lower than the national 1.1% growth rate. The trend is uneven, with Phoenix leading (0.4% growth), Tucson lagging (-0.1%), and Prescott in between (-0.8%).
- Income: Personal income growth has been modest at 4.5%, slower than the national 5.1%. Net earnings from work are also below the national average.
- Housing: House price increases have slowed, but affordability remains a challenge. Housing costs as a percentage of median household income are higher than pre-pandemic levels, especially in major metropolitan areas like Los Angeles and San Francisco.
- Inflation: Consumer price inflation in the Phoenix MSA has moderated significantly, running well below the national average.
Driving Forces:
- Economic Policy Uncertainty: Federal economic policy uncertainty poses a challenge to growth.
- Demographic Factors: Aging population and immigration restrictions contribute to slower growth.
- Cost Increases: Rising costs, partly due to tariffs, put pressure on the economy.
Recent Developments:
- Employment: Private education and health services have been key drivers of job growth.
- Housing: Housing permit activity is down, indicating a potential slowdown in construction.
- Sales: Retail sales and restaurant sales have rebounded, showing strong growth in the first half of 2025.
Future Outlook:
- Income, Jobs, and Population: The baseline forecast predicts acceleration in these areas if the U.S. economy continues to grow.
- Job Growth: State job growth is expected to slow in 2025 but pick up in 2026 and 2027.
- Unemployment Rate: A slight increase in the unemployment rate is anticipated.
- Personal Income: Nominal personal income growth will slow but then rebound.
- Retail Sales: Sales growth will accelerate, sustaining gains.
- Population: Population growth will remain steady, primarily driven by net migration.
- Housing Permits: A decline in housing permit activity is expected due to slow population gains.
Key Takeaway: Arizona's economy is showing signs of stabilization and potential growth, but challenges remain. The future outlook suggests a gradual improvement, but the pace of recovery will depend on national economic conditions and policy decisions.
