Why Arizona's Economy is Set to Take Off
Despite a slower-than-usual pace, Arizona's economy is poised for acceleration, driven by a combination of factors. Here's a breakdown of the key trends and what they mean for the state's future.
The Slow Grind Continues, But Better Days Are Ahead
Arizona's economy has been chugging along at a slower pace than usual, with job growth and income increases reflecting post-pandemic trends. But the baseline forecast is optimistic, predicting an uptick in U.S. economic activity will boost Arizona's growth next year.
Employment Trends: A Mixed Bag
- Jobs: Employment growth has been uneven, with private education and health services driving the majority of job gains. While Phoenix saw a 0.4% increase, Tucson and Prescott experienced declines.
- Income: Personal income growth has been modest, at 4.5%, slower than the national average. Net earnings from work are also below the national average.
Housing: A Mixed Picture
- Affordability: Housing affordability has improved slightly, but remains significantly impaired compared to pre-pandemic levels. Costs are relatively low in Tucson and Prescott, but still high in major metropolitan areas like Los Angeles.
- Permits: Housing permit activity is down statewide, with a 13.1% decline in permits through August 2025. This reflects a broader trend of slowing population growth.
Inflation and Sales: A Positive Story
- Consumer Price Inflation: Phoenix's inflation rate has moderated to below the national average, with all-items consumer prices up just 1.4% over the year. This is a positive sign for consumers.
- Retail Sales: Retail sales, including remote sellers, have accelerated strongly, rising 4.8% statewide through September. Taxable sales in restaurants and bars have also rebounded.
The Outlook: A Gradual Acceleration
The forecast predicts a gradual acceleration in Arizona's economy:
- Jobs: Job growth will decelerate slightly in 2025 but pick up pace in 2026 and 2027, reaching 1.6% and 1.5% respectively.
- Unemployment: The unemployment rate will rise slightly, from 4.1% in 2025 to 4.4% in 2026 and 4.5% in 2027.
- Income: Nominal personal income growth will slow but then rebound, sustaining retail sales growth.
- Population: Population growth will remain steady at around 1.3%-1.4% per year, primarily driven by net migration.
The Bottom Line
While Arizona's economy has faced challenges, the outlook is positive. A combination of improving employment trends, stabilizing housing costs, and robust retail sales growth bodes well for the state's future. However, challenges like federal economic policy uncertainty and demographic aging remain factors to watch.
