Arizona First Quarter 2025 Forecast Flash

Feb. 13, 2025

By George W. Hammond, EBRC director and Eller research professor

Arizona job growth is steady in the near term

This post briefly describes the Arizona First Quarter 2025 forecast update, completed in February 2025. Forecast flashes for the Phoenix and Tucson MSAs will be available as they are completed.

The detailed 10-year forecast data for Arizona, Phoenix, and Tucson are available in Eviews and Excel files on the Forecast Databases page.

This forecast incorporates updated national projections from S&P Global released in January 2025.

The U.S. baseline forecast assumes a soft landing for the U.S. economy. On a quarterly basis, the forecast calls for real GDP to increase through 2034 (no near-term recession).

For the current U.S. and Arizona forecasts, the baseline projections are assigned a 50% probability. The pessimistic scenario has a 25% probability and the optimistic scenario has a 25% probability.

Overall, the Arizona economy is projected to slow very modestly in the near term, as it adjusts to slower national growth.

The baseline forecast calls for state job growth to slow modestly from 2.6% in 2023 to 2.5% in 2024 and again to 2.3% in 2025. Growth in 2024 is forecast to be above job growth rates in the preliminary nonfarm payroll data, because the U.S. Bureau of Labor Statistics preliminary benchmark suggested that they will revise the Arizona data up in March. In order to accommodate this, the 2024 nonfarm payroll data in the Arizona projections are forecast estimates, not published historical data.

The forecast calls for population growth to rise modestly from 1.3% in 2024 to 1.4% in 2025, and then decelerate to 1.3% in 2025. That is driven by less net migration in response to slowing national growth and reduced housing affordability.

Residential housing permits are forecast to fall from 58,117 in 2024 (preliminary actual) to 56,828 in 2025 and then to fall to 53,218 in 2026, as activity pulls back in response to slowing population growth and significantly degraded housing affordability.

Arizona personal income growth accelerated to 7.0% in 2023, according to recently revised data. The forecast calls for growth to slow to 5.3% in 2024 and 5.8% in 2025.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth decelerates to 0.6% in 2024 before adjustment for inflation and declines by 2.2% after adjustment for inflation. Nominal sales growth accelerates modestly in 2025, as income gains and falling interest rates support growth.

The pessimistic scenario assumes U.S. growth below the baseline through 2028, but no recession. That is driven by tighter financial conditions caused by tariff-induced inflationary pressures and more restrictions on immigration (additional deportations). This generates slower growth in Arizona as well. The optimistic scenario assumes gains faster than expected under the baseline.

Exhibit 1 presents a summary of the current annual projections. Exhibit 2 provides a comparison to the prior forecast. Exhibit 3 provides a comparison of the baseline and alternative scenarios for the current forecast.