Arizona First Quarter 2026 Forecast Flash

Feb. 25, 2026

By George W. Hammond, EBRC research professor

After a slow 2025, Arizona growth modestly accelerates this year

This post briefly describes the Arizona First Quarter 2026 forecast update, completed in February 2026. 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 2026.

The U.S. baseline forecast assumes the U.S. economy continues to expand at rates of growth that are near the long-run trend. Thus, on a quarterly basis, the forecast calls for real GDP to increase through 2035 (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 20% probability and the optimistic scenario has a 30% probability.

Overall, the Arizona economy is projected to accelerate modestly this year, after unusually slow growth during 2024 and 2025.

According to the preliminary estimates through December 2025, Arizona jobs rose by 0.5% for the year (non-seasonally adjusted), which was a very slow pace. In the tables below, you will see the annual average of the seasonally adjusted data. Annual growth using those estimates was 0.6%. Occasionally, seasonal adjustment creates small differences in annual average growth rates.

The baseline forecast calls for state job growth to accelerate modestly this year, to 0.9%, and again next year to 1.3%.

The forecast calls for population growth to decelerate slightly in 2026, with the rate falling from 1.3% in 2025 to 1.2% in 2026 and 2027. That reflects slowing natural increase and moderate net migration.

Residential housing permits are forecast to fall from 50,378 in 2025 to 48,594 in 2026 and again to 47,047 in 2027, as permit activity responds to slowing population gains.

Arizona personal income growth is forecast to decelerate to 4.5% in 2025, down from a 5.9% increase in 2024. Growth rebounds to a more normal pace of 6.0% in 2026, as growth in earnings from work and dividends, interest, and rent recover.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth is forecast to rebound in 2025, rising by 3.5% before adjustment for inflation. Growth is expected to remain steady this year at 3.5% before accelerating to 4.1% in 2027.

The pessimistic scenario assumes a moderate U.S. recession beginning in the first quarter of 2026 and ending in the second quarter of 2026. That is driven by tighter financial conditions caused by tariff-induced inflationary pressures and restrictions on immigration (including additional deportations). This generates slower growth in Arizona as well, with small annual average job losses in 2026. 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.