Arizona Fourth Quarter 2025 Forecast Flash

Nov. 5, 2025

By George W. Hammond, research professor

Slow gains in 2025 followed by modest acceleration next year

This post briefly describes the Arizona fourth quarter 2025 forecast update, completed in November 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 October 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 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 grow slowly this year, at about the national pace, before picking up steam again in 2026.

In a surprise, Arizona job growth was revised down significantly in 2024, to 1.3% (non-seasonally adjusted). In the tables below, you will see the annual average of the seasonally adjusted data. Annual growth using those estimates was 1.2%. Occasionally, seasonal adjustment creates small differences in annual average growth rates.

The baseline forecast calls for state job growth to decelerate modestly this year, to 0.8%, before accelerating to 1.6% in 2026, and 1.5% in 2027. The basic pattern calls for state job growth to bounce back from two years of subpar growth (2024-2025) to more normal growth rates by 2026.

The forecast calls for population growth to remain steady in the near term, at about 1.3% per year, driven by modest net migration in response to slowing national growth and reduced housing affordability.

Residential housing permits are forecast to fall from 59,616 in 2024 (revised actual) to 52,884 in 2025 and 53,067 in 2026, as activity pulls back in response to slow population growth and significantly degraded housing affordability.

Arizona personal income growth decelerated from 8.1% in 2023 to 5.9% in 2024. The forecast calls for growth to slow again to 4.8% in 2025 and then pick up some steam in 2026.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth decelerated to 0.6% in 2024 before adjustment for inflation and declined by 2.2% after adjustment for inflation. Nominal sales growth accelerates modestly in 2025 as inflation rises. Inflation-adjusted sales growth remains slow in 2026 before gradually accelerating in 2027 and 2028.

The pessimistic scenario assumes a moderate U.S. recession beginning in the fourth quarter of 2025 and ending in the first quarter of 2026. That is driven by tighter financial conditions caused by tariff-induced inflationary pressures, restrictions on immigration (additional deportations), and federal spending cuts. 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.