Arizona Second Quarter 2026 Forecast Flash

Today

By George W. Hammond, EBRC research professor

Arizona job growth improves in the near term, but remains slow

This post briefly describes the Arizona Second Quarter 2026 forecast update, completed in May 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 April 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 25% probability and the optimistic scenario has a 25% probability.

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

According to the current revised (benchmarked) estimates, Arizona jobs rose by just 0.1% for the year in 2025 (non-seasonally adjusted). That was essentially no job growth. Growth that slow was somewhat puzzling, particularly after the U.S. Bureau of Labor Statistics (BLS) took the unusual step of also revising the 2024 data. The revision to the 2024 data significantly increased growth during that year.

The baseline forecast calls for state job growth to accelerate modestly this year, to 0.5%, and again next year to 1.0%. Even so, these growth rates are very slow by the state’s historical standards (even the pace set during the slow recovery from the Great Recession).

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 51,296 in 2025 to 47,864 in 2026 and again to 47,316 in 2027, as permit activity responds to slowing population gains.

Arizona personal income growth is forecast to accelerate from 4.3% in 2025 to a more normal pace of 5.1% in 2026, as growth in earnings from work recover.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth is forecast to speed up in 2026, rising by 4.6% before adjustment for inflation, driven by rising inflation overall, as well as a large increase in gas prices. Nominal growth moderates to 3.4% next year as gas prices fall.

The pessimistic scenario assumes slower growth in the U.S. economy in the near term (compared to the baseline), but no recession. Slower growth is driven by higher energy prices, lower stock valuations, and weakening consumer spending driven by the war with Iran. 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.