Arizona’s Economy Performed Better Than Earlier Data Suggested
Arizona GDP and personal income got an upward revision
At a glance
- Arizona real GDP grew at a 2.5% annualized rate in the second quarter of 2026, compared to the U.S. rate of 2.2%.
- Most Arizona industries contributed to second-quarter growth, although manufacturing, trade, transportation and utilities, and leisure and hospitality contracted.
- Arizona consumer spending grew 5.4% in 2025, slightly above the national rate of 5.3% but slower than in recent years.
- Arizona personal income rose 3.2% in the second quarter, while first-quarter growth was revised up substantially from 4.8% to 6.9%.
With the Bureau of Economic Analysis's (BEA) annual update of the National Economic Accounts, state GDP and income data for Arizona were revised up for the first quarter and showed more resilience than expected in the second quarter.
The third (and final) estimate of U.S. real gross domestic product (GDP) for the second quarter reflected substantially stronger economic growth than the advance and second estimates. The annualized quarterly growth rate was revised up to 2.2% from 1.5%, with private investment, consumer spending, and government spending higher than initially estimated. Annualized growth of real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment, was revised up to 4.6% from 4.2% in the second release and 3.9% in the first release. The personal consumption expenditures (PCE) price index increased 5.0%, and PCE price excluding food and energy increased 3.3%, both revised down 0.3% from the advance estimate. The downward revision to PCE inflation reflected methodological updates to prices for portfolio management, legal services, and computer software.
Monthly data for the U.S. showed that personal income rose 0.2% over the month in August, with disposable personal income up 0.3%. Personal consumption expenditures increased 0.9% in the month nominally, and real PCE increased 0.6%. The PCE price index increased 3.4% over the year in August, down from 3.7% in July, and the core (excluding food and energy) PCE price index decelerated to 3% from 3.3%.
State GDP figures for the second quarter came out with the national Q2 GDP final release. Arizona real GDP rose 2.5% at an annualized quarterly rate in the second quarter, compared to 2.2% in the U.S. This faster pace is partly explained by a downward revision in Arizona’s Q1 GDP from 1.4% to 0.8% annual growth and an upward revision in U.S. Q1 GDP from 2.1% to 2.5%. Exhibit 1 shows how Arizona’s Q2 GDP growth lines up with other states.
Exhibit 1: State GDP, 2026Q2, Quarterly Percent Change at Annual Rate
Zooming into output growth by industry, as shown by Exhibit 2, most sectors generated growth in real GDP over the quarter, except for trade, transportation, utilities, manufacturing, and leisure and hospitality.
Exhibit 2: GDP by Industry, Quarterly Percent Change at Annual Rate, Arizona versus U.S.
Annual personal consumption expenditures (PCE) by state for 2025 were also released. Arizona PCE growth slowed to 5.4% in 2025, compared to 5.9% in 2024 and 6.7% in 2023. The slowdown matched the national trend, as U.S. annual PCE growth slowed to 5.3% in 2025 from 5.6% in 2024 and 6.2% in 2023. Exhibit 3 shows that Arizona’s 2025 PCE growth sits in the middle of U.S. states, slightly above the national average.
Exhibit 3: State PCE, 2025, Percent Change from Prior Year
Arizona personal income increased 3.2% at a quarterly annualized rate in the second quarter, with the first quarter reading revised substantially up to 6.9% from 4.8%. Nationally, personal income grew 4.7% in the second quarter compared to 5.1% (revised up from 3.4%) in the first quarter. Arizona’s per capita personal income increased to $70964 in Q2 from $70497 in Q1, while the national ranking by state stayed at 34th. Exhibit 4 shows nominal per capita personal income by state and the U.S. average.
Exhibit 4: Per Capita Personal Income by State, 2026Q2, Current Dollars
In Arizona, net earnings from work (wages and salaries, proprietor’s income, and fringe benefits) rose 3.7%, with Q1 growth revised up from 2.0% to 5.3%. National net earnings from work grew 4.7% in Q2, compared to 5.1% in Q1. Income from dividends, interest, and rent rose 4.9% in Q2 in Arizona, above the national pace of 4.2%. Transfer receipts (Social Security, Medicare, Medicaid, welfare, etc.) rose 0.5% in Arizona and 5.1% nationally. Exhibit 5 compares each income source's contribution to quarterly personal income growth in Arizona and the U.S.
Exhibit 5: Contribution to Personal Income by Income Source, 2026Q2, Percent Change at Annual Rate, Arizona versus U.S.
This annual update of the National Economic Accounts also revised past personal income data. Exhibit 6 compares personal income over the year between the revised data and the previous release for both the U.S. and Arizona. For national data, the revision covers data since 2021, while for Arizona and other states, it goes back to 2009. The implied annual growth rates for Arizona quarterly personal income from 2010 to 2021 stayed largely the same as in the previous release. However, the revision changed Arizona's year-over-year personal income growth rates more substantially since 2024: the revised data now show more stable income growth instead of a slowdown over the past year and a half.
Exhibit 6: Revisions to Personal Income Growth, Year-over-Year Percent Change, Arizona versus U.S.
