Phoenix MSA Second Quarter 2025 Forecast Flash

May 7, 2025

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

After slow gains in 2025, Phoenix MSA growth rebounds next year

This post briefly describes the Phoenix MSA Second Quarter 2025 forecast update, completed in May 2025. Keep in mind that the Phoenix forecasts now include projections for both Maricopa and Pinal counties.

The detailed 10-year forecast data 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 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 35% probability and the optimistic scenario has a 15% probability.

Phoenix MSA growth is projected to be relatively slow again this year as the economy adjusts to slowing national growth.

After a surprising downward revision to job growth in 2024, which put over-the-year growth at 1.6%, the forecasts calls for similarly slow gains this year, with jobs up 1.4%. Growth is forecast to accelerate in 2026 to 2.0% and then to 1.8% in 2027. Overall, after two years of subpar gains, job growth is expected to get back on track next year.

Net migration drove Phoenix population gains last year, which translated into 1.5% growth. Population growth is expected to sustain gains at that pace for the next few years.

Housing permits drop from 44,644 (preliminary actual) in 2024 to 43,755 in 2025 and then to 42,323 in 2026. This reflects relatively slow population gains and reduced housing affordability.

Nominal personal income growth accelerated to 7.1% in 2023 (historical data). It is forecast to slow to 6.1% in 2024 and 5.8% in 2025.

Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) rose 0.6% in 2024, before adjustment for inflation. With inflation accelerating in 2025, nominal growth rebounds relatively quickly. Real retail sales growth improves slowly over the next four years.

The pessimistic scenario assumes a moderate U.S. recession in the second half of 2025. 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 the Phoenix MSA as well, with almost no annual average job growth in 2025. 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.