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Arizona’s Story: A Lagging Economy

August 17, 2017
By Robert A. Dye, Ph. D.

While a lagging economy may sound like a bad thing, in the case of Arizona there may be a silver lining. Arizona has not seen consistent real GDP growth above 2 percent since 2007. Previous economic expansions in the state have been fueled by demographic expansion and employment growth in construction and services. In this cycle the state’s tepid economic recovery has absorbed some slack in the Phoenix labor market. But there is still some slack that can be absorbed, especially in Tucson, the state’s second largest metropolitan area. Tucson total nonfarm payrolls still remain below their pre-recession peak and are up just 0.4 percent in the 12 months ending in June. So there is upside potential from the ongoing economic recovery in southern Arizona. Looking at demographics, net migration into the state and overall population growth is improving. Arizona still represents a low-cost location for retiring baby boomers. Also, the ongoing economic expansion in the U.S. will support the state’s tourism industry. This will support demand for housing and other services and will help boost the state’s economy to above 2 percent real growth for both 2017 and 2018.

Arizona’s housing market remains tight. Taking the ratio of housing starts to household formation shows that for every 10 households forming, there are seven new houses. This is helping to bolster home prices, partic-ularly in the Phoenix area. This trend is expected to persist over the next couple of years as builders face shortag-es of prime lots and of labor and increasingly expansive building materials.

For a PDF version of this report click here: AZ_Outlook_0817


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