Arizona’s Expansion to Proceed in Lower Gear in 2025
Arizona’s economy is forecast to grow in 2025, but at a more modest pace than in recent years. Lower inward migration, softer labor demand, and a step down in income growth are collectively forecast to slow real GDP growth to 1.0% in 2025 from 2.7% in 2024. Employment growth in Arizona has moderated considerably from the blistering pace of the post-pandemic years, and the unemployment rate is likely to tick higher as a result. Tourism will face headwinds from wobbly U.S. consumer confidence, which is weighing on discretionary spending nationally. This will indirectly slow the broader service-providing sectors, which account for about three-fourths of all jobs in the state. Slower employment growth, higher unemployment, and slower growth of investment income sources are projected to limit total personal income growth in the state to a little under 5%—which nevertheless should outpace inflation.
Private hiring continues to slow from the post-pandemic boom, which will restrain interstate migration into the Grand Canyon State, slowing population growth this year and next. Less immigration will weigh on population growth as well. At the same time, the historically strained cost of living on the West Coast means life in the Grand Canyon State will still entice Americans, especially retirees.
Residential construction rebounded in 2024 after declines in the prior two years, and is set to expand further in 2025. Population growth remains a powerful fundamental driver of residential construction in Arizona, despite headwinds from high mortgage rates, and cooler growth of jobs and incomes. Led by a solid increase in single-family construction, nearly 60,000 new residential units are forecast to be added this year. Rental vacancy rates are the highest in a decade, limiting multifamily construction. As Arizona’s housing market comes into better balance, house price increases will moderate further. The house price index is forecast to increase by 1.7% this year and 2.2% next year, slower than income growth.
For a PDF version of this publication, click here: 2025 Arizona Mid-Year Economic Outlook
The articles and opinions in this publication are for general information only, are subject to change without notice, and are not intended to provide specific investment, legal, accounting, tax or other advice or recommendations. The information and/or views contained herein reflect the thoughts and opinions of the noted authors only, and such information and/or views do not necessarily reflect the thoughts and opinions of Comerica or its management team. This publication is being provided without any warranty whatsoever. Any opinion referenced in this publication may not come to pass. We are not offering or soliciting any transaction based on this information. You should consult your attorney, accountant or tax or financial advisor with regard to your situation before taking any action that may have legal, tax or financial consequences. Although the information in this publication has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its timeliness or accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.