Arizona’s Economy Continues to Grow Fueled by Population Growth, Job Gains
A growing population, marked job gains and sustained business activity across almost all industries yield positive news for Arizona’s economy for 2020. This was the message shared in an insightful presentation delivered by prominent economist Dr. Christopher Thornberg at Alliance Bank of Arizona’s 2020 Economic Forum.Steady Growth: Jobs & Population
Arizona’s economy continues on its upward trajectory as all key indicators point to steady, sustained growth, as every major metropolitan area in the state experienced job growth and consistently low unemployment rates. Overall, in the second quarter of 2019, total economic output grew at a 2.9% annual rate, outpacing neighboring Nevada (2.6%) and California (1.9%), as well as the nation by almost a full percentage point (2.0%). Despite the national population growth rate trending downward, Arizona’s rate has been accelerating over the past eight years. From July 2018 to July 2019, it had positive net migration of 98,000, the largest positive net migration this year, behind only Florida and Texas.
With nearly half of Arizona’s population in prime working age (age 25-64), the population increase has translated into strong growth of the labor force, which has increased 1.5% year-over-year since 2011. Arizona outpaced that trend last year with the labor force increasing 2.7% to 3.6 million workers from October 2018 to October 2019, outperforming Nevada (2.5%), California (-0.3%) and the nation (1.0%).
Also, job gains in the state have exceeded additions to the labor force and have been robust in nearly every industry. Specifically, the top three industries leading job growth from October 2018 to October 2019 included:
- Construction, which recorded the strongest employment growth increasing from 8.9%, or 14,400 jobs.
- Manufacturing, which had not shown much of a recovery post-recession, saw a 4.5% increase, adding 8,000 jobs.
- Logistics (Transport, Warehouse, Utilities), although a small share (4%) of Arizona’s total workforce, saw employment increase by 6.8% (7,700 jobs), albeit decreasing from the double-digit growth it saw in 2018.
As reflected by the surge in employment in the construction industry, Arizona’s housing market continues to grow. Although home sales fell in the first half of 2019, they improved markedly by September 2019, increasing 12.5%, up 11 percentage points from the previous quarter. However, the Retail Trade industry, challenged by the growth of ecommerce, only saw a 0.1% employment increase.
With these economic indicators, Dr. Thornberg projected that Arizona’s economy will continue to expand and add jobs over the next year, with nearly every industry expected to contribute to overall growth.Statewide Trends: Tourism & Real Estate
Other notable state-wide findings from the report:
Tourism: With the addition of 5,600 new jobs, the industry remained strong in 2019, with growth in hotel and motel sales through September 2019, above the post-recession average. As well, the state’s two largest service airports saw positive year-over-year growth in total passengers, even though tourism to state and national parks fell 3.3% in 2018.
Residential Real Estate: Nominal home values in September 2019 reached 96% of their prerecession peak. While median home values increased 5.2%, below the post-recession average of 8.5%, the state’s year-over-year price appreciation in September 2019 outpaced California (1.0%), Colorado (3.5%) and Nevada (2.7%). From January to November 2019, communities across Arizona issued 30,200 new single-family home permits, an increase of 5.85% from the same period in 2018; permitting through November declined nationwide (-1.7%), and in California (-8.9%), Colorado (-6.1%), Nevada (-9.0%), New Mexico (-4.6%) and Utah (-10.0%).
Commercial Real Estate: As the economy and employment in key industries grew, so too has commercial real estate. Although a decline from its peak (3.9% in 2016), rent in Phoenix increased 2.3% from third quarter of 2018 to the same period in 2019. Additionally, vacancy rates through the third quarter of 2019 remained stable (22.2%), which is below the vacancy rate in the Las Vegas (23.0%) and Reno (23.4%) office markets, while above Tucson (21.9%).Getting Local: A look at Phoenix, Tucson & Flagstaff
Understanding local dynamics within the thriving state, the report zeroed in on key regions in Arizona, specifically:
With the largest share of the state’s total labor force (70%), the most populous region of the state continued to outpace every other Arizona MSA, increasing 3.0% to 2.51 million workers from October 2018-2019. While employment continues to surge, it has slowed down from its peak of 4.3% year-over-year in October 2018. The Phoenix MSA added 57,000 jobs, a 2.7% increase, from October 2018 to October 2019 to bring more nonfarm employment to 2.18 million jobs. Phoenix outpaced the statewide average of 2.7%, as well as Tucson (2.6%), Nevada (2.5%), California (-0.3%) and the region’s post-recession average of 2.0%. With an unemployment rate of 4.1% in October 2019, Phoenix is below Arizona’s rate (4.8%) but higher than the nation’s (3.6%). And unlike national trends where constrained growth in the labor supply puts downward pressure on the unemployment rate, the labor force in Phoenix is expanding faster than the increase in jobs, resulting in a leveling off of the unemployment rate. The key industries driving employment growth in 2019 (by percentage increase) were Logistics, Manufacturing, and Construction (9.4% or 8,500 jobs year-over-year since October 2018); Education and Health Care (3.4% or 11,400 jobs year-over-year since October 2018); Professional and Business Services (2.0% or 7,200 jobs year-over-year since October 2018); and Leisure and Hospitality (2.0% or 4,600 jobs year-over-year since October 2018).
Arizona’s second-largest economy also continues to grow steadily, with employment increasing 1.7% from October 2018 to October 2019. The region’s labor force increased 2.7% year-over-year, adding 13,000 new jobs to the labor market, with the largest gains coming in the Education and Health Care supersector, which increased 6.4% year over year in October 2019 with 4,200 jobs. Employment was also bolstered by the Leisure and Hospitality, Manufacturing, and Construction industries, all of which recorded strong growth in October 2019. In addition to the Retail Trade industry declining (-4.8%), Tucson’s employment snapshot also saw two additional industries, which make up a quarter of the region’s total employment base, decline. Administrative and Support Services, and Professional and Business Services fell 3.0% and 2.8% respectively from October 2018 to October 2019. Where housing is concerned, the Tucson market continues to be more affordable than the Phoenix MSA, with median home prices at $214,000 in September 2019. While home sales fell during most of 2017 and 2018, they have regained momentum through the second half of 2019. As well, unlike Phoenix, construction activity in Tucson’s single-family housing market has not picked up following the recession.
While the labor force in the Flagstaff MSA has increased, it recorded the slowest pace of Arizona’s MSAs, increasing only 1.8% year-over-year in October 2019. Employment growth has also slowed with total nonfarm employment increasing only 0.6%, adding 400 jobs to the market. The Leisure and Hospitality industry, the region’s largest sector employing roughly 23% of the total workforce, had the highest employment growth in October 2019 at 6.4%, adding 1,000 jobs. Despite those gains, the remaining industries sustained stagnant or declining employment growth, most significantly the Financial Activities and Professional and Business Services sectors, which had the largest percentage point declines at 6.8% (100 jobs) and 2.8% (100 jobs). From a housing perspective, in September 2019 home prices in the Flagstaff MSA reached $360,000, an increase of 2.4% from the same period a year earlier, which exceeds prices in Phoenix ($271,000) and Tucson ($214,000) MSAs. Overall, home price appreciation has slowed with year-over-year growth falling by 4.5 percentage points from September 2018 to September 2019.
Further details can be found in the Regional Intelligence Report, prepared by Beacon Economics LLC and presented by Alliance Bank of Arizona at the organization’s 2020 Economic Forum. Download your complimentary copy now using the form to the right.
Alliance Bank of Arizona, a division of Western Alliance Bank, Member FDIC, helps business clients realize their ambitions. Founded in 2003, Alliance Bank of Arizona offers a full spectrum of loan, deposit and treasury management capabilities, plus superior service. With nine offices in Greater Phoenix, Tucson and Flagstaff, along with Western Alliance Bank’s powerful array of specialized financial services, the banking division is a valued resource for Arizona’s business, real estate, professional, municipal and nonprofit communities. Alliance Bank’s wide-ranging commitment to giving back to its communities has earned the prestigious Corporate Philanthropy Award from the Phoenix Business Journal. Western Alliance Bank is the primary subsidiary of Phoenix-based Western Alliance Bancorporation, with approximately $50 billion in assets. Western Alliance is again #1 best-performing of the 50 largest public U.S. banks in the new S&P Global Market Intelligence listing for 2020 and ranks high on the Forbes “Best Banks in America” list year after year.