State economists say 90% of Arizonans are slowing spending

Economists say 90% of Arizonans are spending less as the cost of goods rise.

Members of Arizona’s Finance Advisory Committee say the top 10% of earners are doing most of the spending right now.

"The basic story hearkens back essentially to income inequality where we seem to be back to a situation where the lower-paid occupations are seeing less wage growth and a lot of the wage growth is being experienced by the higher income cohorts," according to George Hammond, a University of Arizona professor and economist.

A big chunk of the state’s general fund is financed by sales taxes. So lower spending from most Arizonans could mean state programs won’t receive as much money as anticipated in this year’s budget.

The committee also noted that tariffs implemented by President Donald Trump could lead to even slower consumer spending.

But at the same time, Richard Stavneak, director of the Joint Legislative Budget Committee, said warned that there are increasing costs headed this way.

That includes the normal year-over-year changes in things like state aid to schools due to inflation and enrollment growth and more people and higher costs for the Arizona Health Care Cost Containment system.

Then there are the unexpected things, like the state being penalized $139 million because of its error rate in determining whether people are eligible for food stamps.

And none of this considers what happens if Arizona alters its tax code to conform with the tax cuts in HR 1, the "big beautiful bill'' enacted by Congress earlier this year.

So all that means consumer spending will need just to keep pace -- and pay state sales taxes on their purchases -- to finance all the new and additional expenses . Only problem, the economists from across the spectrum of private and public sectors who serve on the Finance Advisory Committee concluded, is that not everyone is doing that.

Randie Stein called it "a tale of two economies.''

"The spending on the consumer side seems to be happening in the upper 10%,'' said Stein, who works for the the investment banking firm of Stifel, Nicolaus & Co. "The rest of us are trailing off.''

And that, she said, isn't good.

"There's a lot of us in the lower 90%,'' Stein said.

"And that group is cautionary with their spending,'' she explained. "We may already be seeing that in the economic data.''

She's not alone.

Ben Henderson, the budget director for Gov. Katie Hobbs who will be helping her prepare a new spending plan for the fiscal year that begins next July 1, said there are reasons for concern. And the key is "who is spending'' in the Arizona economy.

"What we're beginning to see is folks that are particularly well off, the kind of folks in the to 10% of income, are the ones really keeping consumer spending going,'' he said.

"But if you tend to be of lower income status, meaning you're not doing as well, your spending might be petering off,'' Henderson said. "And that might be an indication of the economic activity that we have to look forward to over the next few years.''

What's behind all this, according to Hammond, is income inequality.

"The stock market's been in pretty good shape,'' he said. But that largely helps the folks who already have the higher incomes and are invested in the market, giving them more money to spend.

Hammond said there are other factors that hold down income growth in Arizona. Consider, he said, the manufacturing sector, which tends to have higher wages.

"We hear a lot about TSMC and all the jobs they have brought,'' Hammond said, the expanding operation to manufacture the latest generation of computer chips. But what's not mentioned, he said, are job losses at Intel.

"And you don't hear as much about the other manufacturing sectors that I think are dealing with elevated interest rates holding down demand for goods,'' Hammond said.

Not everyone sees the spending patters as linked directly to income.

Alan Maguire, president of an economic and public policy consulting firm that bears his name, said demographics also are involved in who is spending and who is not.

He said those raising families are using their cash for daily living expenses and setting aside cash. But he said something changes when folks get older.

"You have more money than you did your whole life,'' Maguire said. "You start going on trips, you start going to visit the grandkids.''