There has been a lot of economic uncertainty over the past several months, both in Arizona and around the country.
Questions about the impacts of tariffs, increased immigration enforcement and tax policy have led to questions about how the economy will respond.
A recent headline on an economic report from the University of Arizona says "Arizona’s Economy Hits Turbulence." George Hammond, director of the Economic and Business Research Center in the Eller College of Management at the University of Arizona, wrote that report and joined The Show to talk about it.
Full conversation
MARK BRODIE: George, how would you right now describe the state of Arizona's economy?
GEORGE HAMMOND: Arizona's economy is growing. We're adding jobs, population, income, but particularly for jobs, the job growth last year, especially, was unusually slow. 1.3%.That was equal to the national average. And it was the slowest rate of growth that we've seen in Arizona since 2011, when we were coming out of the Great Recession.
Job growth was even slower in Tucson, actually. We saw net job losses over the year in Tucson with a decline of just over 2,000. So overall, the state's still growing, but we lost some momentum last year, that's for sure.
BRODIE: Why do you think it is that job growth was slower last year than it had been?
HAMMOND: Well, that's a bit of an open question. I think it's, it probably boils down to all of that federal fiscal stimulus that was flowing through the economy as we came out of the pandemic. Finally, it is completely out of the system, yeah. And, you know, that left the states in a little bit of a doldrums.
BRODIE: Well, so given that, that money is likely not coming back is, as you described, with the doldrums, sort of the new normal.
HAMMOND: I think we're in the same kind of situation in 2025, although for different reasons. I think we'll see growth this year in the state economy. But I think it's going to be slow. I think, you know, job growth in 2025 statewide is going to be about the same that we saw in 2024.
And I think what's driving that, in large part, is the macroeconomy policy uncertainty that's being driven by the current federal administration, you know, over things like tariff policy, like, you know, mass deportations, the federal spending and job cuts.
BRODIE: Yeah. I want to ask you about that, because, you know, we've been hearing, obviously, about some of the challenges that policymakers, state lawmakers are having in terms of trying to craft a new state budget, not necessarily knowing how much money they'll have, to work with because of some of that uncertainty, coming from Washington, D.C.
When you look at the overall state economy, how much does that level of uncertainty factor in?
HAMMOND: It factors in a lot. You know, Arizona is subject to those same uncertainties that are affecting the national economy. And, just like people all around the all around the country, and to some extent all around the world, you know, when the when the economic policy environment or the macroeconomic environment is particularly uncertain both firms, and businesses and individuals and households, tend to hold back on making big purchases like, you know, investing in, in plant and equipment or, you know, buying a new car in the case of households.
And it's that lack of spending that tends to lead to a slowdown in economic activity. And that's what I think we're going to see through the second half of 2025.
BRODIE: Inflation has been such a big topic of conversation over the past few years. It seems as though that's maybe not such a big concern. In parts of Arizona as it has been in the past.
Is that fair?
HAMMOND: Yes. Inflation is one of the good news stories. In the current performance statewide, Phoenix is where we have data, but I think we're seeing the same trends across the state.
But, Phoenix inflation has been below the national average for about the past year and a half. Consumer prices in Phoenix were barely up over the year in April, and they were up 2.3% nationally.
We have seen some firming in consumer commodities prices. So they're think of new and used autos, gas, food appliances, apparel and I think we're going to see those prices rise at a somewhat faster pace going through the rest of 2025 as the tariffs really start to bite.
BRODIE: Let's talk about tariffs for a second. Because, you know, going back to some of that uncertainty, is it possible to sort of project out what the impact of tariffs might be on Arizona's economy when we don't really know what the tariffs are going to be, much less what their effects might be?
HAMMOND: Well, this is a common situation for forecasters. We have to make some guesses about what the policy will be going forward. And, you know, there's no shortage of those sorts of projections for the national economy.
But, you know, if, if the the tariffs that are, that are currently being discussed and are currently in place, you know, actually come to fruition, we're looking at, accelerating inflation, you know, probably not, anywhere near the, rates of inflation that we saw coming out of the pandemic.
And we're looking at significantly, you know, slower U.S. real GDP growth. And that will, you know, that will slow down the state as well. So, you know, tariffs are a drag going forward.
But it's really the uncertainty about the tariffs and the impact that that has on current spending by businesses and consumers. That's really the big concern.
BRODIE: Sure. How much does consumer sentiment matter in all of this? I mean, we've seen, you know, consumer confidence surveys from the University of Michigan show that people don't feel all that great about the economy. Like how much does that matter in terms of the actual performance of the economy?
HAMMOND: It can matter quite a bit, how people feel about the economy affects their spending decisions. If they feel confident about how things are going and how things will go in the future, they're a bit more likely to make some of those large, spending commitments. Same for businesses.
But it's not everything. You know, the, the, the vibes can be significantly negative. And, you know, if people actually look at their budgets and, and, and see that the facts look pretty strong, then they're more likely to engage in that kind of spending, even though their worries may be a bit elevated.
So, you know, we have seen big declines in consumer sentiment related to what's going on with federal economic policies. But we'll have to see how that translates into the kind of hard data as we go through the next couple of months.
BRODIE OK. So, George, before I let you go, I've got to ask you about [recession]. Because there's been so much talk over the last how over many months it's been about, is a recession on the horizon, is it not? If it is, how big of one will it be?
What does your gut say right now? What do your forecasts show in terms of whether or not the U.S. might be headed toward a recession?
HAMMOND: Well, our forecasts assume that the odds still favor continued growth. So we give our baseline forecast a 50% probability, a recession scenario. We give a 35% probability, and we, you know, we still hold out hope that there's a 15% chance that things will be even better than we think under the, under the baseline.
And kind of the story of our baseline forecast is that, you know, after two years of subpar growth here in Arizona last year and this year, we really get back on track in 2026 and 2027.
