Arizona is projected to see an acceleration in economic growth

The Governor’s Office of Strategic Planning and Budgeting (OSPB) released its 2018 Summer Economic Outlook this week. It projects that Arizona will have “strong and accelerating growth” in the coming years.

“With increased consumer confidence, low unemployment, rising wages and record state revenues, it’s clear — Arizona’s economy is booming,” Governor Doug Ducey said in the press release. “Arizona owes its continued economic growth to the hard work of our state’s entrepreneurs and job creators.”

The Summer Economic Outlook is a continuation of positive reports by state fiscal observers. Recently a Joint Legislative Budget Committee (JLBC) update stated that Arizona has seen record-breaking General Fund revenue numbers.

“Arizona’s economy is booming. Digging ourselves out from the impacts of the great recession was not easy, but our state is back on the right track,” said Governor Ducey in the JLBC report. “By getting government out of the way of job creators and entrepreneurs, Arizona’s economy continues to experience record growth.”

According to the Summer Economic Outlook, during the recession Arizona had an unemployment rate of 11 percent. Now the state is seeing an unemployment rate of roughly 5 percent – the lowest rate since 2007.

The Outlook suggests that the nation’s gross domestic product (GDP) will see a significant increase to 3 percent, compared to the post-recession average of 2.2 percent growth.

In a memo, the OSPB Chief Economist Glenn Farley said that “all parties agree that the recently enacted federal Tax Cuts and Jobs Act is at least partially responsible for the improvement.”

In the report, OSPB estimates that through June, “Arizona’s General Fund revenues have increased by 7.1 percent over the prior year and more than $120 million above the state’s recently enacted budget. JLBC estimates revenues grew approximately $400 million above its January Baseline forecast. And, Arizona’s total employment is at an all-time high with nearly 240,000 new jobs created since 2015.”

Arizonans have increased consumer confidence due to seeing their personal incomes rise.

However, with the booming economy comes risks. OSPB is cautious about the economy beyond the next 12-18 months. According to OSPB, due to inflation rates picking up, target rates rising, and treasury spreads falling, the possibility of a normal business cycle returning looms.  

“While consumers remain confident due to rising incomes, there is a marked divergence in the data when consumers talk about future inflation and interest rate expectations,” Farley said. “Sustained by the Federal Reserve, higher future interest rates and prices could eventually offset favorable job and income prospects, leading to a tightening that could slow both the economic expansion and the growth in tax revenue.”

The OSPB said they will continue to monitor the risks to ensure Arizona is prepared for any economic changes. For the full report, click here.