Phoenix-Area Economy Expected to Slow, Not Stall, Despite Recession Worries

Rising grocery prices, higher mortgage rates and headlines about layoffs have left some Phoenix-area residents bracing for harder economic times. Local economists say the Valley's outlook is more resilient than the talk of recession might suggest.

Concerns about a downturn grew louder after Amazon, Google and Meta, the parent company of Facebook, announced that more than 40,000 employees would lose their jobs. During a webinar hosted by the Greater Phoenix Economic Council, Steve Wyett, chief investment strategist for BOK Financial, put the roughly 175,000 recent tech layoffs in perspective against a national labor force of 164 million. He said the cuts amount to perhaps a tenth of a percent of that workforce, which is "not really indicative of a weakening labor market."

Wyett added that many laid-off workers appear to be finding new jobs quickly, noting that unemployment remains at a cycle low of 3.5%.

Arizona has regained all the jobs it lost during the pandemic and added about 100,000 more. Kristen Stephenson, a senior vice president at the Greater Phoenix Economic Council, said job growth in the Valley is expected to slow somewhat over the next couple of years. Even so, she said greater Phoenix and Arizona are forecast to "float along the top" of any national recession, experiencing "more of a slowdown than an actual deceleration in growth."

Population growth is one reason, since it creates demand for health care, retail and restaurant workers. Another is the lesson of the Great Recession, when Arizona absorbed the brunt of the housing collapse. Since then, elected officials and business and economic development leaders have worked to diversify the economy so that a hit to one sector does not feel like a tsunami. Stephenson said manufacturing, which includes computer chips, electronic products and transportation equipment, now employs as many people as the construction industry. Software developers rank among the top 10 growing occupations, with the field expected to grow 19% over five years and add 5,000 jobs in the state.

Pay remains a sore point. Median wages in Arizona have historically trailed national figures, and although the gap is narrowing, the cost of living is 6% above the national average, largely because of housing.

On housing, Tina Tamboer, senior housing analyst at the Cromford Report, said the market has returned to favoring sellers, "just barely." Over the past month, demand has picked up while supply has fallen, in part because recession fears have made investors wary and led them to pull back from flipping and selling homes. Owner-occupants have been returning since June and now account for between 70% and 75% of purchases, a normal range, she said, in place of the cash investors who once dominated.

As of mid-January, Tamboer said, buyers could find the best deals in Goodyear, Buckeye, Queen Creek and Maricopa. Negotiations are also changing: sales are now closing at about 3.5% below the last list price rather than rising above it.

The data from the webinar, held the previous week, offered only a snapshot. The Federal Reserve is expected to raise interest rates again, aiming to slow the economy and bring down inflation without causing major job losses. The Federal Reserve Bank of St. Louis describes a recession as a significant decline in general economic activity over a period of time, with two consecutive quarters of contraction a common rule of thumb. The National Bureau of Economic Research, a group of economists, determines the official start dates of business cycle phases, and its announcements have historically come anywhere from 6 to 21 months after the actual change.