The Arizona economy is expected to rebound in the second half of 2016. Real gross domestic product registered a relatively strong first quarter at 2.6 percent, but most likely took a leg down in the second quarter on weaker job growth. Questions regarding the strength of the U.S. consumer due to low U.S. economic performance and financial market volatility may have tapped the brakes on hiring from Arizona employers in the second quarter. The state’s professional and business services sector, linked to U.S. consumer spending, saw employment declines while the financial activities and information sectors saw a significant slowdown in hiring. The good news is that U.S. consumer spending is expected to improve for the remainder of the year. Therefore, we expect the Arizona economy to grow at a faster rate in the second half of 2016 on stronger employment growth.
Aiding in this growth is increased construction hiring, which has been on a tear over the past year. Construction employment was up 8.6 percent year-over-year in July, the fastest pace of growth since the economic downturn. This is consistent with gains in housing starts which also continue to trend upward. Improving incomes, increased credit availability and low mortgage rates will support demand for housing. Additionally, demand for Arizona housing will continue to improve as baby boomers continue to retire. The factors that dampened stronger demand from baby boomers such as a pushed back retirement age, support for an adult child living at home and the recovery of lost homeowner equity will begin to wane.
For a PDF version of the complete Arizona Economic Outlook, click here: AZ Outlook 082016.