Phoenix outpaced the nation both in wage growth and employment growth last year, as cooling inflation and a more balanced job market nationwide can be expected to carry into next year.Economists speaking at the Greater Phoenix Chamber’s Economic Outlook discussed what to expect on the national level, and how Arizona is faring with job creation and addressing its housing crisis. Overall, the outlook was generally optimistic, previewing a healthy economy for the upcoming year, with some concerns about curbing inflation.The Federal Reserve is expected to lower the federal funds rate at its meeting next week, which could further reduce interest rates.Nationally, inflation is still higher than the Federal Reserve’s target of 2%, but it has slowed after peaking in 2022, Steve Wyett, chief investment strategist for BOK Financial, said. Slowing inflation does not mean prices are going down, it means they are increasing at a slower rate.“Getting to that 2% target is going to be a little difficult going forward,” Wyett said.Since the pandemic, consumers’ purchasing power has decreased by 20%, Wyett said, because consumers feel the aggregate of inflation over the years, so even slowing inflation means prices have increased year-over-year.Historically, he said, peaks in inflation have come in multiple waves, often with the second wave higher than the first. A slow action to lower interest rates from the Federal Reserve is an action to minimize the risk of a second wave, he said.However, getting inflation under control is important, because people who cannot afford an increase in prices are most vulnerable.“Inflation is an insidious tax that hurts those who can least afford it the most,” he said.Job market balancing after major labor shortageWyett said the job market nationally has gotten more balanced, and there are no indications of a looming recession.Nationwide, he said, two years ago there were two job postings for every unemployed person, meaning there were far more jobs available than people to potentially fill them. Now, there are about 1.1 job postings per unemployed person.However, slow population growth in the U.S. of American-born people could be a limiting factor for national economic growth, he said.“Labor is the raw material for economic output, and we are going to need more output,” he said. “The balancing act is going to be immigration.”The national labor supply from immigration slowed sharply during the COVID-19 pandemic, but has seen a rapid increase since then, he said. However, the level remains close to the trend it has been on since 2008.Arizona seeing major growth in ‘onshoring’ supply chainThe pandemic also led to a national effort to “onshore” or “near shore” the supply chain for many industries, after companies found they were too reliant on shipments from countries like China that were disrupted. In early 2024, the country’s imports from Mexico exceeded its imports from China for the first time in more than 20 years.In Arizona, the effort to attract major employers from overseas, along with their supply chain, has led to “explosive” growth in the semiconductor industry, Sandra Watson, CEO of the Arizona Commerce Authority, said.Since 2020, both Taiwan Semiconductor Manufacturing Co. and Intel have announced massive capital investments to either establish new locations in the Phoenix metro or significantly grow their footprint. TSMC’s $65 billion plant in north Phoenix is the largest foreign direct investment in the state’s history.Along with the semiconductor industry, Watson said Arizona has seen an influx of companies in battery technology, automotive manufacturing, data centers and renewable energy. The continued diversification of the economy makes the state more resilient and able to recover from any economic downturn than it was in 2008. At the time, Arizona was one of the slowest states to recover from the Great Recession.More homes could benefit affordabilityAfter years of record rent increases and housing price increases, the metro’s housing market could also be cooling slightly, with more supply coming to the market, Orphe Divounguy, senior economist for Zillow, said.“Supply is going to be the way we improve housing affordability,” he said.Phoenix is among the top markets in the country for new permitting for single-family home construction in the last five years, Divounguy said, and new listings for home sales are up 5% year-over-year, he said.“Phoenix is more expensive than a lot of places, but the fact that you’re building so much really bodes well for the area,” he said.Some affordable housing projects have been stalled or rethought because of local opposition across the Valley, creating challenges for some cities to serve that segment of demand.Divounguy said he is not expecting to see a major drop in mortgage rates, regardless of the upcoming lowering of the federal funds rate from the Federal Reserve. Markets are forward-looking, he said, meaning that lenders are already building anticipated rate changes into their offerings.Reach the reporter at cvanek@arizonarepublic.co …
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