Coming up next on this special edition of Arizona Horizon.

It's our year end economic roundtable.

Three local economists will look back on the year in money matters and look forward to 2026.

It's our annual economic roundtable, and it's next on Arizona Horizon.

Arizona Horizon is made possible by contributions from the Friends of Arizona PBS.

Members of your public television station.

Good evening, and welcome to this special edition of Arizona Horizon.

I'm Ted Simons tonight.

It's our annual year end economic roundtable.

And if there's one word that describes the economy in 2025, it's uncertainty.

We've seen job losses and job gains.

We've seen interest rates cuts and increases in inflation.

And we've seen tariffs come and tariffs go.

It's been a busy year.

And joining us now to look back on that year.

We welcome Dennis Hoffman.

He's director of the Seaman Research Institute at ASC Carey School of Business.

Mark Stapp executive director of ASU Masters of Real Estate Development.

And Jim Rounds, president of Rounds Consulting Group.

Gentlemen, good to have you all here.

Thanks for joining us.

Great to be here.

This has meant a lot went on this year Dennis.

Overall, where do we stand right now on the economy up or down.

Yeah.

Well the Arizona economy has been sluggish this year.

I mean, when's the last time we struggled to get to positive job growth for the year?

And that's what 2025 is going to be this year.

It's a struggle to have positive job growth this year.

Okay.

Job growth but other aspects of the economy again up down.

Well this is the irony.

So I look at current barometers like revenue flows.

Revenue flows have actually been pretty good despite, slow employment growth.

Blockbuster in the corporate sector.

The individual income tax receipts are flowing in nicely due to capital gains, primarily, you know, and, sales tax isn't great, but, it's been buffeted by the fact that, you know, commodity prices actually fell over the last couple of years.

It's really kind of a secret, you know, inflation really moderated in, in 24 and in early 25, on the commodity side.

And that's where Sass taxes are coming from overall, Mark, where do we stand?

You know, it's it's I would say we're about 5050.

We asked brokers, we do an annual survey and in March of this year, we asked them what they, you know, what their their feeling, their sentiment was.

And, you know, it was just slightly above 50, a range of 50 that we have an index and, and we just asked them about a month ago, and it's up to 67, but it's buffeted because there's optimism relating to anticipation over interest rates, which has been a big damper.

But by the same token, that is is buffeted by uncertainty having to do with inflation, concerns about, immigration policy, which affects construction workers greatly.

Concerns, about where interest rates are going to continue to go and the cost of construction.

So those things are on the negative side.

And the positive is interest rates have been, you know, coming down.

We just had a more recent, drop.

But where's it going to go.

It hasn't moved.

Interest rates for mortgages that much however interesting.

You know, long rates are actually you know, since the fed started cutting long rates are up.

They are up.

And I think that that's that's a sign of people are uncertain about where our where our country is going, where the economy going.

The investors are buying those rates that it's uncertain thinking about inflation down the road.

They're thinking about a budget way out of balance.

They're thinking about fiscal injection, fiscal policy, injections of tax cuts.

Yeah.

As far as the eye can see.

You know, it's no wonder that they're, you know, that longs are not coming down.

What are you thinking there as an economist, Jim, when you look at everything from I mean, job growth, real estate, all points of the economy, the President Trump says we are in a, quote, golden age.

You know, a plus plus plus.

Well, that's why I said that, too.

But I mean, before you said gave the grade, he said it was a golden age for the Arizona, for the American economy.

Well, I'm the one wearing black, but I'm going to be the optimist, especially for the state.

You look at the national data, you can't listen to the rhetoric.

Don't don't look at the articles.

You got to look at the data.

Employment's been slowing about what you would expect to see, you know, month, the month over month, the US numbers, as soon as it starts falling below 100,000, a month, I start to start to get worried.

I brought that up before, but we could be going in a negative territory soon in Arizona.

I feel like we're going to be a little bit more resilient.

We've had a lot of changes to our economy since, the Great Recession.

Where we were, we were doing really well in terms of job growth, but we were creating low wage jobs.

We had declines in per capita personal income compared to everybody else for three decades.

And then since we did these reforms, we've had nothing but growth.

The question is that I feel like we're going to have is how do we handle the economy slowing, and can we keep this momentum going afterwards?

Because when the economy slows tax revenue slow, it means that we're going to make fewer investments in workforce and other areas that are critical to keeping this economic momentum going.

And right now, I think that we have a risk of losing billions of dollars in tax collections over the next decade if we don't keep up with workforce, if we don't keep land availability, strong.

So many different things drive economic growth.

But I'm still optimistic.

But we need our policymakers to also set it up.

So the private sector can succeed.

Yeah.

And it's talking about, again, the Arizona economy, which you see as troublesome right now have having that having its problems.

I'm trying to primarily labor market challenges.

This no hire no fire is is really kind of unprecedented.

And it's it's reflective to me of an employer that's just kind of frozen.

Well, you know, what's I going to do to me?

How can I take on young workers, especially if I, you know, the young workers I used to take online, put them on training tasks now and have I do that so I don't need to spend any money on, on those young workers.

But is that does that differ in Arizona in any way from the rest of the country?

Well, we're, you know, first half of the year we are number 47.

And in job creation, there was only three states worse, and they were losing jobs.

We were just barely hanging on.

Yeah.

So it's this job growth thing that is, you know, it's the one thing that we can kind of, see, I look for better and we'll get to next year in a moment, I suppose.

I think things will improve next year.

But I think it's been especially tough.

And if I could remind people, we passed the toughest employer sanction bill in the nation in December of 2007.

What happened after that?

Now, was it all as a result of that?

No, but we have, vendetta against undocking demented workers right now.

And that's finding its way into all sorts of nooks and crannies in our labor.

And you had mentioned how it's finding its way into the construction home construction business, but construction overall, construction overall.

I mean, the immigrant population makes up a significant percentage of the construction workforce.

There's no doubt about it.

And, you know, we have we have evidence of what this policy approach does to that segment of the labor force, because we had SB 1070 and it decimated the construction workforce.

It really did.

And we didn't even really fully recover.

And so now we have this on a national level, and it's going to continue to have those kinds of problems.

And what that does is it pushes labor costs up, it pushes time frames out, it creates uncertainty.

In in its, it creates a difficult situation.

That said, we continue to to do fairly well.

Is is our the real estate side of the market doing badly?

No, but it's bouncing along.

It's soft in some areas, but it's generally okay.

And we're not the only state with these additional pressures and building materials or, higher cost labor.

It's just what about the other things?

Are are we doing anything else, like at the local level, maybe that might be restricting development from happening?

In some cases we are.

And but I think it's overstated to some extent.

It's not just the city's fault.

It's it's just an unfortunate situation where it's going to be higher, higher costs for a little while.

But I also, cautious about the rankings because it depends on what you look at.

And this is why all three of us, when we give speeches, we don't have one slide.

That's right.

So we have to so like, for example, we're around 45th in the country.

If you look at year to date, over year to date, if you look at year over year, so the same month compared to the prior year, we're around 8 or 9.

If you look at private sector, we're even better at what the revisions.

Jim had a lobby changed.

Yeah.

And but we're going to be moving in an upward direction.

So it depends what we look at.

So you're going to be hearing about I think this is where it gets political.

It'll be and at the last forecast meeting at the Capitol, I produced the ranking, the 45 ranking number on the slide that I used.

But if you take a look, you have to look at the history.

So after Covid, we had higher rates of growth.

And then we started getting back to normal sooner.

And then the rest of the nation was still catching up.

So they're still catching up when we're already at the top of the hill.

We already won that race.

And so the better states actually fell more in terms of the ranking.

So in that case, the 45 isn't a bad thing.

You look at year over year, it's showing that it's improving in some cases but expect things to weaken.

I do not know if we're going to have a recession in Arizona next year, but I do know things are going to continue to soften.

This isn't the golden era.

This is we're sliding down a little bit further, and there's going to be a lot of tough decisions to make in the state and talk about the impact of semiconductor manufacturing in the Northwest Valley.

I mean, that we all we hear about, we've done many, you know, topics on this, on this particular program in terms of job creation, in terms of the national economy funneling through to Arizona acceleration, the whole nine yards there.

What what do you think, Dennis?

I mean, is that making a difference here?

So I think it it is making a difference now and in several ways.

And there's more to come.

A lot of that vendors supply chain is still going in place in the West Valley.

That's the thing.

It's really neat that that activity is being locally sourced, sourced in them in the West Valley.

I, I can't see individual, corporate taxpayer receipts.

That's very confidential data.

But I can watch public.

Excuse me, I can watch public announcements of, major semiconductor companies, and they're doing really very well.

Are we had a was just an awesome quarter.

And then I can look at daily receipts of estimated payments in the corporate sector.

And October was amazing.

It was it was absolutely amazing in terms of, the receipts that have that have come in, as long as we keep getting those workers and have to keep that momentum going for part of for part of the profits on high tech semiconductors, you know, workers are are our key GM and workers are key to a lot of the economy.

But a lot of these profits, are going to be made.

They're going to be invested in, in the state's general fund.

They can provide money for your workforce development.

What's your what's your absolute which is what we think is going to be needed.

We feel like there's going to be a major shortage, and we're doing everything that we can just to keep up with the worker demand from the recent surge in activity.

The question is, is this going to be a blip when we look back in ten years, or is this going to be the beginning of a long term trend?

But we have to make sure we have energy, again, available land, workforce.

We, we have to be investing in those areas are going to be generating even more revenue for the state.

But we have to show that positive ROI to policymakers.

We can keep this going, but there's a lot that's involved.

We also have to invest in the people themselves.

Right.

So we're talking about companies, but we're looking at growing a place in that place has to support the lifestyle of people.

We want to be a good place to live.

We don't want to be a commodity.

We want to be a community.

We want to have the the infrastructure that supports quality lifestyle, because that's the way you're going to attract more workers and keep them here.

We don't have enough of them and we don't have all of the training programs in place for the particular skills that these workers need.

That's a big part of the the, building up of a workforce that's going to drive our economy into the future, and sticking with you and sticking with what's happening in the Northwest Valley as far as real estate is concerned, what's going on out there?

How is that affecting what's going on Valley wide, and what are we seeing in general?

So for many, many, many, many, many years, for for several decades, you know, the majority of the growth was in the southeast Valley.

That's that's the direction we grew.

And we've we've basically bumped up against a lot of constraints in the the East Valley and the development in some of this has to do with because we built infrastructure like the 3 or 3, the 101 or 2, oh two loops.

Right.

So that growth is going to follow that infrastructure and the growth is moving in that direction, because that's where we have the most amount of available developable land right now.

It's not going to last forever.

And there are constraints to it.

But moving particularly in the north, northwest valley in particular, you're going to see a lot of continued growth, because that's where a lot of the, the significant employment is.

Dennis, when you see the real estate market and you see the fact that it's it's soft, I mean, they're they're just they're it's tough right now.

Existing prices are up and people aren't buying.

The sellers aren't I mean, you know, and we've had Mark on to talk about this as well in terms of the general economy.

The overall economy.

Is that a signal.

Does that say some?

Well, I know my one worry is, on net domestic migration, to this day, and, and data are data really lag data are, are, difficult to interpret.

But I found one study that actually, scrapes these websites that measure how much does it cost to move from state to state.

B they do, you know, analysis of local taxes and, and wages and things like that.

In the year 2000, ironically, or I think this was just pre-COVID, there were, for every two people that were that was looking to say, I want to move away from Arizona to another state.

There were three people looking at coming to Arizona.

So we have a 3 to 2 advantage, in 2025, the survey has 1 to 1 interest down to parity.

And so, you know, I think that there's there's image issues.

I worry about the old image issues, Jim, that you know, attracted me here and there.

Artifacts like Arizona highways.

And, you know, there's this positive image of, of freedom and climate and, great place to do business, affordable land, a great place to raise a family that kind of thing.

And, you worry a lot about workforce.

I know you do, but we've got not just train them, we've got to attract them, and we've got to retain them.

Once we train them.

When we talk about growth and you look obviously look to the future, we can start looking at the future here right now and then a couple of minutes or so.

But with that growth in the past, it almost was like the goalposts were you just really didn't know what was going on because the growth was either explosive or a lot, you know, between the two sounds like things, you know, maybe drifting in different areas right now.

How do you make sure that Arizona's economy is top notch is as best as it can be, when we just don't know about migration and we just don't know as as Dennis mentioned, it's it's not your father's Arizona anymore.

Well, the great thing about economics is that everything gets back to normal eventually.

It's like dumping water on an uneven floor, or the water is going to go to the low spots.

When we go forward, are we going to have housing prices getting back to normal because our economy tanks and there's not enough demand and prices go down, or is it going to be we figure out a way to have the state more affordable as we continue to grow.

Are we going to be having issues related to, we're not going to get the extra workers.

I want to come in here because it's going to take an hour to get, from their house to their jobs, or are we going to be investing in transportation infrastructure?

There's so many things that make the economy tick in.

This is the biggest difference from when I worked at the Capitol, where I remember my first tax cut I had to analyze was a vehicle license tax cut of $20 million.

Did that have an impact on the economy?

Very, very little.

But it was a big deal at the time.

Now we're now we've we've refined the economy in so many different ways on some core areas, like we've already looked at taxes.

You know, I think we've exhausted that, economic development programs have continued to improve.

But now we have to work on things like, more efficient State Land Department, which is going to impact housing affordability and business locations.

We're going to be having to make sure that their support for workforce development.

And it's, again, it's not just a choice, that technical degree or the degree at the university.

It's we need everybody there.

And I think of it as music.

When you adjust those little dials to add more bass or treble, there's all sorts of things that you can adjust.

It's the same way with the economy.

You have to find the right sound because you can't have the lowest tax rate and the most investment in certain areas where you need it.

You have to find the right balance, and we have to find a balance that's good for us.

You think we're on balance now?

I think we are borrowing and doing whatever gimmick we can to keep the current economic momentum going.

But that's what worries me.

I feel like we're resources, we're exhausting that, and now we're going to have some trouble going forward.

So just like when we went through, after the Great Recession and then all the different challenges with Covid, I feel like this next year and the year after that, it's going to determine whether we rocket out of the slowdown or if we're just going to be dragging our feet.

What do you see coming up in the next year and specifically 2026?

But obviously the years ahead in terms of real estate, in terms of housing prices.

And I guess we can we use the word affordability.

I think affordability, I am not sure for this.

Yes.

And affordability, the fact that again, people come to Arizona not because they want to spend more money, they can go to California and do that.

Are we going to become a little bit more like that?

What do you see?

Yeah, I don't think any of the, the things that will cause housing prices to drop are in place.

Number one, I think we're going to continue to see, prices increase.

They're just going to increase slowly.

Okay.

So about 2.5%.

But they're going to keep going up.

They're not falling.

And I think that the overall the housing market is going to be very much similar to what it is right now, next year, about the same number of housing permits, single family housing permits as we had last year, low 20s, you know, to 25,000, which is about what we have this year and in multifamily a little bit less because we pump so much into the, the inventory.

But it's going to cause those vacancy rates to fall, which means rents are going to go back up.

Right.

There's these things that the levers that Jim talks about apply in all sorts of ways in.

The problem is there's no lever that's going to cause our affordability to go.

So substantially down.

It's just not going to happen.

Do you see 2026 or Dennis, what do you see in next year all around and everything regarding job creation, inflation, migration, growth, I mean, are we on a little bit of an incline down or are we ready to start stepping up?

Oh, we got tremendous fiscal stimulus coming in.

Next year.

There's lots of tax cuts that are triggered next year, either by, you know, the changes in deductions, changes and rates, that kind of thing, or locking in rates permanently.

Seniors get, benefits.

So there's injections there.

The Republicans, I think, are going to understand that, they're going to want to make sure that the economy looks as good as possible coming into the midterms.

That's going to be more injections.

My fear really is on the inflation side.

And on the interest rate side.

My my concern is going forward with respect to the structure of the Federal Reserve, who controls the Federal Reserve.

It's been very rare in our history that we've had, politics dominate and, you know, kind of ideology dominate.

The Federal Reserve, which dominated the Federal Reserve, is to get policy right.

And that doesn't mean interest rates go to zero regardless, because that's going to be inflationary.

With too much inflation, you're never going to see mortgage rates come down.

Never.

Yeah.

And that's a that's a good question.

Because of the recent fed cut.

And the idea that the president wants even more interest rates cuts.

But if the inflation doesn't follow, if the if those two things aren't balancing out, what does that mean for Arizona in particular?

But the country in general?

Well, keep in mind there's two major things that are at conflict with one another when when you're dealing with the federal Reserve Board and interest rates, if inflation is going up, then you have to be careful to not drive it up further by stimulating the economy.

But when job growth is going to start to tank, you want to stimulate the economy.

I don't think we fully hit the peak of inflation related to the tariffs because one, there was a delay in implementation.

We have not to businesses don't want to be the first ones to raise their price.

And they wait a little while.

I feel like we're going to see inflation at a decent rate.

And not not like what we saw before, but, you know, 4% plus probably.

And if that's the case, the Federal Reserve Board is going to have its hands tied.

They need to act now.

So the the the recent cut, I feel like they're going to have to maybe do something in 2026 as well.

But because of the way these numbers are going in the opposite direction, they're probably going to have to just sit on their hands for a little while.

I think they might have missed their window to make another another cut.

Yeah.

And the idea of tariffs, we haven't even had a chance to talk about that.

And we're running out of time here.

Tariffs.

It's basically it's a tax increase of course.

And and by another name here.

Does that start hitting after the holiday shopping.

When do we start seeing companies make those changes.

You know, I, I think that there's certainly there's been a delay.

Right.

So they're absorbing a lot of it.

Their profits have been still.

Okay.

They can do that.

But there comes a point where you're just not going to continue to absorb them.

And if you start to make the consumer pay, it's going to be a problem.

And it's going to happen right as the midterms are.

Well, the question is, you're right.

You're talking about drip, drip, drip.

It's going to they're going to come out.

But the more of this pressure is the economy the more it we've everybody's learned that voters hate inflation.

That cost Mr.

Biden and the Democratic administration their positions vote them out.

That caused inflation.

Mr.

Trump's administration now is here to rescue us from inflation.

There's going to be some real payback if they don't.

If voters don't believe that, the administration's moving.

So they may just carve out, you know, we're seeing this with food, right.

You know, $12 billion to the.

Well, but then, you know, then we're going to bail out, you know, the, the farmers.

But but if you keep doing that, the whole idea was we're going to collect all these tariffs, which is then revenue that we get to use.

But all you're doing is using it to bail out, to bail out people that are affected by the policy.

And at the same time, we're increasing our, our deficit.

And that was supposed to be used to reduce the deficit.

Yeah, yeah.

Hey, guys.

I'm we're running out of time.

But real quickly I bear or bull for next year.

Arizona's overall economy.

Dennis, we're starting with you all.

I'm quite bullish on Arizona's economy.

I don't think we're going to be zooming rocket ahead, but we will persevere.

I I've always had the long run faith in the Arizona.

Kind of got to make it very quick.

What do you think?

I think it's very much the way it was this year.

I don't I don't see huge improvements.

What do you think a soft landing next year, great growth after that if we do the right thing.

All right, gentlemen, great conversation as always.

Good to have you here.

Thanks for joining us.

That's it for now.

I'm Ted Simons.

Thank you so much for joining us on this special edition of Arizona Horizon.

You have a great evening.