Arizona economic growth likely to accelerate, new report says
Economic conditions have improved “dramatically” in recent months for Arizona and the nation, and state-growth projections have been revised upward, according to a new report produced by the Governor’s Office.
But the prospect of rising interest rates and inflation could dampen the outlook a year or two down the road.
“All major indicators now suggest a significant improvement in the rate of economic growth since approximately the end of 2017,” wrote Glenn Farley, chief economist for the Governor’s Office of Strategic Planning and Budgeting in a commentary released Wednesday.
“After averaging just 2.2 percent per year since the end of the recession, current indicators suggest an imminent return to real Gross Domestic Product growth rates of over 3 percent,” he continued.
That would mark a return to more normal growth following several years of subpar expansion following the recession.
The latest reading for the nation shows the economy grew 4.1 percent in the second quarter, and top White House officials, including Treasury Secretary Steven Mnuchin, have said the strong results could continue for at least a couple more years.
Also, leading or predictive national economic indicators monitored by the Conference Board, a research group, strengthened in July.
Arizona has lagged the nation in some respects, such as with an unemployment rate that’s still above the U.S. average.
Farley cited a recent estimate by the Federal Reserve Bank of Atlanta that U.S. economic growth in the current quarter could hit 4.3 percent.
Meanwhile, the Congressional Budget Office and IHS Global Insight project growth of at least 3 percent both this year and in 2019, fueled in part by federal income-tax cuts enacted late last year.
“Rising personal incomes and wages — strengthened by a tightening labor market, faster economic growth and moderate inflation — are supporting a resurgent consumer, which in turn is fueling robust growth in state tax revenues,” Farley wrote.
A preliminary assessment last month by the Joint Legislative Budget Committee indicates Arizona government revenue hit a record $10.1 billion during the fiscal year ending June 30, up 7 percent over the prior year and eclipsing the prior record of $9.6 billion in fiscal 2007.
While prospects for the next 12 to 18 months are strong, the Governor’s Office of Strategic Planning and Budgeting is more cautious for the economy after that, noting that the current expansion cycle is relatively lengthy at roughly nine years old.
Potentially higher inflation and interest rates “could eventually offset favorable job and income prospects, leading to (an interest-rate) tightening that could slow both the economic expansion and the growth in tax revenue,” he wrote.
Russ Wiles, Arizona Republic