Arizona Economic Development Outlook for 2021
Despite the rollercoaster of economic uncertainty that permeated 2020, Arizona weathered the storm better than the nation at large and even had some bright spots in sectors such as transportation, manufacturing, retail, and technology. Additionally, there has been a boom in industrial real estate during the pandemic as many people shifted their buying online, bolstering an already strong industrial market.
In this special feature for our newsletter, we are excited to bring you updates from two leading Arizona cities – Phoenix and Surprise – which highlight the major business growth areas they anticipate in 2021. Additionally, we provide data summarizing Arizona’s current and forecasted economic recovery, as well as economic development insights for 2021.
Arizona’s Economic Recovery
According to the University of Arizona Eller School’s recent year end economic report, Arizona’s economic recovery continued in the third quarter, although at a much slower pace than during the April-June period. More than $40 billion in federal relief funds flowing to the state in the second quarter boosted the recovery in retail trade, warehousing, and transportation jobs. And while construction employment rose modestly from June to October, housing permits surged, rising almost one-third over the year in the third quarter.
Overall, by October 2020, the state had replaced 193,900 of the 294,600 jobs lost from February to April, for a 65.8% replacement rate. By contrast, the nation had replaced 54.5% of the jobs lost from February to April. Arizona jobs are expected to decline by 2.0% in 2020, on an annual average basis, and rise 4.3% in 2021, with a return to pre-pandemic employment levels by mid-to-late 2021.
The Arizona economy has recovered faster than the U.S. and many states, and population growth has remained solid, which supports construction activity. Solid population growth is likely to continue as Arizona’s relatively low cost of living, strong job growth, and natural amenities draw migrants from other states.
Economic Developers Cautiously Optimistic
Despite employment uncertainty and economic challenges posed by COVID-19, Arizona maintained strong economic momentum in 2020. This past year, industry-leading companies committed to creating more than 24,000 jobs and $14 billion in capital investments in Arizona. As of December 2020, the Arizona Commerce Authority (ACA) reported their pipeline of companies looking to locate to Phoenix to represent more jobs than roughly the same number the previous year.
Prior to the pandemic, Arizona led the nation in economic and population growth. This momentum, combined with a substantially diversified economy, fiscal stability, and attractive value proposition, has helped Arizona weather the storm during the pandemic.
In fact, with the pandemic exposing weaknesses in supply chains worldwide, Arizona’s economic development leaders are experiencing an incredibly high degree of activity and interest in Arizona from companies in the manufacturing sector that are re-evaluating their global footprint. Manufacturing projects currently make up nearly 58% of the ACA’s total pipeline and economic developers project continued strong industrial sector growth due to reshoring considerations, but also proximity to the California market, accessible infrastructure, an abundant workforce, and affordable real estate options. Additionally, the location of Taiwan Semiconductor Manufacturing Co. Ltd. to Phoenix—the largest foreign direct investment in Arizona’s history—is expected to create 1,900 jobs and act as a catalyst to attract further semiconductor manufacturing. Other emerging sectors, like data centers, have also been booming as the need for data storage and streaming capacity grows.
These encouraging trends do not take away from the many painful economic losses the travel and tourism industry and small businesses have shouldered during the pandemic, but they certainly bring some buoyancy to the new year and provide us with a lens through which to view Arizona’s business prospects.