COVID-19’s Impact on the Arizona Economy

The Greater Phoenix Economic Council (GPEC), City of Phoenix, and Greater Phoenix Chamber of Commerce have recently put out valuable information about how COVID-19 – and federal funds allocated to address the crisis – have impacted Arizona’s economy. Below are some key insights from their analysis to help you stay in the know.

Economic Impact

The economic downturn created by coronavirus has dealt a huge blow to Arizona, erasing all of the state’s job gains since the last recession, making 36 percent of Arizona jobs vulnerable over the next three months (amounting to 1.1 million jobs), and potentially causing 20-25 percent of Phoenix’s small businesses to close by the time the crisis is over. Additionally, Arizona went from 4 percent unemployment pre-COVID-19 to more than 15 percent unemployment, with 560,000 Arizonans now unemployed. This is worse than during the Great Recession when Arizona unemployment peaked at 10.9 percent. No sector has gone untouched by the crisis, but here is how some of the top industries have been affected:

  • Unable to sustain themselves solely on takeout orders, Arizona’s restaurant industry has seen 70-90 percent job losses and sales down roughly 80 percent.
  • Leisure and hospitality, which accounts for 7 percent of Arizona’s GDP, has seen hotel occupancy rates drop 70 percent compared to the same time last year, which has resulted in massive layoffs.
  • When looking at Greater Phoenix commercial real estate rent payments, in April 90 percent of industrial tenants paid rent, 80 percent paid rent in office, and 40 percent in retail. This suggests the industrial market will recover relatively quickly; office will lag behind by about a year with vacancy rates going up and rental rates coming down; and there will be a major shift in the number of retail, restaurants, and event venues and how they do business.
  • Manufacturing has only seen 7-9 percent job losses overall, with a large portion of Arizona manufacturing tied to defense spending and federal contracts.
  • Healthcare, which represents 14 percent of employment in Arizona, has seen some practices shuttering or reducing hours as non-emergency services and elective surgeries went down, but the industry should recover quickly.
  • Home prices in the Phoenix metro went up in March due to a drop in both supply and demand. Phoenix may see a slight dip to a median price of $300,000 in April due to more lower-priced homes (likely short-term rentals) being listed for sale.
  • Some of the state’s largest single employers, Arizona universities get a large portion of their tuition revenue from out-of-state and international students. The University of Arizona projects 80-100 percent of international first-year students will not come to campus due to inability to get visas from closed embassies, and 20 percent of out-of-state students will not return.

Looking toward the future, a modest recovery is expected to begin in 2021 and Arizona can stay competitive as a business destination by increasing testing to boost investor confidence and providing a strong local government response to the crisis.

CARES Act Funding

The U.S. Small Business Administration (SBA) is approving a second round of $310 billion in CARES Act Paycheck Protection Program (PPP) funding after running out of the first round of $349 billion in 13 days. Of Arizona’s 114,000 small businesses, 19,280 PPP loans totaling $4.8 billion were approved in round one (amounting to only 17 percent of small businesses), and, as of May 1, 43,915 round two Arizona loans have been approved for $3.7 billion. This puts Arizona in the top 10 states receiving PPP funding in round two, recovering from 45th in the first round, according to Kimber Lanning, Executive Director of Local First Arizona. Arizona improved its rank in the second round because an increased percentage of loans went through small lenders and community banks with smaller queues of applicants and a larger focus on smaller businesses. Arizona’s dedicated economic development community also valiantly increased efforts to educate Arizona businesses on how to get funding. The City of Phoenix expects two thirds of businesses with 30 employees or less won’t receive PPP or Economic Injury Disaster Loan funds provided under the CARES Act.

For more information on the aforementioned topics, check out the GPEC webinar, Greater Phoenix Chamber webinar, and City of Phoenix Policy Session.

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