Arizona economy set for higher growth in 2017

The Arizona Republic

Arizona’s economy is poised to grow a bit faster than the nation in 2017, though a potential U.S. trade war with Mexico could thwart that outlook.

That’s the summary view from BMO Capital Markets Economics, which in a new report sees Arizona’s economy growing 2.6 percent this year compared with 2.4 percent for the U.S. as a whole.

A BMO Capital Markets economic scorecard ranks Arizona 18th overall among the 50 states, the same as in 2016. The scorecard ranking weights four key factors — business conditions, state finances and the labor and housing markets in each state. BMO expects economic vitality to be strongest in the Northwest, led by Oregon and followed by Utah, Colorado, Idaho and Washington.

Arizona is projected to have relatively good business conditions, 12th best overall. This measure reflects population change, exports, bankruptcies and other factors. BMO expects Arizona to place 13th in housing (reflecting prices, foreclosures, vacancy rates and housing starts) and 30th in labor (measuring job growth, average weekly hours, weekly earnings and the state’s jobless rate). The report anticipates Arizona will be near the bottom, 42nd overall, in state finances, which tracks tax receipts, employment, state government financial balances and net pension liabilities.

The report estimates Arizona’s economy grew 2.2 percent in 2016, surpassing estimated U.S. growth of 1.6 percent. Nationally, consumer spending and housing fundamentals remain strong, with business investment poised to improve, the report said.

In Arizona, “Employment, wages and population growth should continue to set new post-recession highs for the state,” said the report authored by Robert Kavcic, a senior economist. “However, despite recent gains, most of the headway has centered in the Phoenix area. In addition, government spending has been a drag on growth over the past three years while construction activity has also been a drag.”

Other trends noted in the report include a gradual reduction in Arizona’s unemployment rate, a slowdown in the housing market and the second-highest net migration for any state, totaling more than 76,000 new residents in 2016.

The study noted that Arizona’s largest foreign trading partner is Mexico, accounting for nearly 41 percent of the state’s merchandise exports. Trade tensions with Mexico emanating from the Trump Administration “are a clear area of risk to the outlook in Arizona,” the report said.