What will 2026 mean for Arizona’s economy? What an economics professor predicts

Article originally posted on HERE on December 30, 2025

There are a number of questions facing Arizona lawmakers and the governor as they think about a budget for the fiscal year that starts in July.

Among them: the impact of changes to some social safety net programs, including SNAP and whether to incorporate federal changes — like no taxes on tips — into state law. All of that would impact the amount of money the state has to spend — and on what.

There are also questions about Arizona’s economy overall as we enter the new year.

George Hammond, a research professor in the Economic and Business Research Center in the Eller College of Management at the University of Arizona, talked more with The Show about what comes to mind for him when he looks at what the state’s economy might look like in 2026.

Full conversation

GEORGE HAMMOND: Well, I think we will see somewhat better growth in Arizona in 2026 than we have over the past couple of years. Arizona’s growth has been unusually slow, you know, starting in 2024, and that has continued into 2025. I think what happened was we, you know in 2024, ran out of momentum, recovering from the pandemic and we kind of hit a little period of doldrums. As we’ve gotten into 2025, though, there are different factors at play, and most of these factors originate from economic policies coming out of Washington. Principally, the uncertainty about federal economic policies combined with the impact of tariffs and deportations, reduced international migration. All three of those factors are, let’s say, not conducive to rapid growth. And I think that’s really weighed on economic performance, both nationally and here in Arizona.

MARK BRODIE: Why do you think that 2026 will be the year to see that improvement?

HAMMOND: Well, I’m hopeful that we will see less federal economic policy uncertainty going forward. You know, I think we will see the national economy speed up a bit as things become a bit more certain. Businesses can deal with pretty much any economic policy as long as they have some certainty and comfort with what that policy is. So, you know, I think that as businesses see a more certain policy environment or at least a more stable policy environment, that they’ll be more comfortable both hiring and, you know investing in new plant and equipment going forward.

BRODIE: Regardless of what those policies are, like regardless of what the certainty ends up being, you’re saying as long as businesses sort of, you know, others in the economy sort of know what to expect, things will get better?

HAMMOND: Yes, that’s very helpful. So knowing what the economic policies will be going forward is very helpful in terms of giving businesses a comfort level, in terms of pursuing both hiring and spending. And, you know, the same is true for households, individuals and their spending, particularly those big ticket spending items like cars and houses, knowing what the tax and overall economic policy will be gives people a level of certainty to move forward with those big decisions.

BRODIE: Well, so along those lines, I mean, there have been some surveys recently that show that people don’t really seem to feel all that good about the economy, regardless of what the economy actually is or is doing. People don’t really feel like it’s going well. How much might that impact what actually happens specifically here in Arizona?

HAMMOND: Well, you know, the the vibes do matter a bit. But, you know, what people say they feel sometimes differs from how they really feel that’s reflected in their actions. You know, overall, the kind of job growth that we’re seeing has so far been pretty reflective of what people are saying they feel. I’m hoping that that will improve a little bit as we go through the next year.

BRODIE: One of the things on the state level that’s been generating a lot of controversy and conversation right now is what is usually a pretty nondescript issue of tax conformity. This year, though, it potentially involves all sorts of elements from the one Big Beautiful Bill Act, including doing away with taxes on tips and overtime and things like that. And if the state were to go full in, the economists are saying it’s going to cost the state a lot of money, a lot less revenue coming in. I’m wondering how you see the debate on that, not asking to get into the politics of it, but just from an economics perspective, you talk about uncertainty, like what does that debate and that conversation look like and what does it maybe mean for what the state’s finances could look like?

HAMMOND: Well, I think having economic policy certainty matters at the state level as well, the overall overall, state finances are significantly impact. That creates more uncertainty in terms of the level and type of services that the state will be able to deliver. So, you know there are certainly elements here that can arise at the state level. But, you know, at least in my opinion the big dog and the big source of uncertainty is what’s the federal policies that are coming out of Washington. And that’s where we really need to see the certainty come from.

BRODIE: Do you consider the future of the Affordable Care Act and how people pay for health care and get health care to be one of those elements of uncertainty, maybe even especially in a place like Arizona, where health care is such a big sector in the economy?

HAMMOND: Sure. You know, health care is a big sector of every economy nowadays. And in Arizona, as it has been nationally, that’s been the really the major source of job growth, both in 2024 and in 2025. You know I think given the demographics of the state and the nation and you know frankly the world where we’re the with the aging of the baby boom generation, you know, health care is going to be a sector that will that will continue to grow. You know, the demand will be there. The big questions are how will we how will we pay for that? And, you know, that stuff that will matter going forward. You know, we make some assumptions about that for the model. that Medicaid spending slows, but it still remains a significant part of the overall economy. And we think that healthcare jobs are going to continue to grow just because the demand is going to be there as the baby boom generation ages.

BRODIE: There’s been some conversation at the state capitol going into the 2026 session about, this might have to be a lean budget. There’s not going to be a lot of money for new programs. When you look at what the budget might look like, again, not looking at the political aspect of it, just like the numbers here, what do you see in terms of will there be money to try some new things? Will it be just sort of a status quo budget? Like what do you see for 2026?

HAMMOND: You know, overall, I see economic growth in 2026 as you know a little bit better than we’ve seen over the past couple of years. You know that that can differ a bit across the state revenues, but the you know, kind of the economic performance, I think, will be slightly better. But, you know, overall, Arizona is headed for economic growth over the next decade and the next 20 and 30 years. That’s significantly slower than what we’ve seen in prior decades. And again, that’s, you know, demographics driving that. And those demographics are going to impact not over, you know, overall economic growth, like job growth and income growth, but that will have a, you know, a similar impact on overall state government revenues.

BRODIE: Any sectors about which you are kind of concerned in 2026, any that you think might be losing jobs or losing market share?

HAMMOND: Well, manufacturing is a sector that we continue to watch. It remains weak; it has been losing jobs despite all of the press that’s gone towards the semiconductor sector relocating here and growing here. I do think we will eventually see growth in the semiconductor sector that contributes to overall gains in manufacturing, but we’re definitely not there yet. And the tariffs, you know, in the short run are not conducive to growth in the manufacturing sector either. At least in the short run.

BRODIE: All right. That is George Hammond, a research professor in the Economic and Business Research Center in the Eller College of Management at the University of Arizona. George, thanks as always. I appreciate it.

HAMMOND: Okay. Thanks, Mark.https://www.kjzz.org/the-show/2025-12-29/what-will-2026-mean-for-arizonas-economy-what-an-economics-professor-predicts