The Tucson metropolitan area continued to expand in 2015, adding jobs, residents and income. Thatβs the good news.
The not-so-good news was that growth was far below rates posted by the state and the nation. Overall, the slow gains were driven by headwinds originating from reduced government activity and low population growth.
The MAP (Making Action Possible) Dashboard website, by the Economic and Business Research Center at the University of Arizona, shows that the Tucson metropolitan area (Pima County) added 2,900 jobs on average from 2014 to 2015.
That translated into a growth rate of 0.8 percent, which was similar to modest growth in 2014 and fell well below the national rate of 2.1 percent and the state rate of 2.6 percent. Growth in the Phoenix metropolitan area hit 3.3 percent last year.
Most of the job gains in Tucson, as usual, were service-providing sectors, like education and health services, leisure and hospitality (tourism), and professional and business services (accountants, lawyers, computer programmers and call centers, among others). Jobs declined in two key sectors: government and construction.
One factor contributing to slow gains in Tucson during the past three years has been fiscal drag, in particular decreased federal and state spending for goods and services produced locally.
Declines in federal spending began with the imposition of the sequester (and other budget cuts) in 2013. State budget cuts affecting local governments and higher education in the metropolitan area are more recent.
These cuts mattered more for the Tucson metropolitan area than for the state or the nation because government activity was a much larger share of the local economy. In Tucson, federal government (civilian and military) accounted for 7.8 percent of local production in 2014, according to the MAP Dashboard.
That was far higher than the state and national shares of 3.9 percent and 3.6 percent, respectively. State and local government was also a far larger share of the Tucson economy, due to the presence of the university.
Housing activity rebounded in 2015, after a weak 2014. According to preliminary estimates from the U.S. Census Bureau, housing permits in Tucson rose by 13.1 percent, with gains spread across both single-family and multifamily activity. The MAP Dashboard shows that median home prices rose by 4 percent last year, which is another hopeful sign. While recent indications are positive, permit activity remains low compared to our own past history.
Local housing markets are dealing with a variety of issues, but one factor to keep an eye on is population growth. The MAP Dashboard shows that the Tucson metropolitan area added 2,209 residents last year, which is just 0.2 percent growth.
In contrast, national population growth was 0.7 percent and state growth was double that rate at 1.4 percent. It is hard to imagine the housing market generating sustained strength without faster population gains.
Whatβs in store for 2016? Look for somewhat faster growth in Tucson, as fiscal drag becomes less of an issue and as population growth improves modestly.
In coming months, be sure to watch the U.S. dollar exchange rate and gasoline prices. According to the Arizona-Mexico Economic Indicators website, the U.S. dollar has been rising rapidly during the past year-and-a-half, particularly against the Mexican peso. This may adversely affect Arizonaβs exports and Mexican-visitor spending in the state.
In contrast, falling gas prices have left more money in household budgets that can be used for additional purchases or saving. A rebound in gas prices would have the opposite impact.
