Arizona’s Economic Pulse: Jobs, Wages, and Population Trends

Written by the Arizona Office of Economic Opportunity

The Office of Economic Opportunity (OEO) is sharing this current briefing on economic indicators, including an analysis of the December 2025 employment report (delayed due to the Federal Shutdown), and population estimates for the Nation and states released on 1/27/2025

The Arizona labor market closed 2025 with moderate growth, adding 6,400 nonfarm jobs (+0.2%) in December. While year-over-year (Y/Y) growth remains positive at 24,400 jobs (+0.8%), the pace of expansion has cooled significantly compared to the double-digit growth rates seen earlier in the decade. Notably, Arizona continues to outperform the national average in annual employment growth, unemployment, and labor force attraction heading into 2026.

• Monthly Employment: Nonfarm jobs increased by 6,400 (+0.2%) M/M, driven entirely by private-sector growth.
• Annual Growth: Year-over-year (Y/Y) growth reached 24,400 jobs (+0.8%), outpacing the national average of 0.4%.
• Unemployment: Held steady at 4.3%, remaining below the national rate of 4.4%.
• Labor Force Strength: Added 9,500 people in December alone, signaling continued worker confidence and population-driven support.
• Wage Growth: Average hourly earnings increased 3.5% Y/Y (to $35.10), exceeding the national growth rate of 3.1%.

1. Unemployment and Labor Force Dynamics

• Trend: Arizona’s unemployment rate held steady at 4.3%, remaining lower than the national rate of 4.4%.
• Context: This follows a record low rate of 3.3% in Spring 2024. While the uptick in recent months may prompt questions about a slowdown, several factors indicate a healthy underlying market:
  • National Comparison: Arizona’s rate (4.3%) remains below the U.S. average of 4.4%.
  • Historical Context: The current rate is still lower than the pre-pandemic average of 4.9% (2017-2019).
  • Low Layoff Activity: First-time unemployment claims were down 16% Y/Y, and regular claims were down nearly 19% Y/Y through the week ending January 10, 2026.
  • Labor Force Growth: In December, Arizona added 9,500+ people to the labor force M/M and 92,800+ Y/Y, confirming that the state continues to be a destination for talent, even as hiring speeds normalize.

2. Total Nonfarm Employment

• Trend: Arizona seasonally-adjusted nonfarm employment grew by 6,400 jobs M/M.
• Context: Driven primarily by rebounds from November losses in sectors like construction, trade, transportation & utilities, and health care and social assistance
  • Resuming Trend: These gains represent a continuation of a positive trend prior to the losses recorded in November 2025
  • Annual Growth: Y/Y nonfarm employment growth remains positive (+0.8%), outpacing U.S. growth (+0.4%).
  • Broad Strength: 8 out of 12 industry sectors reported Y/Y growth.

3. Public Sector Erosion

• Trend: Government employment experienced a notable contraction, shedding 1,500 jobs M/M and leading to a significant annual loss of 8,800 positions (-2.0%).
• Context: Losses were spread across federal (-2,700 jobs), state (-4,500 jobs), and local (-1,600 jobs) governments.
  • Federal Impact: Recent job losses are largely a "lagging" indicator reflecting the impact of the spring 2025 buyout programs, which have finally fully materialized in the Q4 data.
  • State & Local Drivers: These losses were primarily driven by contractions within the Education subsectors and state-level restructuring.

4. Construction Sector Performance

• Trend: Construction led M/M growth among the supersectors (+3,900 jobs), contributing to the sector’s largest Y/Y growth in 2025 (+5,700 jobs).
• Context: While one of the main contributors to losses in November 2025, this sector was a primary driver of December gains
  • The "Why":
    • Large-scale construction projects may be completing initial phases. Specialized workers in this sector saw the largest decline of employment in November and the smallest increase in employment in December, while more general construction employment change was positive in November and led gains in December.
    • Firms may be a bit more optimistic for future projects and more hesitant to reduce employment due to a continuation of interest rate cuts by the Fed in December and the implications of further cuts in 2026
  • The Baseline: Commercial and industrial construction, bolstered by major infrastructure and semiconductor investments, continues to prop up the industry while residential buyers await rate relief.

5. Manufacturing and Technology

• Trend: Arizona manufacturing continues to lose jobs (-900 jobs M/M; -2,600 jobs Y/Y).
• Context: Given the high-profile manufacturing investment announcements, these losses require clarification:
  • Short-Term Shifts: Challenges are concentrated in Computer & Electronic Product Manufacturing as firms retool lines for AI-oriented products and retime specific projects.
  • Long-Term Anchor: The 3-10 year outlook remains exceptionally positive, with the semiconductor sector positioned as the state's primary growth anchor.

6. Trade, Transportation, and Utilities

• Trend: This sector gained 1,500 jobs M/M.
• Context: This is a positive deviation from a negative 2025 trend (losses in 7 of the last 11 months), though Y/Y growth remains negative (-1.2% or -7,200 jobs)
  • Sector Split: Gains were led by a strong rebound in M/M retail trade (+2,200 jobs), while wholesale trade, as well as transportation, warehousing, and utilities subsectors reported modest losses.
  • National Alignment: Despite the short-term gain, Arizona's overall retail weakness mirrors the U.S., where Y/Y growth is flat (0.0%), and transportation/warehousing continues to decline (-0.7%).

7. Professional and Business Services

• Trend: This sector lost 500 jobs M/M
• Context: Prior to the loss, this sector recorded growth for four consecutive months and continues to record strong Y/Y gains (+9,800 jobs)
  • Hiring Behavior: This slight contraction could signal a cooling in corporate hiring.

Arizona’s current slowdown is largely driven by three external factors identified by Deloitte, IMF, and Deltek:

1. Elevated Interest Rates: Despite recent Fed cuts, high borrowing costs continue to delay commercial real estate and plant expansions.
2. Global Demand: Slower U.S. and Global GDP growth has limited expansion in trade-exposed industries like logistics and manufacturing.
3. Corporate Belt-Tightening: Uncertainty has led firms to trim spending on professional services (legal, admin, tech support), impacting Arizona’s high-wage service sectors.

Current Rankings (December 2024 - December 2025): Across the U.S., Arizona ranks:

• 20th in Total Nonfarm jobs growth (Y/Y)
• 11th in Private Sector jobs growth (Y/Y)
• 48th in Government jobs growth (Y/Y)

*Note: National rankings are also available on the OEO website here.

Population growth in the United States has slowed significantly with an increase of only 1.8 million, or 0.5%, between July 1, 2024, and July 1, 2025. This was the nation’s slowest population growth since the early period of the COVID-19 pandemic, when the population grew by a historically low 0.2% in 2021. Read the Census Bureau press release.

Slower population growth was felt across the country, including Arizona.

Here are some highlights relevant to Arizona.

• Arizona’s July 1, 2025 population is estimated to be 7,623,818. Arizona remains the 14th most populous state in the nation.
• Between July 1, 2024 and July 1, 2025, Arizona’s population increased by 67,394, or 0.9 percent.
• The largest component of Arizona’s population growth was domestic migration (31,107), followed by international migration (28,219) and natural change (births minus deaths, 7,649).
• Arizona ranked 7th among all states in terms of numeric population change between July 1, 2024 and July 1, 2025 (Arizona was 8th last year). Arizona ranked 8th in terms of percent population change (Arizona was 7th last year).
• The states with greater numeric population changes than Arizona: Texas, Florida, North Carolina, Georgia, South Carolina, and Washington.
• The states with greater percent population changes than Arizona: South Carolina, Idaho, North Carolina, Texas, Utah, Delaware, and Washington.
• Net migration to Arizona (domestic and international) was estimated to be 59,326, which ranked #7 behind Texas, Florida, North Carolina, South Carolina, Georgia, and Tennessee. Net domestic migration was 31,107 and ranked #5. Net international migration was 28,219 and ranked #14.
• Between April 1, 2020 (the last census day) and July 1, 2025, Arizona’s population grew by 465,714, or 6.5%, which places Arizona at #5 in terms of numeric growth or #8 in terms of percent growth.