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Expectations Lowered for the Longer Term

ArizonaBy Marshall J. Vest
EBR and Forecasting Project Director

September 1, 2011

In our annual update of 30-year projections, we’ve lowered the forecast significantly. That’s partly due to decennial Census counts that found far fewer residents than expected and new estimates that show population growth currently near zero, a phenomenon that is likely to extend a few more years. Also, there’s realization that fallout from the financial crisis will take a long time – perhaps a decade – to repair. Arizona already has lost a decade of growth, or more, in many industries (as measured by employment). And we are in the midst of losing an entire decade, or more, of population growth, due to low mobility rates. As a result, Arizona’s population will barely top ten million 30 years from now

The recent recession wiped out a decade’s worth of progress, but Arizona’s growth will eventually return and once again rank amongst the fastest-growing states. In our annual update of our 30-year projections, we show Arizona’s population topping 10.2 million in the year 2041. That will easily put Arizona in the top ten largest states. By 2041, nearly four million more people will call Arizona home than live here today. Projections for each 10-year interval for selected aggregate measures are presented in Exhibit 1.

exhibit 1

Highlights of the 30-year forecast include the following:

•Over 1.8 million new jobs will be created in Arizona over the next three decades, boosting the total to 4.2 million.

•Per capita personal income relative to the nation will continue its downward slide from 87% today to nearer 83% thirty years from now. This ratio peaked at 95% in 1971. Per capita income is an aggregate measure comprised of demographics (age structure), wage levels, industry mix, and labor force participation rates. The projected downward trend will keep Arizona near the bottom of all states on this measure.

•Arizona’s employment-to-population ratio plunged during the current recession and will remain well below its peak established in 2000 (43.3%), and after dipping below 37.2% last year, finishes in 2041 at 41.2%. Arizona’s ratio consistently runs 3-4 points lower than nationwide (Exhibit 2).exhibit 2

•As the population continues to age, an increasing share of personal income will come from transfer payments, of which social security is the largest component. The share will rise from 21% today to 26.5% by 2040. Per capita transfers in Arizona today are roughly equal to the corresponding nationwide measure.

•Retail sales relative to income will continue to fall, dropping below 18% from nearly 45% in the early-1960s. An aging population that spends more on services (especially health care) and a smaller portion on taxable goods accounts for the drop. This has serious implications for a tax system heavily reliant on retail sales.

•Over the long term, migration flows will continue to account for the lion’s share of population growth. On average, natural increase (births minus deaths) accounts for one third while net migration provides the remainder. The latter varies significantly, of course, over the business cycle. During the recession, with mobility rates at a six-decade low, migration flows swung deeply negative for the first time in recorded history. By 2015 net migration will again approach 100,000 annually. Natural increase moved significantly lower during the recession due to falling births, but will stabilize at 40,000 new residents annually (Exhibit 3).ex3

•Manufacturing, government, utilities, retail trade and mining will represent smaller shares of total jobs 30 years from now. Manufacturing’s share will decline from 6.2% to 4.0%, government from 17.0% to 14.2%, utilities from 0.5% to 0.3%, and retail trade from 12.3% to 12.0%. Mining jobs will all but disappear.

•Sectors that will gain the largest shares are professional and business services (from 14.3% to 16.7%), health care & social assistance (from 12.6% to 14.7%), and financial services (from 6.9% to 7.7%).

•In our “high” scenario, Arizona’s population reaches 11.2 million in 2041. In the “low” scenario, it is 9.8 million, compared to 10.2 million in the “most likely” scenario. Michigan, the seventh largest state, today has 9.9 million.

•Today, Arizona’s 6.4 million population ranks 16th, just ahead of Tennessee. In thirty years, Arizona likely will overtake Indiana, Massachusetts, Washington, Virginia, New Jersey, North Carolina, Georgia, and Michigan to become the eighth largest state.

•The range for 2041 metro Phoenix population is 6.7 to 8.0 million. Metro Tucson’s range is 1.4 to 1.5 million people. The “Sun Corridor” megapolitan population (both metros -- three counties combined) ranges from 8.1 to 9.5 million.

•By 2041, 71% of Arizona’s population will reside in the Phoenix metro area (Maricopa and Pinal counties). Metro Tucson (Pima County) will account for 14.2%. Today, the shares are 65.8% and 15.3%, respectively.

Arizona was the second-fastest growing state over the past decade, even though population growth disappeared during the recession. Low mobility rates will limit Arizona’s growth for a few more years, but growth will return to more historical levels by mid-decade.ex4

A history of population growth and components of change are shown in Exhibit 4. During the 1970s and 1980s Arizona’s population swelled by nearly a million persons each decade. During the 1990s, a surge in migration pushed the gain to nearly 1.5 million. That pace appeared to be on track until the recession arrived in late 2007. The lack of jobs, accompanied by the loss of mobility due to the fall in housing prices and legislative action to restrict illegal immigration, brought population growth to a halt. So, for the decade just past, Arizona’s population swelled by “only” one-and-a-quarter million. Interestingly, almost half (45%) of the gain was due to natural increase. With mobility likely to remain at low levels for at least a couple more years, we expect population to increase by a little over one million during the “teens”. Our projections show net migration rising to 1.3 million per decade during the 20s and 30s.

Over the next 30 years, Arizona will add 3.6 million residents, or roughly half of the numbers here today. We can only guess what Arizona will be like, but it’s clear that a great deal of change lies ahead.

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