A panel of economists and state analysts who spoke after the JLBC October forecast described a mostly moderate economic outlook for Arizona but warned of downside risks from tariffs, slower hiring, high housing costs and possible federal policy changes.

Jim Rounds, a returning JLBC alum and guest commentator, told the Finance Advisory Committee that a mild recession would cut FY2028 revenue materially and that independent stress tests by different analysts produced similar shortfall estimates. He and other panelists urged policymakers to focus on implications for revenue collections and program demand rather than on rigid calendar definitions of recession.

Employment and statistical revisions
Doug Walz, Labor Market Information Director at the Office of Economic Opportunity, said preliminary Bureau of Labor Statistics (BLS) benchmarking indicated Arizona likely underestimated employment through March 2025 by about 35,000 jobs. Doug said that while the national benchmark revision is expected to show downward revisions for many states, Arizona stood out as likely to see an upward revision that will be reflected in the January 2026 data release.

Despite that likely upward revision, multiple panelists said recent job growth has slowed in Arizona because firms are hiring less frequently — a fall in the hires rate — even though unemployment and labor force measures remained relatively strong. George Hammond (University of Arizona) noted that healthcare accounted for a large share of the state’s recent gains and warned that narrowly concentrated growth raises risks if that sector weakens.

Housing and household finances
Panelists widely cited housing affordability as a structural challenge. Hammond summarized national estimates showing median housing cost burdens in the U.S. at around 50% of median income for a mortgage at the median price; Phoenix and Tucson are in the high‑40s by that measure. Panelists said that elevated construction input costs and prior policy‑era stimulus raised home prices, which will not be solved only by lower interest rates.

Tariffs, inflation and monetary policy
Jim Rounds and others discussed tariffs as a source of future price pressure. Panelists said tariffs operate like a tax that will be passed to consumers and can raise inflation even as employment weakens, creating a difficult policy tradeoff for the Federal Reserve. Several panelists urged that the Fed consider timing for rate reductions carefully because any uptick in inflation could limit the Fed’s ability to cut while preserving labor market stability.

Policy recommendations and priorities
Panelists suggested the state concentrate on high‑return investments and regulatory changes that support workforce participation and reduce costs without large one‑time spending. Rounds and others recommended more strategic, longer‑term planning and greater use of return‑on‑investment analysis for taxpayer dollars; examples offered included childcare access and transferring some functions off the general fund to trust funds where appropriate.

What to watch next
- Benchmark revisions from BLS due January 2026 for March 2025 data.
- JLBC January forecast update at session start, which will incorporate new agency and DOR modeling on HR 1 conformity and any updated employment figures.