After two uneven years, Tucson enters 2026 with an economic outlook that economists herald as . . . well, modestly improved.
Not booming, not buoyant — simply better than 2024 and 2025. Growth is expected to return, though by increments, and business leaders appear more willing to make decisions that were put off during a period of federal policy uncertainty and rising costs.
The consensus: Tucson is moving forward again, but no one is exactly sprinting.
Much of the region’s slowdown in 2025 can be traced to national forces that landed here, with predictable effect: High interest rates, tariff disruptions and labor market strain tied to federal immigration enforcement. The result was a year in which employers hesitated, projects stalled and hiring flattened.
“Interest rates are a headwind,” said Dennis Hoffman, director of the Office of the University Economist at ASU. “Tariff uncertainty froze many development projects, and of course construction labor markets were challenged by federal immigration policies as well as our own Prop. 314.”
Proposition 314, approved by Arizona voters in 2024, added new state-level penalties related to unlawful entry and expanded immigration enforcement authority. Because Arizona’s construction workforce relies heavily on laborers from Mexico with mixed immigration status, the measure introduced additional uncertainty for employers already struggling to fill crews. “We need immigration policy reform,” said Hoffman, “and more opportunities for legal term employment contracts.”
Hoffman expects conditions to be slightly more manageable next year, though he admits that’s a low bar. “We will improve, since growth in the labor market was near zero in 2025. Likely fewer tariff tantrums, and hopefully less pressure from federal immigration enforcement operations.”
But risks remain — including the possibility of a national recession — and Hoffman notes that the uneven recovery seen nationally has produced what economists call a “K-shaped” landscape, where higher-income households regain ground while lower-income workers fall behind or struggle to keep up.
“The rich are getting richer and the rest are hanging on by a thread or just plain struggling,” he said. “Hopefully the worm turns in 2026.”
Arizona’s statewide forecast follows the same arc. Job growth slowed in 2025, domestic migration eased, and the surge of business relocation announcements from earlier in the decade leveled off. With inflation moderating and federal policy showing fewer abrupt swings, economists expect a moderate pickup in hiring and investment next year.
New residents continue to arrive, though at a slower rate, and the state’s high-tech manufacturing base in the Phoenix West Valley remains one of its most durable growth engines. But the statewide gains will not be evenly distributed, and Hoffman emphasizes that Arizona still needs stronger job creation to support its long-term demographic and fiscal outlook.
“We had a rough year in the job market,” he said. “In contrast, income tax — both individual and corporate — is doing very well.”
Locally, the 2026 forecast improves as well. After two soft cycles, Tucson is positioned for gradual expansion, with hiring expected to tick up and investment activity likely to resume in key industries.
“My forecast calls for Tucson’s economic growth to modestly accelerate next year,” said George Hammond, research professor at the UA Economic and Business Research Center. “Tucson’s growth will likely be slow next year, but better than during 2024 and 2025.”
The through-line in Hammond’s forecast is predictability — or the return of it. “In an unpredictable policy environment, businesses hold off on hiring and investing in new plant and equipment,” he said. Predictability, even at modest levels of national growth, gives employers permission to move forward.
“If the federal economic policy environment is more predictable going forward, businesses should be more comfortable hiring and investing in new facilities.”
Hammond expects Tucson to mirror the statewide rebound, with reduced policy turbulence serving as the primary catalyst. As for which sectors move first, he’s betting on the reliable standbys — health care and service industries.
Health care is expected to lead Tucson’s job growth in 2026, with steady gains across hospitals, clinics and outpatient services. “My forecast calls for health care to add the most jobs during the next decade,” Hammond said, “followed by leisure and hospitality, trade, transportation and utilities and financial activities. Manufacturing is also expected to add jobs going forward, as is natural resources and mining.”
These increases are not dramatic, but they signal a return to normal operating conditions.
Tucson’s economic trajectory continues to hinge on two institutions with outsized influence, according to Hammond: “As Raytheon goes — and the UA goes — so goes Tucson’s economy.”
Raytheon/RTX remains the region’s most significant high-wage employer, and the University of Arizona continues to drive workforce development, applied research and early-stage technology activity. Their combined stability tends to soften local downturns and anchor long-term prospects.
The region’s innovation ecosystem also factors prominently into the 2026 outlook. Carol Stewart, vice president of Tech Parks Arizona, said companies on the campus are entering the year with clear growth plans.
“In 2026, we expect our comprehensive support ecosystem to continue playing a critical role in helping companies grow, scale and innovate,” she said. “We provide the foundational elements companies need to succeed from day one.”
Stewart said tenant companies benefit from university proximity, immediate access to talent and infrastructure that allows rapid occupancy. “Our team works closely with companies to understand their goals, reduce operational friction and support long-term growth,” she said. “By delivering more than space — and anticipating what growing companies need next — the Tech Park creates an environment where innovation thrives.”
She sees 2026 momentum in several technology areas. “We anticipate strong momentum in fusion, optics and aerospace and defense related technologies,” Stewart said, noting that fusion research is transitioning “from foundational research toward testing, validation and commercialization.” Optics, she added, “remains a cornerstone of innovation at the Tech Park.”
For Tucson, these clusters represent steady rather than spectacular growth, but they help diversify the region’s economic base.
Interest rates — even if they edge downward — continue to weigh on homebuilding. Skilled labor shortages show little sign of easing. Housing costs remain high relative to local wages, limiting mobility for both workers and employers.
Policy risk also remains a recurring theme. Hammond cautioned that “continued, frequent federal economic policy surprises” could once again hold down business hiring and investment. “Tariffs are also not conducive to growth in the near term,” he said. “If tariffs generate more inflation than expected under the baseline forecast, that will contribute to slower growth. Further, if the federal government succeeds in deporting more undocumented workers than expected, that will contribute to slower economic growth as well.”
These factors create a forecast with more moving parts than economists prefer, but fewer than local businesses have had to contend with recently.
The emerging picture for 2026 is not one of sharp turns but slow improvement, conditional on national stability and steady policy signals. Businesses that paused hiring in 2025 appear poised to resume it. Tech firms at the UA and Tech Parks Arizona see room for expansion. Core sectors — health care, education, logistics and defense — continue to grow on predictable timelines.
None of this qualifies as a boom. It does, however, mark a shift from holding patterns to forward motion — even if it’s slow going for a while.
“All sectors should see at least some job growth,” Hammond said, before hedging his timeline — “during the next decade.”