Arizona’s labor market showed positive signs of improvement during the first quarter of 2026, with total nonfarm employment increasing by 15,500 jobs, ranking Arizona third nationally in percentage job growth.
These first-quarter job gains demonstrated resiliency, cutting into and shrinking year-over-year job losses through March 2026, even as national economic headwinds weigh on labor markets nationwide. Arizona continues to navigate external macroeconomic pressures, yet it remains a primary destination for significant business investment, a key driver for future job creation. By examining the monthly data tracked by the Arizona Office of Economic Opportunity, we can move beyond the headline numbers to see how Arizona is positioning itself for a new phase of economic growth.
National Forces Driving Local Outcomes
Arizona’s Q1 performance reflects external pressures reshaping labor markets nationwide. Sustained, elevated interest rates and increased borrowing costs have effectively cooled consumer demand and slowed capital investment across the country. Additionally, trade policy uncertainty and geopolitical conflict continue to disrupt global supply chains and increase costs, while corporate belt-tightening has reduced spending on professional and administrative services.
Shifting Industry Stories: Challenges and Resilience
Arizona’s industry landscape shifted noticeably in the first quarter of 2026, reflecting how specific sectors are absorbing these national pressures.
Government employment remained the quarter’s largest drag, with losses in two of the three first-quarter months. These losses are consistent with national trends as federal government employment shrank by 355,000 jobs since late 2024, while additional cuts to federally funded services weakened employment in Arizona’s contracted services and nonprofit sectors. Similarly, Trade, Transportation and Utilities recorded its fifth consecutive month of decline, driven by rising costs and shrinking disposable incomes.
Financial Activities moved from modest growth at the end of 2025 into annual losses by March 2026, reflecting sustained high mortgage rates and reduced consumer spending. However, other interest-rate sensitive sectors, such as Construction and Manufacturing, showed resilience as their annual losses narrowed significantly throughout the quarter.
Health Care and Social Assistance led the state’s momentum as its growth accelerated, largely because of an expanding population and growing share of residents aged 65 and older. Additionally, Professional Services, Private Education and Other Services all improved, flipping from December 2025 losses to gains in March 2026.
The Long-Term Outlook
Structural demand for healthcare persists regardless of broader economic cycles, and OEO projects the sector will add about 11,300 jobs annually through 2034. Overall, OEO projects Arizona will add about 454,000 jobs by 2034, growing at four times the national rate, with semiconductor investment, construction and healthcare leading the pipeline.
What Business Leaders Should Take Away
Q1 data reflect a labor market in transition, not decline. Business leaders should evaluate sector-specific trends rather than headline numbers alone. The forces shaping Arizona’s labor market this quarter are national in origin, and the state’s structural strengths position it well for recovery. The sectors driving long-term growth remain active, and Arizona’s economic fundamentals remain intact.
Arizona’s Unemployment Rate vs. National Rate — Q1 2026
Month | Arizona | National
January | 4.5% | 4/3%
February | 4/6% | 4/4%
March | 4.7% | 4.3%
Q1 2026 Year-over-Year Job Change by Sector — March 2025 – March 2026
Sector Gain/Loss, thousands
Healthcare & Social Assistance 10.4
Other Services 2.9
Private Educational Services 1.7
Natural Resources & Mining 1.1
Professional & Business Services 0.08
Information -0.8
Manufacturing -1.1
Construction -3.3
Trade, Transportation & Utilities -6.0
Financial Activities -6.9
Government -8.1
Leisure & Hospitality -8.5
Arizona Nonfarm Employment Change — Month-over-Month, Q1 2026
Month Change
January + 5,100
February +11,000
March – 2,600
Arizona NSA Month-over-Month Employment — Feb. 2026 – March 2026
Sector Gain/Loss, thousands
Healthcare & Social Assistance 1.4
Other Services 1.3
Private Educational Services 0.3
Natural Resources & Mining -0.1
Professional & Business Services -0.5
Information -0.5
Manufacturing -0.5
Construction -1.5
Trade, Transportation & Utilities -1.7
Financial Activities -2.2
Government -3.3
Leisure & Hospitality -3.6
Source: Arizona Office of Economic Opportunity
Mary Foote serves as the director of the Arizona Office of Economic Opportunity with expertise in workforce development, finance and business attraction drawn from senior roles at the Greater Phoenix Economic Council and Pipeline AZ.
Doug Walls serves as labor market information director for the Arizona Office of Economic Opportunity, leading monthly employment analysis and producing the labor market research that drives Arizona’s economic and workforce decision-making.
As we head into the rest of the year, Arizona Office of Economic Opportunity will be tracking employment trends. To view the latest OEO employment report, visit www.oeo.az.gov.
