Right now, Phoenix businesses are navigating a unique landscape that is growing with a swelling population and booming industries while facing economic challenges such as housing and cost of living. While some things are out of business owners’ hands, the market is offering signs of what 2024 may hold. The ability to adapt to a rapidly changing landscape using the right information and banking partner can help businesses succeed this year.
The Economy
At a macro level, the country is navigating crosscurrents from the economy, including lagged impact of higher rates, slowed economic activity, excess savings runoff, uncertain inflation behavior, geopolitical conflict and election uncertainty. All these factors are going to impact business owners and consumers alike in 2024.
In Phoenix specifically, many are likening this time back to the 2008 recession, which was particularly painful to Arizona residents. According to the Census Bureau, Arizona was among the areas most damaged from housing to income to poverty levels after the recession. Because of this history, business owners are cautious right now.
Taking lessons from 2008, it is recommended that clients have a plan in place for new capital strategies for the year — but not be overly worried. Phoenix has made a concerted effort since the recession to help stabilize and diversify the economy, which helps in uncertain times such as these. For example, according to the Phoenix Chamber of Commerce, Phoenix was well behind the rest of the nation when it came to recovering job loss after the recession. On the flip side, Phoenix recovered approximately 250,000 jobs lost during the COVID-19 pandemic about a year ahead of the U.S. average.
The Business Landscape
Phoenix has erupted with construction projects over the past few years. Most notably, the area is becoming a hub for data and technology manufacturing. This has brought an influx of money, jobs and attention to the area, but some may wonder if it can sustain itself and how other industries are faring with the new competition.
So far in 2024, industrial construction in the region continues to increase; it is the one area of investment real estate that continues to see new projects. Conversely, there has been a significant reduction in new requests for multifamily and retail project requests. I would attribute this reduction in investment in CRE requests to higher interest rates, expensive land and challenges with financing. While some businesses and industries are ready to grow, we continue to hear caution in the marketplace.
While certain sectors continue to have challenges, including financing, others are seeing strong backlogs and will grow and evolve with trends and changing conditions. According to the Greater Phoenix Chamber Foundation, several unexpected industries had higher-than-average rates of growth in 2023. This includes healthcare and social assistance; transportation and utilities; financials; and arts, entertainment and recreation industries.
Attitude Shifts
When new industries and inflation start to impact the local market, it is important to monitor how attitudes shift from holding tight to actively looking to grow.
Economic and market shifts have led to changes in how some businesses are approaching growth and protecting capital. Unique to Phoenix is that, unlike some major markets, there is land and room for additional growth, but right now costs are high and owners are weighing all short- and long-term options to determine how they move forward.
Those businesses looking to grow this year should work with their bank to find where their business can expand. Having a personal relationship with a banker — along with a bank that can provide tailored solutions and products across many platforms and areas of business — will be crucial to support business growth.
Fraud
As in much of the country, another local trend is a rise in fraud. According to a recent Forbes report, Arizona was the number six most financially scammed state in 2023, where 262 of every 100,000 residents filed fraud reports for a total loss of $33.5 million. The most prominent forms of fraud we see with clients include email correspondence, wire fraud and check fraud.
This underscores the importance of business owners getting to know their banker, so together they can implement tools and safeguards to protect their business. Understanding and factoring these macro and regional trends into business plans can not only help a business survive tougher economic times but also achieve growth and gain competitive advantage in 2024.
Robert Faver is the Arizona market president for UMB Bank. He has more than 30 years of experience in the financial services industry. Faver earned a bachelor’s degree in finance and a master’s degree in business administration from Arizona State University.
