Despite predictions of a mild recession, 2023 may be the first year since the start of the COVID-19 pandemic when the economy feels almost stable. Inflation is coming down, the labor market remains vibrant, and huge shifts in spending across sectors are looking like a thing of the past. Best of all, the coming trends play directly into the Phoenix area’s greatest strengths.
It’s no secret that Phoenix has been growing rapidly for more than a decade. Before the pandemic began, Phoenix routinely added more people per year than any other city in the nation. Then, in the past couple of years, Americans started to migrate toward warmer, less expensive cities all across the South and West. Yet, Phoenix has continued to grow not just because of its weather and amenities, but because of its economy.
Manufacturing the Nation’s Future
Phoenix has been the epicenter of a resurgence in American manufacturing. Jobs in manufacturing peaked at around 168,000 in the Phoenix area back in the spring of 1998 and tumbled downward to a low of 111,000 in 2010, mirroring the nationwide trend in the sector. But then something happened — global businesses started to see the benefits of basing their operations in the United States, especially in a relatively low-cost environment like the Phoenix area.
With an infusion of technology, the manufacturing cluster started to grow again, reaching about 136,000 jobs just before the pandemic began. And the pandemic supercharged the sector, as people chose to consume goods in their homes rather than going out to spend money on services. In just three years, manufacturing in the Phoenix area added another 14,000 jobs — a 10% increase in employment.
These jobs brought more working-age residents to the area, and their families came with them. All these people needed schools and medical providers, as well as places to live and things to do in their spare time. So, it’s hardly surprising that positions in construction, education, healthcare, and leisure and hospitality multiplied almost as quickly as those in manufacturing.
Fewer Headwinds on the Horizon
Remarkably, some of the fastest growth on record in the Phoenix area’s manufacturing sector happened in 2022, when millions of Americans were shifting their spending away from goods. Starting in the spring, the combination of savings built up during the pandemic with pent-up demand for travel and entertainment led to a huge surge in spending on services outside the home. Inventories stayed on store shelves, orders plummeted, and manufacturers around the world were stuck in a lull … just not in Phoenix.
That’s because Phoenix doesn’t make a lot of plastic toys or disposable fashion. From electric vehicles to semiconductors, the Phoenix area has become a factory for the future. Demand for its products has been skyrocketing and is likely to keep rising, even in the midst of a mild recession.
In the short term, Americans are looking at another winter largely behind closed doors. Along with record cold temperatures, the risks of a highly infectious COVID-19 subvariant may encourage families to stay indoors, once again buying products for the home online rather than venturing out to restaurants, salons and stadiums.
Further ahead, the springtime shift into spending on services isn’t likely to happen again. Pent-up demand has eased, and American consumers have taken a big bite out of their pandemic-era saving. Slowing pay raises in a looser labor market and higher interest rates may also lead them to curtail their spending. In the summer, the balance of budgeting between goods and services will probably look more like it did before the pandemic.
Getting from Here to There
This doesn’t mean businesses in Phoenix will have smooth sailing throughout the year. A wave of COVID-19 infections can make employees miss work, and sudden upticks in demand for products can lead to labor shortages. At my company, which provides a platform to connect local businesses with flexible workers for in-person labor, the share of shifts booked less than 24 hours in advance doubled during the course of last winter before falling back to normal in the spring. It’s already happening again this winter.
Most high-tech factories are already built for agility, but the past few years have brought new challenges. Being prepared for changes — whether in demand, staffing or supply chains — will be the key to riding the waves, regardless of the industry. But after each little storm passes, the sun looks set to shine brightly on Phoenix again.
Daniel Altman is the chief economist at Instawork, the leading flexible work app connecting businesses with local, hourly professionals. An internationally bestselling author on economics, he previously wrote for The Economist and The New York Times and was an economic advisor in the British government. He holds a Ph.D. in economics from Harvard University.
Did You Know: Intel has more than 12,000 workers already in Chandler and plans to hire 3,000 more in two new microchip factories. Lately, a shortage of microchips has been a drag on the global economy, especially the automotive industry. The new plants in Chandler will contribute to Intel Foundry Services, serving carmakers and other large manufacturers.
