Arizona’s labor market continues to show resilience, but momentum and job growth is slowing in Arizona as employers grapple with economic uncertainty, elevated borrowing costs and a shrinking workforce, according to an analysis from the Economic and Business Research Center (EBRC).

According to the latest employment data, Arizona added 2,000 seasonally adjusted jobs in May, while the state’s unemployment rate ticked up to 4.8%, well above the national rate of 4.3%. On a non-seasonally adjusted basis, the state lost 14,300 jobs during the month, reflecting the typical seasonal fluctuations that accompany the transition into summer.

Economists say employers remain cautious as they weigh ongoing policy uncertainty, persistently high interest rates and rising energy costs before making significant hiring decisions.

Despite the slower pace, Arizona continues to outperform many states over the longer term. The state added 16,000 jobs over the past 12 months, representing annual employment growth of 0.5%, while U.S. job growth was essentially flat over the same period. Through the first five months of the year, Arizona employment increased 0.1%, compared with 0.2% nationally.

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Construction, manufacturing lead monthly gains

Arizona’s strongest monthly job growth came from industries tied to development and production.

Construction added 2,700 jobs in May, the largest gain among all sectors, followed by manufacturing, which added 1,000 positions. Financial activities contributed another 600 jobs, while smaller gains were recorded in natural resources and mining, trade, transportation and utilities, and information.

Those gains were offset by notable declines in several sectors. Government employment fell by 10,400 jobs during the month, while private educational services shed 3,900 positions. Professional and business services also declined, losing 3,200 jobs.

Over the past year, however, Arizona’s employment growth has been fueled primarily by private education and health services, with additional gains in professional and business services, manufacturing, information, natural resources and mining, and other services.

Those increases have been partially offset by declines in government, financial activities, leisure and hospitality, construction, and trade, transportation and utilities.

Phoenix continues to outpace national job growth

The Phoenix metropolitan area remained Arizona’s strongest labor market.

The region added 23,600 jobs over the past year, representing annual employment growth of 0.3%, slightly ahead of the national pace of 0.2%. Year-to-date through May, Phoenix also posted 0.3% job growth, again exceeding the national average.

Similar to statewide trends, Phoenix’s gains were driven primarily by private education and health services and professional and business services. Government, manufacturing, information, natural resources and mining, and trade, transportation and utilities also posted gains.

The metro’s primary areas of weakness were financial activities, leisure and hospitality, and construction.

Southern Arizona, Prescott continue to struggle

While Phoenix continues expanding, other Arizona metros face greater challenges.

The Tucson metro area added just 100 jobs over the past year, representing virtually flat employment growth of 0.02%. Through May, Tucson employment was down 0.5% year over year.

Professional and business services, private education and health services, and other services generated Tucson’s strongest gains, while leisure and hospitality, government, construction, manufacturing, financial activities, and trade, transportation and utilities all lost jobs.

Prescott experienced the state’s weakest labor market performance.

The Prescott metro lost 1,100 jobs over the past year, a decline of 1.4%. Only private education and health services recorded modest job gains, while losses were concentrated in leisure and hospitality, professional and business services, trade, transportation and utilities, manufacturing, mining and construction.

Employers remain cautious

Although Arizona continues to add jobs overall, the pace of hiring has moderated considerably as businesses navigate a more uncertain economic environment.

With elevated financing costs, a shrinking labor force and higher operating expenses continuing to weigh on employers, many companies appear content to maintain current staffing levels until economic conditions become clearer.

Still, Arizona’s year-over-year job growth remains ahead of the national average, suggesting the state’s economy continues to demonstrate resilience even as hiring slows.