The Flagstaff metropolitan area entered 2026 navigating a mixed economy, as rising unemployment and slowing job growth collided with strong retail activity and resilient tourism spending, according to an analysis from the Economic and Business Research Center (EBRC)..

Through the first quarter of 2026, economic indicators for the Flagstaff MSA — which includes Coconino County — painted a picture of an economy under pressure, though not without signs of strength.

The region’s labor force softened in the opening months of the year. In March, the non-seasonally adjusted civilian labor force declined 2.4% year over year to 74,120 residents. While January saw a modest increase of 0.4%, February and March reflected a reversal, signaling growing caution in the local labor market.

Employment numbers also weakened. Resident employment declined throughout the quarter, falling 0.7% year over year in January, 2.8% in February and 3.1% in March to 70,532 workers. The trend mirrors broader challenges statewide, where Arizona employment fell by more than 74,000 workers in March compared to the same period last year.

At the same time, unemployment moved sharply higher in Flagstaff. January posted the largest increase, with resident unemployment jumping 23.4% year over year to 4,437 people. February and March followed with increases of 19.1% and 14%, respectively.

The unemployment rate also climbed. In March, Flagstaff’s unemployment rate rose to 4.8%, up 0.7 percentage points from a year earlier. February’s rate reached 5.6%, surpassing the statewide unemployment rate, which came in at 4.7% for the month.

Wage growth, meanwhile, showed mixed results. Average hourly earnings rose modestly in January before slipping in February and March. By March, average hourly wages stood at $25.41 — translating to approximately $52,852 annually for a full-time worker.

While job growth stalled, some sectors remained resilient.

Government employment experienced the largest decline in March, dropping 6.2% year over year. Manufacturing, construction, mining, and trade-related sectors also posted losses. However, several industries bucked the trend. Financial activities grew 5.6%, professional and business services increased 2.3%, and private education and health services rose 1.9%. Leisure and hospitality — a key pillar of Flagstaff’s economy — posted a modest 1.2% gain.

Perhaps the brightest signal came from consumer spending.

Retail sales, excluding food and gasoline, surged 18.8% year over year in March to reach $172 million, reflecting continued consumer confidence despite economic uncertainty. Tourism-related spending remained particularly strong, with hotel and motel sales rising 10.9% to $65.3 million and restaurant and bar sales totaling $68.9 million.

Housing, however, continued to cool.

Building permits declined sharply during the quarter, especially in March when total permits dropped by 81 units year over year to just 35. Single-family housing permits also fell, signaling a slower pace of residential development.

For Flagstaff, the first quarter of 2026 revealed an economy balancing competing realities: labor market softness and slowing construction on one hand, paired with healthy spending and tourism activity on the other. As the year unfolds, those consumer trends may prove critical in determining whether Flagstaff regains momentum or faces additional economic strain.