Arizona Third Quarter 2022 Forecast Flash

Aug. 18, 2022

By George W. Hammond, EBRC director and Eller research professor

Arizona’s growth decelerates as interest rates rise and federal income support hits the brakes

This post briefly describes the Arizona third quarter 2022 forecast update, completed in August 2022. Forecast flashes for the Phoenix and Tucson MSAs will be available as they are completed.

The detailed 30-year forecast data for Arizona, Phoenix, and Tucson are available in Eviews and Excel files on the Forecast Databases page.

This forecast incorporates updated national short-run projections from IHS Markit released in July 2022 and the long-run projections released in March 2022.

For the current U.S. and Arizona forecasts, the baseline projections are assigned a 50% probability. The pessimistic scenario has a 45% probability and the optimistic scenario has a 5% probability.

Overall, the Arizona economy is projected to slow in the near term, as it adjusts to rising interest rates and the end of federal pandemic income support.

The baseline forecast calls for job growth to decelerate to 3.3% in 2022 and 1.9% in 2023, before accelerating modestly to 2.2% in 2024.

The forecast calls for population growth to remain at 1.5% in 2022 and 2023, before decelerating to 1.4% in 2024. Most of that growth is driven by net migration.

Housing permits drop from just over 65,000 in 2022 to 59,000 in 2023, as activity pulls back in response to higher interest rates, slowing growth, and significantly degraded housing affordability.

Personal income growth decelerates to 2.7% in 2022, down from 7.5% in 2021 (before adjustment for inflation), reflecting the end of federal income support related to the pandemic. After adjustment for inflation, income declines by 4.8% this year.

Retail sales (broadly defined to include food, retail, restaurants and base, and gasoline) growth decelerates to 2.3% in 2023 before adjustment for inflation and declines by 1.0% after adjustment for inflation.

The pessimistic scenario assumes a national downturn, driven by continued problems arising from the Russian invasion of Ukraine and a slower correction of supply-chain issues. The optimistic scenario assumes gains faster than expected under the baseline.

Exhibit 1 presents a summary of the current annual projections. Exhibit 2 provides a comparison to the prior forecast. Exhibit 3 provides a comparison of the baseline and alternative scenarios for the current forecast.