Phoenix MSA Third Quarter 2022 Forecast Flash

Aug. 19, 2022

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

Phoenix growth slows in the near term as the national economy decelerates

This post briefly describes the Phoenix MSA third quarter 2022 forecast update, completed in August 2022. Keep in mind that the Phoenix forecasts now include projections for both Maricopa and Pinal counties.

The detailed 30-year forecast data are available in Eviews and Excel files on the Forecast Databases page. In the Phoenix files, there are now three new forecast variables: Maricopa County median family income in the baseline, optimistic, and pessimistic scenarios. The variable names are:

MA_MFI_F_0, Maricopa County median family income in the baseline scenario
MA_MFI_F_1, Maricopa County median family income in the optimistic scenario
MA_MFI_F_2, Maricopa County median family income in the pessimistic scenario

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

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

Phoenix MSA growth remains relatively strong in the near term but slows as the economy adjusts to rising interest rates and the end of federal pandemic income support.

After adding a revised 88,500 jobs in 2021 (4.2%), the forecast calls for the Phoenix MSA to add 66,600 in 2022 (3.0%). Gains decelerate further to 44,000 in 2023 (1.9%) before rebounding in 2024 with growth of 2.2%.

Net migration drives population gains, with Phoenix adding 100,900 new residents by July 1, 2022. That translates into 2.0% growth. Population gains decelerate to 1.8% in 2023 as the surge in pandemic-driven migration diminishes and job growth slows.

Housing permits drop modestly in 2022 before a more substantial drop in 2023, which is related to slowing population gains and higher interest rates. Thereafter housing permit activity declines to levels consistent with population gains.

Income gains decelerate in 2022 with the end of pandemic-related federal income support programs. Nominal income gains are expected to be positive, but after adjustment for inflation, income falls this year.

Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) increase by 3.1% in 2022 and are steady in 2023.

The pessimistic scenario calls for slower growth in the near term, driven by the shock to commodities prices created by the Russian invasion of Ukraine and a slower recovery from supply-chain issues. The optimistic scenario calls for stronger gains.

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.