Arizona Fourth Quarter 2022 Forecast Flash

Nov. 1, 2022

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

Arizona’s growth decelerates as the U.S. economy falls into recession

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

The detailed 10-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 October 2022. The U.S. baseline forecast includes a national downturn. On a quarterly basis, the forecast calls for U.S. real GDP to decline from the fourth quarter of 2022 through the second quarter of 2023. The peak-to-trough decline is 1.1%, which would be similar to the (relatively mild) early 1990s recession.

For the current U.S. and Arizona forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 30% probability and the optimistic scenario has a 15% probability.

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

The baseline forecast calls for job growth to accelerate modestly to 3.8% in 2022, before dropping to 1.1% in 2023 and 1.6% in 2024.

The forecast calls for population growth to slow slightly in 2022 to 1.4% the rise to 1.5% in 2023 before dropping back to 1.2% in 2024. Much of that cycle is driven by a complicated mix of factors, as net migration softens in response to the national downturn and natural increase recovers modestly.

Housing permits drop from about 63,000 in 2022 to 50,000 in 2023, as activity pulls back in response to higher interest rates, slowing growth, and significantly degraded housing affordability. Permits drop again to about 44,000 in 2024.

Personal income growth decelerates to 2.6% 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 5.2% this year.

Retail sales (broadly defined to include food, retail, restaurants and base, and gasoline) growth decelerates to 1.0% in 2023 before adjustment for inflation and declines by 3.1% after adjustment for inflation.

The pessimistic scenario assumes a more severe 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.