Phoenix MSA Fourth Quarter 2022 Forecast Flash
Phoenix growth slows in the near term as the national economy falls into recession
This post briefly describes the Phoenix MSA fourth quarter 2022 forecast update, completed in October 2022. Keep in mind that the Phoenix forecasts now include projections for both Maricopa and Pinal counties.
The detailed 10-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 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 Phoenix forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 30% probability and the optimistic scenario has a 15% probability.
Phoenix MSA growth remains relatively strong in the near term but slows as the economy adjusts to rising interest rates, the end of federal pandemic income support, and a national downturn.
After adding a revised 88,500 jobs in 2021 (4.2%), the forecast calls for the Phoenix MSA to add 90,800 in 2022 (4.1%), before growth decelerates to 1.3% in 2023 and 1.8% in 2024.
Net migration drives population gains, with Phoenix adding 86,000 new residents by July 1, 2022. That translates into 1.7% growth. Population gains are stable in 2023 but decelerate to 1.6% in 2024, as the surge in pandemic-driven migration diminishes and job growth slows.
Housing permits drop to 47,400 in 2022 before more substantial drops in 2023 and 2024, which reflect slowing population gains, higher interest rates, and reduced affordability. Thereafter housing permit activity adjusts 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 4.3% in 2022 but drop by 2.7% 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.
Exhibit 1: Summary of the Fourth Quarter 2022 Phoenix MSA Forecast, Completed October 2022
Exhibit 2: Comparison of the Fourth Quarter 2022 (Current) and Third Quarter 2022 (Prior) Forecasts for Phoenix MSA, Percent Change
Exhibit 3: Summary of the Fourth Quarter 2022 Phoenix MSA Forecast, Baseline and Alternative Scenarios, Percent Change
