Tucson MSA Fourth Quarter 2022 Forecast Flash

Nov. 1, 2022

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

Tucson’s recovery slows in 2023 as the U.S. economy falls into recession

This post briefly describes the Tucson MSA fourth quarter 2022 forecast update, completed in October 2022.

The detailed 10-year forecast data 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 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.

Tucson MSA job gains accelerate strongly in 2022, as the recovery continues, but then decelerate in 2023 as the economy adjusts to higher interest rates, the end of federal pandemic income support, and a national downturn.

After adding 5,700 jobs in 2021 (1.5% growth), the forecast calls for the Tucson MSA to add 12,800 jobs in 2022 (3.4%) before gains decelerate to 3,600 in 2023 (0.9%). Growth decelerates again in 2024 to 0.8%.

Driven by net migration, population increases by 10,200 in 2022. That translates into 1.0% growth. Population growth then decelerates to 0.9% in 2023 and 0.6% in 2024.

Tucson housing permits drop modestly to 6,000 in 2022 before larger declines in 2023 and 2024. Permits decline in response to slower population gains, higher interest rates, and reduced affordability.

Income gains decelerate in 2022 with the end of pandemic-related federal income support programs. Nominal income growth is forecast to be slightly positive this year (up 0.5%) which means that real income growth is negative.

Real taxable sales (broadly defined to include retail, food, restaurants and bars, and gas) decelerate this year to 3.3%. In 2023, real taxable sales decline by 3.1%.

The pessimistic scenario calls for a slower recovery 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.