Arizona First Quarter 2023 Forecast Flash
Arizona forecast revised up modestly as U.S. recession looks less severe
This post briefly describes the Arizona first quarter 2023 forecast update, completed in February 2023. 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 January 2023. 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 first quarter of 2023 through the second quarter of 2023. The peak-to-trough decline is 0.6%, which would be similar to the (relatively mild) early 2000s recession.
For the current U.S. and Arizona forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 25% probability and the optimistic scenario has a 20% 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. It does not fall into recession.
The preliminary estimates suggest that Arizona’s job growth hit 3.7% in 2022 (annual average of seasonally adjusted data). The baseline forecast calls for job growth to drop to 1.5% in 2023 and 1.6% in 2024, before accelerating to 2.4% in 2025.
The latest population data suggest that growth accelerated in 2022 to 1.7%, up from 1.5% in 2021. The forecast calls for population growth to slow to 1.5% in 2023 before dropping to 1.2% in 2024. Much of that is driven by slowing net migration in response to the national downturn and reduced housing affordability.
Preliminary housing permits drop from 60,900 in 2022 to 39,300 in 2023, as activity pulls back in response to higher interest rates, slowing growth, and significantly degraded housing affordability. Permits rebound modestly in 2024.
Personal income growth decelerates to 2.9% 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% in 2022.
Retail sales (broadly defined to include food, retail, restaurants and base, and gasoline) growth decelerates to 1.6% in 2023 before adjustment for inflation and declines by 2.2% 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.
Exhibit 1: Summary of the First Quarter 2023 Arizona Forecast, Completed February 2023
Exhibit 2: Comparison of the First Quarter 2023 (Current) and Fourth Quarter 2022 (Prior) Forecasts for Arizona, Percent Change
Exhibit 3: Summary of the First Quarter 2023 Arizona Forecast, Baseline and Alternative Scenarios, Percent Change
