Phoenix MSA First Quarter 2023 Forecast Flash
Phoenix forecast improves as U.S. recession looks less severe
This post briefly describes the Phoenix MSA First Quarter 2023 forecast update, completed in February 2023. 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 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 Phoenix forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 25% probability and the optimistic scenario has a 20% probability.
Phoenix MSA growth 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 preliminary data for 2022 shows 3.9% growth. Growth is forecast to decelerate to 1.7% in 2023 and 2024.
Net migration drove population gains last year, with Phoenix adding 93,800 new residents by July 1, 2022. That translated into 1.9% growth. Population gains slow in 2023 to 1.7% and again to 1.6% in 2024, as the surge in pandemic-driven migration diminishes and job growth slows.
According to preliminary data, housing permits dropped to 46,900 in 2022, with the decline driven by single family activity. Multi-family permits were up strongly. Permits plummet in 2023, to 36,100, which reflects 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.
Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) increase by 5.0% in 2022 but drop by 1.8% 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 First Quarter 2023 Phoenix MSA Forecast, Completed February 2023
Exhibit 2: Comparison of the First Quarter 2023 (Current) and Fourth Quarter 2022 (Prior) Forecasts for Phoenix MSA, Percent Change
Exhibit 3: Summary of the First Quarter 2023 Phoenix MSA Forecast, Baseline and Alternative Scenarios, Percent Change
