Arizona Second Quarter 2023 Forecast Flash
Arizona’s growth revised up in the near term
This post briefly describes the Arizona second quarter 2023 forecast update, completed in May 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 S&P Global released in April 2023. The U.S. baseline forecast no longer includes a national downturn. On a quarterly basis, the forecast calls for real GDP to decline by 0.4% in the second quarter of 2023 before posting positive gains through the remainder of the year. The drop in the second quarter reflects the impact of tightening financial conditions (created by recent bank failures) on economic activity.
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 slower national growth.
The revised estimates suggest that Arizona’s job growth hit 4.2% in 2022, up from the preliminary estimate of 3.7% (annual average of seasonally adjusted data). The baseline forecast calls for job growth to drop to 2.2% in 2023 and 1.5% in 2024, before accelerating to 2.3% 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.
Revised data suggest that total housing permits dropped to 60,994 in 2022, similar to the preliminary estimate of 60,900. Permits are forecast to fall to 43,886 in 2023, as activity pulls back in response to higher interest rates, slowing growth, and significantly degraded housing affordability. Permits rebound modestly in 2024.
Revised data suggest that personal income growth decelerated to 3.3% in 2022, faster than the preliminary estimate of 2.9%, but 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 declined by 4.4% in 2022.
Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth decelerates to 2.8% in 2023 before adjustment for inflation and declines by 1.4% after adjustment for inflation.
The pessimistic scenario assumes a national downturn in mid-2023, driven by tightening lending standards by banks, which restrict consumer and business spending, as well as continued problems arising from the Russian invasion of Ukraine. 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 Second Quarter 2023 Arizona Forecast, Completed May 2023
Exhibit 2: Comparison of the Second Quarter 2023 (Current) and First Quarter 2023 (Prior) Forecasts for Arizona, Percent Change
Exhibit 3: Summary of the Second Quarter 2023 Arizona Forecast, Baseline and Alternative Scenarios, Percent Change
