Phoenix MSA Second Quarter 2023 Forecast Flash
Phoenix forecast improves as recession fears fade
This post briefly describes the Phoenix MSA Second Quarter 2023 forecast update, completed in May 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.
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 U.S. real GDP to decline by 0.4% in the second quarter 2023 before posting positive gains for 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 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 is projected to slow as the economy adjusts to rising interest rates, the end of federal pandemic income support, and slumping national growth.
The revised estimates suggest that Phoenix job growth hit 4.4% in 2022, up from the preliminary estimate of 3.9%. The baseline forecast calls for job growth to drop to 2.3% in 2023 and 1.7% in 2024, before accelerating to 2.2% in 2025.
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 1.5% in 2024, as the surge in pandemic-driven migration diminishes and job growth slows.
Revised data suggest that total housing permits dropped to 47,267 in 2022, similar to the preliminary estimate of 46,900. Permits are projected to plummet in 2023, to 37,839, which reflects slowing population gains, higher interest rates, and reduced affordability. Thereafter housing permit activity is projected to be consistent with population gains.
The forecast calls for nominal personal income growth to decelerate to 3.3% in 2022, down from 7.9% in 2021, reflecting the end of federal income support related to the pandemic. Despite nominal personal income gains, after adjustment for inflation, per capita disposable income is forecast to decrease by 8.2% for Phoenix in 2022 and is projected to decrease by another 0.2% in 2023.
Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) increased by 2.7% in 2022 but are expected to drop by 1.0% in 2023.
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 Phoenix MSA Forecast, Completed May 2023
Exhibit 2: Comparison of the Second Quarter 2023 (Current) and First Quarter 2023 (Prior) Forecasts for Phoenix MSA, Percent Change
Exhibit 3: Summary of the Second Quarter 2023 Phoenix MSA Forecast, Baseline and Alternative Scenarios, Percent Change
