Arizona First Quarter 2024 Forecast Flash

Feb. 7, 2024

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

Arizona growth decelerates modestly in 2024

This post briefly describes the Arizona first quarter 2024 forecast update, completed in February 2024. 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 10-year projections from S&P Global released in January 2024.

The U.S. baseline forecast assumes a soft landing for the U.S. economy. On a quarterly basis, the forecast calls for real GDP to increase through 2033 (no recession).

For the current U.S. and Arizona forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 30% probability and the optimistic scenario has a 15% probability.

Overall, the Arizona economy is projected to slow very modestly in the near term, as it adjusts to rising interest rates and slower national growth.

The baseline forecast calls for job growth to drop from 4.2% in 2022 to 2.1% in 2023 (preliminary actual) and 1.9% in 2024 and 2025.

The forecast calls for population growth to slow from 1.7% in 2022 to 1.6% in 2023 (actual) and 1.3% in 2024 and 2025. That is driven by slowing net migration in response to slowing national growth and reduced housing affordability.

Residential housing permits are forecast to fall from 60,994 in 2022 to 56,196 in 2023 (preliminary actual), as activity pulls back in response to higher interest rates, slowing growth, and significantly degraded housing affordability. Permits fall again in 2024 to 54,479.

Arizona personal income growth decelerated to a revised 4.9% in 2022, down from a revised 9.5% in 2021 (before adjustment for inflation), reflecting the end of federal income support related to the pandemic. The forecast calls for income growth to accelerate to 6.7% in 2023 and the slow to 5.3% in 2024.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth decelerates to 3.3% in 2023 before adjustment for inflation and declines by 1.0% after adjustment for inflation. Nominal sales growth slows again in 2024, as income gains decelerate and higher interest rates finally take a toll on consumption.

The pessimistic scenario assumes a modest national downturn during the first half of 2024, 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 and conflict in the Middle East. This generates slower growth in Arizona as well. 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.