Arizona Second Quarter 2024 Forecast Flash

May 7, 2024

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

Slower growth on the horizon for Arizona

This post briefly describes the Arizona second quarter 2024 forecast update, completed in May 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 April 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 state job growth to drop from 2.6% in 2023 to 2.2% in 2024 and 2.0% in 2025.

The forecast calls for population growth to slow from 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 rise from 56,196 in 2023 (preliminary actual) to 57,817 in 2024 and then to fall to 52,311 in 2025, as activity pulls back in response to slowing population growth and significantly degraded housing affordability.

Arizona personal income growth accelerated to 6.5% in 2023. The forecast calls for growth to slow to 5.7% in 2024 and 6.0% in 2025.

Retail sales (broadly defined to include food, retail, restaurants and bars, and gasoline) growth decelerates to 2.6% in 2024 before adjustment for inflation and declines by 0.4% after adjustment for inflation. Nominal sales growth accelerates modestly in 2025, as income gains and falling interest rates support growth.

The pessimistic scenario assumes a modest national downturn during the middle 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.