Phoenix MSA First Quarter 2024 Forecast Flash

Feb. 7, 2024

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

Phoenix slows modestly, but remains solid

This post briefly describes the Phoenix MSA First Quarter 2024 forecast update, completed in February 2024. 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 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 Phoenix forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 30% probability, and the optimistic scenario has a 15% 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 baseline forecast calls for job growth to drop from 4.4% in 2022 to 2.1% in 2023 (preliminary actual) and 2.0% in 2024 and 2024.

Net migration drove population gains last year, with Phoenix adding 92,100 new residents by July 1, 2023, according to the Arizona Office of Economic Opportunity. That translated into 1.8% growth.

Population gains slow in 2024 to 1.6% and again to 1.5% in 2024, as the surge in pandemic-driven migration diminishes and job growth slows.

Permits drop from 47,267 in 2022 to 44,677 in 2023 (preliminary actual) and then to 43,931 in 2024, which reflects slowing population gains, higher interest rates, and reduced affordability. Thereafter housing permit activity is projected to be consistent with population gains.

Nominal personal income growth to decelerated to 5.4% in 2022, down from a revised 10.3% in 2021, reflecting the end of federal income support related to the pandemic. The forecast calls for personal income growth to accelerate to the 6.2%-6.3% range in the near term.

Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) is expected to drop by 1.1% in 2023, stabilize in 2024, and then return to positive gains in 2025. Nominal gains decelerate to 3.2% in 2023 and 3.3% in 2024.

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.