Phoenix MSA Fourth Quarter 2023 Forecast Flash

Nov. 2, 2023

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

Phoenix growth headed for a modest slowdown

This post briefly describes the Phoenix MSA Fourth Quarter 2023 forecast update, completed in November 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 10-year projections from S&P Global released in October 2023.

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 2.4% in 2023 and 2.2% in 2024.

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

Permits are projected to drop from 47,267 in 2022 to 43,144 in 2023 and then to 36,628 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.

The forecast calls for nominal personal income growth to decelerate to 5.0% 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 5.9% for Phoenix in 2022 and rise a modest 1.1% in 2023.

Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) increased by 3.2% in 2022 but are expected to drop by 1.5% in 2023.

The pessimistic scenario assumes a pause in national growth, but no recession in 2023-24, 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 Phoenix 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.