Tucson MSA Fourth Quarter 2023 Forecast Flash

Nov. 2, 2023

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

Tucson growth faces headwinds as national economy slows

This post briefly describes the Tucson MSA Fourth Quarter 2023 forecast update, completed in November 2023.

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 Tucson forecasts, the baseline projections are assigned a 55% probability. The pessimistic scenario has a 30% probability, and the optimistic scenario has a 15% probability.

Tucson 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 projection calls for job growth to decelerate from 3.2% in 2022 to 1.6% in 2023 and 1.5% in 2024 and 2025.

Net migration drove population gains last year, with Tucson adding 14,000 residents by July 1, 2022, translating into a 1.3% growth. However, population growth is forecast to decelerate to 0.8% in 2023 and 0.6% in 2024, as the surge in pandemic-driven migration diminishes and job growth slows.

The forecast calls for housing permits to fall from 5,714 in 2022 to 5,108 in 2023 and again to 4,149 in 2024 due to slowing population growth, higher interest rates, and reduced affordability.

The forecast calls for nominal personal income growth to decelerate to 2.6% in 2022, down from 6.3% in 2021, reflecting the end of federal income support related to the pandemic; nominal personal income growth is then expected to increase 5.3% in 2023. Despite nominal personal income gains, after adjustment for inflation, per capita disposable income is forecast to decrease by 7.5% for Tucson in 2022 and is projected to rise 0.9% in 2023.

Real retail sales (broadly defined to include retail, food, restaurants and bars, and gas) increased by 1.3% in 2022 but are expected to drop by 0.6% 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 Tucson 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.