The Arizona economy began 2023 in strong shape. The labor marketplace generated powerful job development and low unemployment. Labor compensation decelerated at the finish of 2022 and into early 2023 but remained robust. Even so, fast inflation continued to chew up wage gains. In addition, retail sales declined once again in the 1st quarter, following a powerful boost in the fourth quarter of 2022. With plummeting housing affordability and substantially greater mortgage interest prices, housing permit activity plummeted in late 2022 and into early 2023, driven by declines in single-family members activity.
DEEPER DIVE: Here’s how substantially housing affordability has dropped in Arizona
The outlook calls for Arizona’s financial development to slow in 2023 and 2024 but to stay clear of recession and outpace the nation. On the other hand, dangers to the baseline forecast stay elevated. Beneath the pessimistic situation, the U.S. economy succumbs to shocks originating in the economic sector, as current bank failures result in substantially extra economic tightening than anticipated beneath the baseline. This generates modest job losses in the state, but nothing at all like the state’s expertise throughout the 2007-2009 period.
Arizona Current Developments
In April 2023, Arizona jobs had been 165,000 above their pre-pandemic peak. Almost all industries in the state had been above their pre-pandemic level in April, with the exception of government and other solutions.
For the Phoenix MSA, jobs had been up by 151,700 from February 2020 to April 2023, accounting for the majority of the state boost. Government jobs in Phoenix remained substantially beneath their pre-pandemic level, when other solutions and all-natural sources and mining had been close to complete recovery. Most other sectors had been properly above February 2020 levels.
Jobs in the Tucson MSA have risen by three,800 from February 2020 to April 2023, with substantially extra varied efficiency across industries than for the state or Phoenix. Private education and wellness solutions jobs had been two,800 jobs beneath February 2020 and expert and organization solutions jobs had been two,200 beneath. Each sectors performed substantially much better in the Phoenix MSA, for motives which are incredibly unclear.
Comparable to Phoenix, Tucson jobs in trade, transportation, and utilities economic activities building and manufacturing had been properly above their pre-pandemic level in April.
In April, the Arizona seasonally adjusted unemployment price dropped to three.four% (preliminary), an all-time low going back to 1976. Arizona’s price was equal to the national price in April.
Arizona’s tight labor marketplace is placing upward stress on employment charges, which consist of each wages and salaries and employer-paid fringe positive aspects. In the 1st quarter of 2023, Phoenix employment charges for private market workers rose by four.six% more than the year, up slightly from four.four% in the fourth quarter but beneath the national typical of four.eight%. When the boost in Phoenix employment charges has moderated modestly, it is nonetheless greater than at any time in the previous decade. Even so, employment charges are not maintaining pace with Phoenix inflation, which hit eight.five% more than the year in the 1st quarter.
Inflation continued to moderate each nationally and in the Phoenix MSA in April. More than the year, the all-products CPIU rose four.9% nationally. It was up 7.four% in Phoenix. The U.S. inflation price peaked in June 2022 at 9.1% more than the year. The Phoenix inflation price peaked at 13.% in August.
Phoenix inflation is outpacing the U.S. mainly due to the fact the expense of shelter has been increasing substantially more rapidly. In April, the shelter customer cost index for the Phoenix MSA was up 14.two% more than the year and the national index was up eight.1%. In contrast to the U.S., shelter inflation in Phoenix has moderated substantially from its peak of 19.five% in September 2022 (estimated primarily based on interpolated information).
Phoenix shelter inflation has moderated substantially due to the fact home costs have declined from their peak final summer time. Median property costs in Phoenix dropped ten.7% from their peak of $510,000 in Might 2022 to $455,400 in April 2023 (Exhibit 1). Applying the Phoenix Case-Shiller index (which tracks repeat sales of single-family members houses more than time), the decline was ten.four% from the peak in June 2022 to February 2023.
Tucson median property costs declined from a peak of $370,000 in June/July 2022 to $365,000 in April 2023, a decline of 1.four%.
Exhibit 1: Residence Costs Continued to Decline In the course of Early 2023, Median Sales Price tag for Phoenix and Tucson and Case-Shiller for Phoenix, Seasonally Adjusted
Arizona seasonally adjusted total housing permits dropped once again in the 1st quarter of 2023. That was the fourth consecutive decline. Total permits had been down 31.% more than the year in the 1st quarter, compared to benchmarked 2022 information. Permits posted a 24.eight% drop in the fourth quarter. Single-family members permits drove the decline throughout the previous year, with a 42.three% decline in the fourth quarter and a 47.7% drop in the 1st quarter of this year. In contrast, multi-family members permits had been up 7.six% in the fourth quarter and up eight.% in the 1st quarter of 2023.
Primarily based on revised annual information from the U.S. Census Bureau, Arizona posted 60,994 total permits in 2022. That was down six.six% from 2021. The decline was driven by single-family members permits, which fell by 19.eight% in 2022. Multi-family members permits had been up 26.% for the year.
Total housing permits in the Phoenix MSA dropped from 50,581 in 2021 to 47,267 in 2022, a six.six% decline. Once more, the decline was entirely driven by single-family members permits, which fell by 21.eight%. Multi-family members permits improved by 25.7%.
The story was comparable for the Tucson MSA, exactly where total permits fell from six,284 in 2021 to five,714 in 2022. That translated into a decline of 9.1%. Single-family members permits declined by 27.% when multi-family members permits rose by 69.four%.
The forecasts for Arizona, Phoenix, and Tucson rely on the outlook for the worldwide and national economies. The forecasts presented right here are primarily based on U.S. projections released by S&P Worldwide in April 2023.
Soon after growing by two.1% in 2022, the baseline forecast calls for U.S. genuine GDP development to slow to 1.four% in 2023 and 1.five% in 2024. The economy is projected to be slightly stronger than anticipated final month, reflecting stronger current development.
On a quarterly basis, the forecast calls for genuine GDP to decline by .four% in the second quarter of 2023 ahead of posting optimistic gains by way of the remainder of the year. The drop in the second quarter reflects the influence of tightening economic circumstances (produced by current bank failures) on financial activity.
A slowing national economy will imply slower development in Arizona. Exhibit two shows that Arizona’s job development is forecast to slow from four.two% in 2022 to two.two% in 2023 and then once again to 1.five% in 2024. Even so, the pace of state job development is anticipated to far outpace the nation.
Exhibit two: Arizona Outlook Summary
With the finish of pandemic-connected earnings help in 2021, Arizona private earnings development decelerated to three.three% more than the year in 2022. Gains return to typical in 2023, as labor marketplace stay tight, interest prices stay elevated, and transfer earnings increases.
Retail sales development (such as remote sellers) decelerates from eight.1% in 2022 to three.9% in 2023 and once again to three.1% in 2024, reflecting slower job gains and improved financial uncertainty.
Powerful net migration connected to the pandemic drove population development of 1.7% in 2022. As the enhance to net migration from the pandemic wanes, population development is forecast to decelerate to 1.five% in 2023 and 1.two% in 2024.
The state labor marketplace is forecast to stay tight this year, with the unemployment price anticipated to rise from three.eight% in 2022 to four.% in 2023. As job development decelerates in 2024, the unemployment price increases to four.six%.
Arizona total housing permits are forecast to decline from 60,994 in 2023 to 43,886 in 2023, reflecting increasing substantially greater mortgage interest prices and reduced housing affordability. Permits bounce up modestly in 2024 and then settle in at a pace constant with population alter.
Dangers to the Outlook
The baseline U.S. forecast from S&P Worldwide assumes no U.S. recession this year or subsequent. On the other hand, dangers to the baseline forecast stay elevated.
Beneath the pessimistic situation, the U.S. economy succumbs to shocks originating in the economic sector, as current bank failures result in substantially extra economic tightening than anticipated beneath the baseline.
A national downturn would substantially slow Arizona job development and boost the unemployment price (Exhibit three). As the exhibit shows, the boost in unemployment is anticipated to be pretty modest compared to what Arizona went by way of throughout the Excellent Economic Crisis, the pandemic, and even the downturn throughout the early 1990s.
Exhibit three: Arizona’s Unemployment Price Spikes in the Pessimistic Situation, 3 Scenarios for Arizona Unemployment, Seasonally Adjusted, %
Author: George W. Hammond, Ph.D., is the director and analysis professor at the Economic and Organization Investigation Center (EBRC).