Arizona, Tucson economies expected to slow, avoid recession

Economic growth in Tucson and across Arizona is forecast to slow down this year and in 2024, but the state will avoid recession and outpace the nation, University of Arizona economists say.

If the U.S. economy slows down as expected, Arizona’s job growth is forecast to decline from 4.2% in 2022 to 2.2% this year and then to 1.5% in 2024, according to the latest economic outlook from the Economic and Business Research Center in the UA’s Eller College of Management.

“Overall, the outlook calls for continued positive growth here in Tucson, but we slow this year and next as the national economy slows,” UA economist and center director George Hammond said Friday at the UA’s 20th annual economic-outlook breakfast at the Loews Ventana Canyon Resort.

After a 3.2% increase in Tucson non-farm jobs last year, UA economists are forecasting a 1.7% increase this year before growth drops to 1% in 2024.

Under a more pessimistic scenario, Arizona could see some job losses if recent bank failures lead to more financial tightening than expected that results in a modest national recession, Hammond said.

Tucson has finally recovered all the jobs it lost during the pandemic, but it’s still about 6,000 jobs short of what UA economists had projected before the pandemic hit, Hammond said.

“Tucson is still struggling to get back on that trend,” he said, citing lagging jobs in private education and health care and professional services including engineers, lawyers and accountants.

Hammond said he’s puzzled by the shortfalls in those occupations, which run counter to gains in Phoenix and nationwide, and is keeping an eye on the local trend.

On the plus side, Tucson added nearly 1,000 manufacturing jobs since February 2020.

“We’re seeing that strength around Arizona, manufacturing job growth has been much better than we’ve seen nationally, and I think we’re going to continue to see that both statewide and here in Tucson as we move through the next couple of years,” Hammond said.

The Arizona economy started 2023 in solid shape, the UA economist said, as the labor market generated strong job growth and low unemployment.

Preliminary numbers show that in April, Arizona’s seasonally adjusted unemployment rate dropped to 3.4%, an all-time low going back to 1976.

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At 3.1%, Tucson jobless rate is the lowest it’s been since the 1990s, Hammond said.

Labor compensation, including wages and benefits, decelerated but remained robust.

But high inflation continued to chew up wage gains and retail sales declined again in the first quarter, after a strong increase in the fourth quarter of 2022, Hammond said.

With plummeting housing affordability and much higher mortgage interest rates, housing permit activity plunged in late 2022 and into early 2023, driven by declines in single-family home activity.

Home prices have fallen steeply in the Phoenix area and flattened in Tucson, which should help with declining housing affordability, Hammond said.

Global outlook

Economist Anthony Chan, who returned to the Eller event as guest speaker, said the U.S. economy faces slower growth at best in the next year, and the risk of global recession will depend mainly on monetary policies.

“I think we may see a little bit of a slowdown, maybe even a technical recession in the US in the next 12 months,” said Chan, former chief economist for event sponsor JPMorgan Chase.

Chan said he believes central banks will begin slowing interest-rate increases meant to tamp down inflation, and that he expects that at its next meeting later this month the Federal Reserve will raise interest rates just 0.25%, or perhaps not at all.

“What’s going to determine whether we’re going into recession is going to be determined by whether policymakers, especially central banks around the world, either move too quickly to raise rates or move too slowly to lower rates,” Chan said. “They have do it at the right pace, and the speed is important.”