Regional Report: 2024 Economic Snapshot

Arizona’s resiliency in 2023 sets the stage for moderate 2024 growth

The economy in 2023 exceeded the expectations of many as growth continued in the United States through a variety of measurements including Growth Domestic Product (GDP) increase, inflation decrease and a healthy jobs level.

Arizona and Greater Phoenix found prosperity with industrial growth tied to a decade of labor pool gains, as the state ranked eighth in population growth and third in labor force growth from 2012-22.

Local economists joined a Greater Phoenix Economic Council (GPEC) Regional Report panel to discuss the outlook of the 2024 economy. At the heart of the discussion was a proven Arizona characteristic: resiliency.

“2023 can be summed up for Arizona in one word, and that’s resiliency. We’ve seen that the Arizona economy has shown incredible resiliency and has shown continued growth, albeit some slowing growth, in the face of mounting macro-level headwinds,” said Doug Walls, Arizona Office of Economic Opportunity economist & labor market information director.

“While we do see some softening, we do see a lot of potential and there is some optimism moving forward.”

This tone was echoed amongst the panelists, who discussed the national, state and local economies:

• Chris Camacho, President & CEO, Greater Phoenix Economic Council
• Nicole Cervi, Economist, Wells Fargo Corporate & Investment Banking
• Kristen Stephenson, Senior Vice President of Research & Analytics, Greater Phoenix Economic Council
• Doug Walls, Economist & Labor Market Information Director, Arizona Office of Economic Opportunity
• Moderator: Eric Sperling, Managing Director, Social Television Network 

National economy: What to watch

The generational inflation levels in 2022 and its accompanying interest rate hikes by the federal reserve in effort to combat were caused by a variety of factors, Cervi said, including the Russia invasion of Ukraine affecting oil and power prices and the price of recreational activities increasing as the pandemic slowed and people spent more on experiences. Over 2023, there has been improvement in the market.

Headline Consumer Price Index (CPI), which is the inflationary measurement of total goods and services, topped out at 9% in 2022 while Core CPI, considered to be a stable measurement because it excludes food and energy, topped out at 6%. Both have decreased to the 3-4% range, but the Core CPI remains twice as high as the federal goal. The number of new jobs per month reached the same average as 2019, and labor demands have started to cool off. Real disposable income is up 4% nationally in November.

Cervi said she will be watching a couple different factors in 2024. Consumer confidence decreased drastically during the height of inflation, but consumer spending continued growing. Typically, those measurements move in tandem at a positive correlation.

“Consumers are more pessimistic on the outlook, although that has not really shown up in terms of their real spending,” Cervi said. “Inflation is still pretty elevated … so we might actually see some of that relationship between consumer confidence being flatlined and come to terms with what we see in consumer spending.”

She also noted credit card debt, which reached $1 trillion for the first time in November. If the number of delinquencies rise, there may be a decrease in spending, which would affect the broader economy.

The federal reserve raised rates as high as 5.5% but has not increased rates in the last three meetings. Cervi believes the fed is done hiking rates as inflation becomes more manageable, employment levels reach a normal, pre-pandemic level and interest-rate-sensitive sectors like real estate and manufacturing face burdens of extended rate hikes.

“I think the fed doesn’t want to run the risk of overtightening,” Cervi said.

Arizona and Greater Phoenix resiliency

Greater Phoenix’s inflation peaked at 13% year-over-year in August 2022. Today, the region's inflation level has dropped to 2.7%, the second period in a row below the national average. Walls said Arizona’s ability to weather these effects of inflation is indicative of future growth in 2024.

“(Arizona is) more suited to defend against some of these unknown challenges as they come,” Walls said.

Investments into the manufacturing and healthcare sectors have been key for the diversification of the local economy. Since Taiwan Semiconductor Manufacturing Company (TSMC) announced the first part of its $40 billion expansion in 2021, 30 semiconductor and related companies have announced further expansion throughout Greater Phoenix.

Those industries will also drive medtech, a focus entering 2024. A 25-member GPEC-led consortium for the manufacturing of medical devices was awarded a grant from the U.S. Department of Commerce’s Economic Development Administration (EDA), which will build a stronger foundation for this next-generation industry.

Arizona added about 60,000 jobs from Nov. 2022 through Nov. 2023, according to Walls, and saw stabilized increases of about 1.5-2.0% over the last several months. Stephenson projected the increase to continue statewide over the next year and Greater Phoenix to see job growth of about 2% to 2.5%.

“Even if the U.S. economy starts to downturn, we’re still expecting to see Greater Phoenix float atop given the structural changes that we’ve made to the region’s economy,” Stephenson said.

The Greater Phoenix office market

While Greater Phoenix ranked No. 1 in industrial growth in 2023, there is still uncertainty in the office market. Camacho said there has been some increased activity, though, with regional leaders evaluating office plans.

“A different wrinkle in the latest quarter is an in-office heartbeat once again. We’re seeing companies that are once again looking at their office footprint, assessing how they amenitize their footprint to support their employee base,” Camacho said.

Stephenson said there is a flight to quality, with movers preferring Class A, highly amenitized spaces. The picture is still unclear, though, as lower-quality buildings are not seeing the same activity.

Read more on the Greater Phoenix office market

Greater Phoenix housing

Much of Greater Phoenix’s inflation was driven by housing, which remains 12% higher than the national average.

“Housing affordability is going to be an issue that’s going to need to be addressed moving forward, but one thing we didn’t see with the rise in interest rates is the deterioration of those prices as we had seen in the ‘07-’08 recession,” Walls said. “We’re still seeing demand for housing despite the high interest rates.”

There has been an increase in permits and loans for building and land development, with approximately 5,600 building permits issued in October 2023, aligned with highs from 2021. The last time permit levels were consistently this high was in 2007, though there is far lower supply relative to demand today due to the increase in population and underbuilding in the 2010s.

The number of active listings is up since 2020 and 2021 but remains below 2019 levels. As rates decrease, Walls said, more people will be willing to sell homes that are currently locked into a low rate.

2024 takeaways

Cervi said that after explosive growth in 2023, there may be more “sluggish growth” in 2024 nationally.

“We’re looking at some uncharted territory, and I think uncertainty is going to be even more elevated,” Cervi said.

At the Greater Phoenix level, there are heightened expectations set by industrial growth and in-migration. The state and region’s resiliency in 2023 sets the stage for moderate growth in 2024.

“We’ll continue to see our economy be a little bit stronger than the U.S.; however, I do think we’re going to see much more moderate growth than we’ve seen in the last few years,” Stephenson said. “The term I keep hearing thrown around is soft landing, and that’s what I’m expecting to see here.”