ÃÛèÖÖ±²¥ and ÃÛèÖÖ±²¥ will continue to rebound from the pandemic this year, but the recovery remains uneven and risks including supply-side shocks and rising interest rates could slow growth, University of ÃÛèÖÖ±²¥ economists say.
And globally, economic growth is expected to drop off significantly in 2023 — with the U.S. and other nations possibly slipping into recession — as supply disruptions and labor shortages take their toll, a guest economist said at the UA’s latest breakfast on Thursday.
Four of the state’s seven metropolitan areas, including Phoenix, have regained all of the jobs lost during the onset of the COVID-19 pandemic from February to April 2020, UA economist George Hammond told a crowd of about 500 attendees.
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But as of April 2022, ÃÛèÖÖ±²¥ had replaced 88.4% of its lost jobs, the Sierra Vista-Douglas area had replaced just 63.6% of the jobs lost early in the pandemic, and Flagstaff had replaced 92.2%. The nation has replaced 94.6%.
Despite those gains, ÃÛèÖÖ±²¥ has an estimated 134,000 fewer jobs than what the state likely would have had if the pandemic had not happened and the state continued average job growth, Hammond said.
Factors such as a very tight labor market — with a historically low statewide unemployment rate of 3.4% forecast for this year — and high inflation will likely slow economic growth next year, Hammond said.
“ÃÛèÖÖ±²¥â€™s labor market remains very tight, in fact a lot tighter than we’re seeing nationally,†he said. “We’re seeing record-low unemployment rates and very high churn in the state labor markets as employees are switching jobs.â€
Meanwhile, inflation appears to be higher in ÃÛèÖÖ±²¥ than nationally, Hammond said.
Though inflation data for ÃÛèÖÖ±²¥ is not available, data show core inflation — not including food and energy costs — has “exploded†in the Phoenix area, hitting 9.7% on a year-over-year basis in April as the nation saw a 6.2% increase. The cost of housing is a major factor in Phoenix, where the cost of “shelter†including rent and mortgage payments was up 14.8% in April on a year-over-year basis, compared with a nationwide increase of just 5.1%.
Inflation is projected to remain very high this year before steeply decelerating in 2023, Hammond said.
At the same time, soaring home prices are diminishing home affordability in ÃÛèÖÖ±²¥ as well as Phoenix.
The median home price in ÃÛèÖÖ±²¥ was up 21.1% in April from April 2021, at $365,000, while the median price in the Phoenix market was up 24.8% at $499,000.
Low home inventories and rapidly rising construction costs have contributed to the skyrocketing home prices, Hammond said, adding that the increases have reduced home affordability particularly in Phoenix.
The UA economists forecast that building permits for new single-family permits will rise slightly statewide to 64,708 this year, while ÃÛèÖÖ±²¥ permits will decline slightly to just over 6,000. ÃÛèÖÖ±²¥ permits are forecast to drop to about 5,917 in 2023 and 5,101 in 2024.
The latest UA outlook projects that ÃÛèÖÖ±²¥ will increase its non-farm jobs by 3.2% this year, tailing off to 2.6% in 2023 and 1.6% in 2024.
After growing an estimated 7% in 2021, personal income growth is expected to slow this year to 2% statewide, before inflation, and just 0.4% in the ÃÛèÖÖ±²¥ area, reflecting the end of federal income support related to the pandemic. Income is expected to start growing again in 2023 at greater than 6% statewide.
Anthony Chan, former chief economist at JP Morgan Chase, said there’s a chance that the U.S. and other countries will slip into a recession next year.
After U.S. gross domestic product rose 5.7% in 2021, Chan is forecasting an increase of 2.5% this year and just 1% in 2023.
Chan sees GDP growth in China and the Eurozone nations similarly dropping by about half this year, while Latin America will see steeper drops with Mexico’s GDP growth to slow to just 1.6% from 4.8% last year.
He said the labor shortage continues to affect U.S. economic growth but it’s not because people won’t work, citing the fact that 20.8 million of 22 million jobs lost at the onset of the pandemic in 2020 have been filled.
“How can anybody say with a straight face that nobody is working? That is not true, and it really bothers me when people say that,†said Chan, who now runs his own economics consulting firm in New York.
Major factors in the labor shortage that are overlooked are the number of early retirements and the effect of reduced immigration, he said.
Chan cited a Federal Reserve study showing that an estimated 2.4 million workers retired early amid the pandemic, while over the past five to six years, immigration to the U.S. has dropped by about 2 million people.
At the same time, the U.S. population is not growing fast enough, Chan said, noting that last year the 1% increase in the U.S. birth rate was lower than the “replacement rate†needed to replicate generations of people.
“We’re now not having the immigration, and we’re not growing organically,†Chan said. “More people are making TikTok videos than making babies.â€
Contact senior reporter David Wichner at dwichner@tucson.com or 520-573-4181. On Twitter: @dwichner. On Facebook: