2023 recession should be 'short and shallow,' Phoenix economist says – The Arizona Republic

A “short and shallow” recession is likely on the horizon in 2023, but could end as soon as early 2024, and Phoenix could be better positioned than the rest of the U.S. to weather a downturn.
Danny Court, partner and senior economist with Elliott D. Pollack & Co., said Phoenix has outpaced the nation in recovering jobs lost during the Covid-19 pandemic. The U.S. recently reached full recovery, but Phoenix has already recovered 140% of the jobs lost, meaning that the metro now has more jobs than it did before the pandemic.
Court was the keynote speaker Thursday at the IREM CCIM Economic Forecast held at The Arizona Biltmore.
“We’ve had so much economic development success,” Court said, listing growth in industries like semiconductors, electric vehicles and battery manufacturing. “We are no longer a construction-led, growth-led state.”
Arizona ranks sixth in the nation for job growth since 2019, Court said.
Housing:Metro Phoenix’s median home price fell $8,000 in December, poised to dip again
However, he said, Phoenix has lost one of the major drivers that economic developers had touted for years: housing affordability. Citing research from the National Association of Home Builders and Wells Fargo, Court said the Phoenix metro’s housing affordability index at the end of 2022 was 22.5, meaning that only 22.5% of homes sold were considered affordable to a family earning the area median income.
Nationally, about 42.2% of homes sold during the same period were affordable for a family making the median wage, meaning a larger percentage of homes sold in Phoenix were unaffordable to a median income-earning family than the rest of the nation.
“We were typically more affordable than the U.S. as a whole,” he said. “That is not the case anymore.”
In December 2022, only 12.7% of houses listed on the market in the Phoenix area were priced under $300,000. At the end of 2019, 37% of houses were listed for under $300,000.
The Federal Reserve is trying to induce a recession to curb inflation, Court said. Raising interest rates makes borrowing money more expensive and is a way to discourage making large purchases or investments, which slows the economy and slows inflation. Consumers make up 70% of the U.S. economy, he said, and if consumers are not spending, the economy shifts quickly.
Court said some indicators, including national GDP point toward a recession, but others have not reached areas of concern.
Nationwide, there are still 10.3 million jobs open and only 6 million unemployed, Court said, indicating strong job prospects for those who are seeking a job. Small businesses nationally also have more unfilled positions than ever.
Court said the country has never tried to induce a recession when the country had so many more jobs than people to fill them, calling the road ahead “uncharted waters.”
As interest rates have risen nationally, housing sales prices have fallen about 13% in the Phoenix metro since the peak in May 2022, Court said. However, even if prices fall another 10 to 15%, they will still be about where prices were in 2021.
“It will be nothing as severe as 2007 to 2009,” Court said.
Looking ahead for Arizona, Court said any recession is likely to be short-lived. The real estate market would take most of the hit, with fewer building permits sought. However, he said, longer term, housing will cycle back up, and the Valley will continue to face a shortage of housing and needs to address affordability.
Nationally, he said, if the Fed tackles inflation now, it will put the country on a path for long-term success after the “short-term pain.” The worst-case scenario, he said, could be a geopolitical event that would interfere with the U.S. economy.
Reach the reporter at cvanek@arizonarepublic.com. Follow her on Twitter @CorinaVanek.


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