Gem State Pain
The Idaho economy is suffering the same recession disease experienced by the vast majority of states, as the combined impact of domestic and global recession, impaired domestic and global financial markets, and struggling consumer and corporate confidence has taken its painful toll. Economic weakness across Idaho is likely to continue into 2010.

Perhaps the weakest economic performance in Idaho in decades is somewhat surprising since the state ranked among the top handful of states in percentage growth of employment during 2004 to 2007. Those who believe Idaho is largely isolated from developments across the nation and around the globe merely need look at events of the past 15 months for a much different conclusion.

Job Declines

The Idaho economy suffered a net decline of nearly 30,000 jobs during the most recent 12-month period, a loss of 4.6%. Idaho joins 14 other states with at least a 4.0% decline in total employment during the same period, a list that includes border states of Nevada and Oregon, as well as western neighbors Arizona and California.

Job losses across the Idaho economy have left few sectors untarnished. The state’s goods production sector has seen 13,500 jobs disappear, led by losses in construction and manufacturing. The state’s larger service-providing sector has not fared any better. Service sector losses have totaled 16,100 jobs during the most recent 12-month period, led by declines in professional & business services; trade, transportation & utilities; and leisure & hospitality.

Roughly 46 of the 50 states are now in recession. Those states with abundant oil and gas are, for now, avoiding the recession label. Much lower prices for oil and natural gas suggest that such states may not be immune from recessionary forces for long.

Housing Excess
Idaho’s new home construction market has suffered the same realities of overbuilding as found in many markets across the nation. Idaho housing starts are not likely to grow by any meaningful measure until excess inventories of unsold homes are cleared from the market.

Even so, wildly excessive overbuilding and home price appreciation in Arizona, California, and Nevada have led to much greater pain and downward price adjustments in those states than found across Idaho. A positive factor boosting the demand for Idaho housing in coming years will be one the nation’s fastest rates of population growth.

External Issues
One factor contributed greatly to the sharp contraction of the Idaho economy during 2008, as well as the nosedive in U.S. employment and economic output during the past eight months. It was the highly emotional appeal by Federal Reserve Chair Bernanke and then-U.S. Treasury Secretary Paulson to the U.S. Congress for $700 billion in emergency funding during mid-September 2008 to stabilize U.S. financial markets and major financial institutions.

Domestic and global financial markets had already been under severe duress for a year. During mid-September, the American consumer was vividly told that “the sky was falling,” a factor which led to a sharp plunge in consumer confidence, consumer spending, and employment, and led directly to the sharp Idaho and U.S. economic contraction in subsequent months.

The Treasury Department and the Federal Reserve, among other governmental departments, are now “throwing mud at the wall” to see what might stick in regard to steps to boost the economy and shaken financial markets. The Federal Reserve’s announcement during March that it will buy more than $1 trillion of U.S. Treasury notes, government agency-issued mortgage-backed securities, and debt issued by Freddie Mac and Fannie Mae has, for the moment, led 30-year fixed-rate conventional mortgages to some of their lowest levels on record.

More attractive fixed-rate mortgages, combined with the lowest level of many short-term interest rates on record, could see U.S. housing markets move much closer to stabilization by the end of 2009, a critical factor in more broad-based U.S. economic stabilization.

The Idaho Outlook
A return to weak, but positive, U.S. economic growth later this year or early in 2010, combined with more fluid financial markets, would pay great dividends across Idaho and in many other states now dealing with recession. The Idaho economy is highly unlikely to emerge from recession without these two preconditions. The state’s recession could continue well into 2010. However, the state’s longer-term growth should rank among the best in the U.S.

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