Written by Jeff Thredgold, President, Thredgold Economic Associates
Economic Consultant to Zions Bank

Local Pain
Extreme domestic and global financial stress has contributed to substantial weakness within the Idaho economy. The state’s strong job creation pace during 2004 through 2007 has now given way to recession and a painful decline in total employment during the most recent 12-month period.

Weak Idaho economic performance is expected during the year just beginning, particularly during 2009’s first half. Dismal new home construction activity, weak existing home sales, soft home prices, low levels of consumer and corporate confidence tied to a serious U.S. recession, and highly anxious credit markets all suggest the Idaho recession will continue.

Rising Joblessness
The Idaho unemployment rate moved sharply higher during 2008, with the current rate of 5.8% nearly double the 3.1% rate of one year ago. A higher rate is expected in coming months. The Idaho Department of Labor notes that a record 44,100 workers are currently without jobs.

The state’s economy lost an estimated 11,800 net jobs during the most recent 12-month period, a decline of 1.8%. Idaho employment weakness has been widespread, with job eliminations occurring in most goods-producing and service-providing sectors. Current employment weakness compares to Idaho having one of the nation’s strongest job creation rates during 2004 through 2007, when the state added an average of 21,000 net new jobs annually, a growth pace averaging 3.5%.

Outside In
Major developments taking place outside of the state’s borders can have either a positive, or negative, influence upon Idaho economic performance. This reality is perhaps more clear than ever before. Domestic and global economic and financial pain is also local pain, as well as that of Idaho’s Western neighbors.

Idaho has been severely impacted by ongoing shocks to domestic and global financial markets during the past 18 months. Initial concerns about subprime mortgage securities soon gave way to massive anxiety about all types of credit instruments and investments.

The U.S. Treasury Department, the Federal Reserve, and the FDIC have each introduced new programs to deal with severe financial sector stresses and a major lack of investor and lender confidence. Innovation has been critical as the majority of the steps taken were nowhere to be found in their respective operating manuals.

Commitments of trillions of dollars of support for a wide array of credit markets and for major U.S. financial institutions has now given way to massive investment in similar support by governments around the globe. What many initially perceived to be an American problem is now clearly understood to be a major global economic and financial reality.

Steps enacted in late November to push mortgage interest rates lower were initially successful. Further actions to stabilize home prices and minimize foreclosures will be critical to eventual U.S. economic stability.

New Leadership
The new Obama Administration will hit the ground running early in 2009 to help address what is the most serious threat to the domestic and global economies since the Great Depression. The painful and costly dismantling of an enormous financial “house of cards” constructed during the past 10 years will fully occupy the new Administration in 2009.

The Obama Administration is expected to propose a mammoth economic stimulus program in January, with billions of dollars for infrastructure investment and support for state and local governments. Various campaign promises will, by necessity, be temporarily placed on hold.

The Gem State in 2009
Domestic and global financial contagion severely impacted the Idaho economy in 2008, with the state falling into recession. Even weaker economic performance seems likely during 2009’s first half.

If misery loves company, Idaho has plenty. More than 30 states are currently in their own recessions, with falling employment, rising unemployment rates, declining tax revenues, and increasing financial challenges tied to adequate funding of social programs.

Most economists suggest the national recession will have run its course by mid-to-late 2009. A return to positive, if not impressive, economic growth will develop for the American economy. Such stabilization should establish a foundation for a return to positive Idaho economic growth late in 2009 as well.

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