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

Bottoming Out?
Utah’s most painful economic contraction since the Great Depression appears close to establishing a bottom, with rising prospects that a return to modest Utah job creation should be clear within 6-9 months. Even as the economy stabilizes, however, more vibrant economic conditions seem perhaps 18-24 months away.

Utah’s serious economic recession of the past 12-18 months has been shared by nearly all states, with 49 of 50 in recession. Many Western states have experienced greater declines in employment and much higher jobless rates during 2009 than has the Beehive State.

The five states sharing a border with Utah currently have an average unemployment rate of 9.0%, versus 6.0% in Utah, while the three West Coast states have an average jobless rate of 11.2%. Utah’s painful 4.4% decline in total employment during the past year has been exceeded by the average 5.4% rate of decline among the five bordering states.

Prior Steps
A return of Utah economic growth must largely follow two other developments. These include a return of both U.S. and global economic growth. Such preconditions now seem underway, helping to establish a foundation for renewed Utah economic expansion.

As is true across the nation, the majority of Utah’s lost jobs during the past 18 months have occurred in construction and manufacturing. Many of these jobs will never return. Substantial Utah employment weakness has also occurred in trade, transportation & utilities and professional & business services. Fewer jobs have been lost in leisure & hospitality; financial activities; and information sectors. Only education & health services and the government sector added jobs during the most recent 12-month period.

Responding to Incentives
The plunge in new home construction across Utah and around the nation during the past two years should give way to modest, but continual, improvement in coming years. However, the excess homebuilding period during 2003-2006 is unlikely to be matched any time soon.

Greater housing “affordability” tied to home price declines across the nation and very attractive mortgage rates currently available will induce greater home buying interest. Federal and Utah financial incentives for first-time homebuyers have proven beneficial in clearing excess housing inventories. Such incentive programs should be continued.

Winter Sports
The state’s winter sports industry is anticipating stronger performance during the coming season than recorded last season. Ski magazine’s recent ranking of Deer Valley as North America’s best resort for the third consecutive year bodes well, as does Utah having seven of the top 30 resorts in the magazine’s annual reader survey (The Salt Lake Tribune).

Costs of…
Utah will continue to do well in attracting new employers and retaining existing companies in coming years because of the reasonable cost of doing business, as well as a more affordable cost of living than found in many areas across the U.S. The August 2009 Utah “cost of doing business” estimate of Moody’s Economy.com was 90% of the U.S. average. Similar costs for Salt Lake City and Provo-Orem were 87% and 81%, respectively.

The “cost of living” estimate of Moody’s Economy.com for Salt Lake City was 103% of the U.S. average, with Provo-Orem at 94%. The most recent data from the ACCRA cost of living index registered 100.0 for Salt Lake City, with Cedar City at 90.5, Logan at 98.0, and St. George at 96.8 (only cities measured in recent survey).

Utah Outlook
Serious and prolonged Utah economic pain of the past 18 months is a direct result of the severe economic and financial volatility experienced across the U.S. and around the world during the past two years. Threats to the domestic and global economies were the most dire since the Great Depression.

Better news now finds increasing economic and financial market stabilization, in part tied to unprecedented fiscal and monetary stimulus around the globe. Confidence levels of individuals and corporate leaders globally have risen noticeably, but remain fragile. Steps to “exit” such costly strategies in coming quarters will be critical to longer-term economic improvement without governmental “life support.”

Utah’s economy should show more signs of life throughout 2010. The state’s longer-term economic potential, tied to strong population growth, a solid work ethic, reasonable business and living costs, high-quality universities, and world-class recreational opportunities for its residents and visitors, will rival any in the country.

Return to the Insight Index