Utah Economic Outlook
Written by Jeff Thredgold, President, Thredgold Economic Associates Economic Consultant to Zions Bank
Misery Loves Company
The Utah economy is suffering the same recession disease experienced by the vast majority of states, as the highly negative impact of impaired domestic and global financial markets, damaged consumer and corporate confidence, and domestic and global recession has taken its painful toll. Economic weakness across the state is likely to continue into 2010.
The weakest economic performance in the Beehive State in nearly 50 years is somewhat surprising since the state led the nation in the percentage growth in employment 2-3 years ago. Those who believe Utah is largely insulated from developments across the nation and around the globe merely need look at events of the past 12 months for a different conclusion.
Roughly 45 of the 50 states are now in recession, with those states with abundant oil and gas still, for the moment, avoiding the recession label. Sharply lower prices for oil and natural gas suggest that such states may not be immune from recessionary forces for long. Having said that, however, powerful steps taken by the U.S. Treasury Department, the Federal Reserve, and governments and central banks around the world suggest that the U.S. recession could run its course by the end of the year.
The Utah economy suffered a net loss of 26,000 jobs over the most recent 12-month period, a decline of 2.1%. Even more painful employment contraction is found among most of Utah’s neighbors, with the exception of energy-rich Wyoming.
Job losses across the Utah economy have left few sectors untarnished. The state’s goods production sector has seen 22,000 jobs disappear, while the state’s larger service-providing sector has fared better. Service sector losses have totaled 4,000 during the most recent 12-month period. A majority of service-providing sectors experienced job losses, largely offset by significant job gains in two sectors: education & health services and government.
Too Many Homes
Utah’s home building market has suffered the same indignities of overbuilding as found in many markets across the nation. Utah housing starts are not likely to grow by any real measure until excess inventories of unsold homes are cleared from the market. Still, prior 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 Utah.
A key factor boosting the demand for Utah housing in coming years will be the nation’s fastest rate of population growth. The nation’s highest fertility rate, combined with expected solid levels of net in-migration, should lead to rising demand for new homes and multi-family properties.
One factor contributed greatly to the sharp contraction in the Utah economy during 2008, as well as the nosedive in U.S. employment and economic output during the past seven months. It was the highly emotional appeal by Federal Reserve Chairman Bernanke and then-U.S. Treasury Secretary Paulson to the U.S. Congress for $700 billion in emergency funding to stabilize U.S. financial markets and major financial institutions during mid-September 2008.
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 Utah 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 recent announcement that the Fed 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 could lead 30-year fixed-rate conventional mortgages to 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 the year, a critical factor in more broad-based U.S. economic stabilization.
A return to modestly positive U.S. economic growth later this year or early in 2010, combined with more fluid financial markets, would pay great dividends in Utah and many other states now dealing with recession. The Utah economy is highly unlikely to emerge from recession without these two preconditions. Over the longer term, the state should rank among the nation’s best performers.