December 6, 2013

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2014 Economic Forecast

Utah is Holding Steady amidst Economic Headwinds

By Heather Stewart

December 6, 2013


It’s no exaggeration to say that Utah’s economy is running circles around the rest of the nation. If the national economy is a patient enduring a long, slow convalescence, Utah has jumped out of its sickbed, performed some refreshing calisthenics and headed back to work.

“Utah’s economy is growing more rapidly and in a more sustainable manner than virtually every other economy in the country. We’re actually the third-fastest growing state in the Union right now, but we’re by far the most diversified of those. …We’re the fourth-most diverse economy, which means our growth and our potential growth is by far the most sustainable in the country,” says Randy Shumway, CEO of the Cicero Group and economic consultant to Zions Bank.

Most economic indicators point to renewed vigor in the Beehive State, with business leaders feeling greater confidence about the upcoming year. However, national and global trends continue to hold back Utah’s full recovery and present the greatest threat to the state’s economic strength.

Employment and Earnings

The most obvious contrast between Utah and the nation is the unemployment rate: Utah clocked in at 4.7 percent in August, while the national rate was 7.3 percent. (Numbers for September were not released due to the government shutdown.)

In fact, Utah has added back all the jobs it lost during the recession, says Carrie Mayne, chief economist for the Utah Department of Workforce Services. At the peak of the recession in January 2010, 114,800 people were actively seeking employment in the state. That number has dropped to about 65,000.

The best news is that every private sector in the state is growing. “We have roots planted pretty heavily across all our industries,” says Mayne. This economic diversity is one reason for the state’s robust recovery.

Utah’s job growth was above its long-term average for the first half of the year, but growth slowed in the third quarter. Mayne says that slower growth will likely persist, due in part to a construction industry that has not completely rebounded, the ongoing effects of sequestration and political uncertainty in Washington.

“We haven’t seen the surge in job growth that we often see a year or two after the end of a recession,” she says.

But with several years of pent-up demand, particularly in the housing market, Mayne says that surge could very well happen soon. “We feel like there may be a really healthy 2014.”

While the private sector is flourishing, government employment has been in a long contraction. Year over year, the public sector lost 6,200 jobs in Utah. This is not insignificant—Mayne says government represents 18 percent of total employment in the state, and in many rural counties, state and local governments are the largest employers.

And government cutbacks have a “trickle effect” into the wider economy, she says. “When government shrinks, fewer government contracts are issued.”

Jobs may be more plentiful, but earnings are not catching up to that growth. Per capita personal income in Utah was $29,500 at the start of 2011; in early 2013, it was $30,150.

“Much of the wealth growth we’re experiencing, both in the country and in the state, are being appreciated by the wealthy,” says Shumway. “Today the top 10 percent of wage earners have gained 98 percent of the capital growth experienced over the last five years.”

Shumway notes that consumer prices rose by 1.5 percent over the last year, which is lower than the 2 to 3 percent growth that is considered healthy. He says this indicates weak consumer spending—and stagnant wage growth may be putting the brakes on that spending.

Housing and Construction

The housing market has rebounded so strongly that prices have started to level out again and the brisk pace of home sales has slackened. The Salt Lake Board of Realtors reports that home sales slowed to single-digit growth in the third quarter of this year, due to rising prices and interest rates.

Housing prices reached a peak in Utah at the end of 2007, then fell nonstop for three and a half years. Since the market turned around in the second half of 2011, prices have rebounded 9.4 percent.

“The housing industry is growing,” says Shumway. Year to date, median home prices have risen by 14.5 percent statewide to $205,000, while sales have increased 14.1 percent year to date.

Increasing demand for housing is starting to invigorate the residential construction sector.

One example of that is Ivory Homes, the state’s most prolific homebuilder. In 2006, the company’s total permit value reached $258.7 million. By 2008, its permit values had plummeted to $90.9 million—and it was still the state’s top homebuilder. Ivory Homes’ permit values hovered around $91 million for four years, up through 2011. But last year, the company built 594 homes with a total value of $136.9 million. And this year, the company had already reached 650 homes by the start of November.

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