It’s been approximately two years since the recession gripped the nation, halting economic growth across the globe. Though Utah’s economy didn’t feel the recession as quickly as much of the nation did, the Beehive State proved economically vulnerable as housing prices fell, lending were practices tightened, consumer spending dropped and unemployment rates rose.
Whether the owner of a mom and pop store or CEO of a major corporation, the question everyone wants an answer to is: When will the economy fully recover? Though there’s no concrete answer to this looming question, there are economic signs to watch out for. While many of those signs are pointing to a long recovery, the good news is Utah is positioned in the right economic direction.
Last month, Utah reached a 6.5 percent unemployment rate. Though much lower than the unemployment rate gripping the nation—the U.S. unemployment rate is now 10 percent—the state’s unemployment rate is nothing to boast about. According to Mark Knold, senior economist at the Department of Workforce Services, Utah’s relatively low unemployment rate is likely to go up once seasonally adjusted. “Because of the sizable gap [between the U.S. and Utah’s unemployment rate], it is anticipated that upcoming revisions to Utah’s 2009 unemployment rates should raise Utah’s unemployment rate and somewhat narrow this gap.” How much will the state’s unemployment rate go up? “Probably a few numbers, but not up to 10 percent,” Knold says.
According to DWS, Utah employment fell by approximately 51,500 jobs (down 4.1 percent) during the past 12 months. To put this into perspective, Utah added 1,900 jobs in 2008, 49,600 jobs in 2007, 55,700 jobs in 2006, 43,700 jobs in 2005 and 30,200 jobs in 2004. The state’s unemployment rate averaged 3.4 percent during 2008, 2.7 percent in 2007, 3.0 percent in 2006 and 4.1 percent during 2005, DWS reports.
During 2010, Knold anticipates more job losses, but not at as high of a rate as during 2009. He predicts another 21,000 jobs will be removed from Utah’s economy during 2010.
While no industry has been unaffected by the slowdown, nearly 75 percent of Utah’s job loses are concentrated in construction, manufacturing, and professional and business services, according to Commerce CRG’s monthly “Utah’s Economy” report. The report states that construction employment is down 16,400 jobs during the past 12 months. Three industries with relative strength include education, health care, and state and federal government.
Though Utah’s unemployment numbers are steadily increasing, it’s not all bad news. Knold says that a spike in unemployment is usually a sign that the economy is beginning to rebound. “When the economy is so bad, people stop looking for jobs which makes the unemployment number lower,” Knold says. “The fact that the unemployment rate is going up is a sign that people are starting to think that finding a job is possible again. So they’re going out and officially looking for a job, which makes the unemployment rate go up.”
So, when will Utah’s companies really start hiring again? “Most analysts are anticipating that hiring will start in the first half of 2010—by June,” Knold says. “My forecast for 2010 is an improved employment picture, but we’re still going to have job losses throughout the year.”
GDP Growing Again
The nation’s Gross Domestic Product, or GDP, is showing signs of improvement. According to Jeff Thredgold, Zions Bank economic consultant, the majority of economists agree that U.S. economic growth returned in the third quarter 2009, with more growth anticipated during fourth quarter 2009. “The American economy finally returned to ‘growth mode’ during 2009’s second half, fueled in part by extremely aggressive fiscal and monetary stimulus,” Thredgold said in his weekly “Tea Leaf” publication. “Pent-up demand by consumers, combined with stronger global performance, also added to growth numbers. A return to positive U.S. economic growth does not imply that problems with commercial real estate, housing and emotional financial markets are finally behind us, but it clearly helps.”
Knold agrees, saying, “The GDP went up quite a bit in the third quarter, signifying the recession’s end in terms of production.”
Small Business Confidence
Making up more than 90 percent of the state’s employers, Utah’s small businesses play a key role in the state’s private sector rebound. According to Zions Bank Small Business Index, Utah’s small businesses are beginning to feel more confident with today’s economic conditions. Zions Bank Small Business Index surveys small business owners to determine their outlook on local business conditions. During November 2009, the index was 79.3, up from a revised 70.4 during September 2009—a sign that Utah’s small business owners believe a positive change is around the corner.
A Young, Growing Workforce
Utah’s population growth of 2.5 percent—the nation’s highest—is a natural boost to the state’s economy. Compared to a national average of 0.9 percent, Utah’s growing population means more manpower available. More manpower means companies are more likely to build in the state, which means more dollars to the overall economy. The state’s population is expected to grow from 2.9 million in 2010 to 3.6 million in 2020 and to 4.4 million in 2040.
Utah also has one of the nation’s youngest populations, another boost to the local economy. According to the Governor’s Office of Planning and Budget, an estimated 551,013 students were in Utah’s public education system during 2008, an increase of 13,360 students from 2007. “Utah is dominated by 30-year-olds, where the rest of the U.S. is dominated by 50-year-olds,” says Knold. “During this downturn, a lot of our young people who have lost jobs are going back to college. The 50-year-olds populating the nation have to stay employed because they have kids to feed and homes. Our young people are a hidden resource.”
Once the economy picks up, those students will be part of a skilled workforce, ready to take demanding positions and, thus, further aiding Utah’s economic recovery. “Utah’s employers will be able to draw upon an even more highly educated workforce. It will help the economy in the long run,” Knold says.
Residential construction was hit particularly hard during 2009. According to the Salt Lake Board of REALTORS, sales of existing homes (single-family and condominiums) in Salt Lake County totaled 938 transactions in September, down 11.6 percent compared to 1,061 sales in September 2008. And, the median price of all housing types sold in Salt Lake County during September was $205,000, down 6.8 percent from September 2008, the board reports. October’s numbers were a bit better. The board reported that 1,061 homes were sold in October 2009 compared to 855 sales in October 2008.
But the overall real estate picture isn’t much brighter in other areas across the Beehive State. According to the Federal Housing Agency, Utah’s home prices dropped 11.6 percent in the second quarter of 2009 from the second quarter of 2008. At the end of the first quarter 2009, Utah’s rate of foreclosures was 2.36 percent.
Despite the residential housing slowdown, federal and state financial incentives for first-time homebuyers have helped clear excess housing inventories, though the residential construction rates of 2003 to 2006 are not likely to appear any time soon, according to Thredgold.
There’s no denying that psychology plays a role in the state’s economic health. “There was a very negative psychology that led to consumers clamping up last year and into this year,” says Knold. “Consumer psychology contributed to our very weak economy.”
Lane Beattie, president and CEO of the Salt Lake Chamber, agrees that consumer confidence was shaken, but says that confidence is bouncing back. “Consumer demand has been lackluster and consumers make up about 70 percent of the economy,” Beattie says. “The national economic narrative has been so negative, but the national numbers don’t reflect what is going on in our state. We have our challenges, but the news that applies to most of the country doesn’t necessarily apply here, although consumers and business owners hear that news and sometimes start to react to the staggering numbers that apply to California but not Utah. Businesses have persevered and that courage and determination has gone a long way to keeping our local economy ahead of the rest of the nation.”
After Black Friday, many Utah stores reported an uptick in sales. “We had 20 to 25 stores open early with door buster specials and that had the crowds here early. We had several retailers reach the numbers they posted on Black Friday 2008 by early afternoon,” says Heather Nash, director of marketing at The Gateway. “We’re off to a great start.”
Unfortunately, the increase in sales isn’t expected to last throughout the holiday season. According to Zions Bank’s latest Utah Quarterly Economic Forecast, “Two-thirds of Utah business leaders predict local consumers will be spending somewhat or much less this holiday season than they did in 2008, while one-quarter think shoppers will spend about the same.”
There’s no quick fix to today’s troubled economy. Economists agree that full economic recovery is going to be a slow and long process. But, that doesn’t mean that we’re not headed in the right direction.
According to the Salt Lake Chamber, investment in downtown Salt Lake exceeds $1.6 million daily. “There have been 29 businesses that have opened up or relocated to the central business district in the last year,” says Beattie. “We’ve also seen some big companies relocating and expanding in our state.” Some of those companies include Goldman Sachs, Microsoft and the NSA Data Center.
Utah’s government also continues to receive high marks. The state was ranked No. 1 in the nation for its overall economic outlook by the ALEC-Laffer State Economic Competitiveness Index. The Pew Center on the States also named Utah the best managed state in the nation.
In Context: What Utah’s industry leaders are saying about the state’s economy and its pending recovery.
“After a long two-year recession, buyers are finding renewed confidence and are once again returning to the market. We expect increasing numbers of home sales in 2010. On the other hand, home prices will likely continue to decrease, but only in single-digit percentages. Home prices in Salt Lake County have already fallen 16 percent from their peak, which is in line with what local economists predicted last year.”
President, Salt Lake Board of REALTORS
“Recession impacts on Utah manufacturers in 2009 were a mixed bag. Overall, Utah manufacturers have tightened things up and returned to their core missions and have made their operations more lean…The major hurdle in 2010 will be waiting to see if demand is going to improve so manufacturers can begin increasing production. Jobs lost during the past couple years are not likely to return in the short term as manufacturers have learned to do things with fewer employees and have pulled back from non-core areas.”
President, Utah Manufacturers Association
“I feel certain we’ve started to recover from the recession, now it’s our job to help the economy gain some momentum. We can take actions now that will catapult us forward. Our goal is not just to recover; our goal is to recover in a way that helps us emerge as the top performing economy in the country. We’ve been there before and we can be there again. I believe that this is entirely achievable, but we must take prudent actions today.”
President and CEO, Salt Lake Chamber of Commerce
“One major economic development change is how businesses look at doing business. In this economic landscape, companies are looking at states that do things right. Utah is well positioned to scoop up several companies that want to find a better place geographically to locate their business. In addition, Utah’s high marks on being well managed and business friendly make it easier for us to capitalize on companies investigating a relocation or expansion.”
CEO, Economic Development Corporation of Utah
“The UTC conducted a recent survey of 172 companies. Of those surveyed, the majority said they were still growing and most said they were optimistic about their future growth. Our outlook for 2010 is very positive. We are expecting very solid growth.”
CEO, Utah Technology Council