Experts: Idaho is not going into recession

Author: William L. Spence

Lewiston Tribune

An updated economic forecast suggests Idaho will experience a slight slowdown in employment growth next year, but will not plunge into recession no matter what happens in the country.

The State Department of Financial Management released an updated forecast this week. It is based on the latest national forecast by IHS Markit, a London-based company that provides global economic forecasts.

Many economists believe the United States is already in recession following a decline in gross domestic product in the first two quarters of 2022.

GDP grew at an annual rate of 2.6% in the third quarter ended September 30. However, IHS Markit expects growth to decline again in the last three months of the year, followed by a further decline in the first half of 2023.

Overall, the company sees the US economy contracting by about 4% before the recession ends. It also lowered the growth forecast for the remaining years 2023 and 2024.

“It is clear that IHS finds growth more difficult to achieve,” noted the Finance Management Division. “With the switch in the IHS position, it’s worth reconsidering the likelihood of a bleak future for Idaho.”

After doing so, Greg Piepmeyer, the department’s chief economist, concluded that the state of the economy should remain on an upward path.

“After assessing the risks and data contained in this report, we have concluded that Idaho is neither currently in nor headed for a recession,” wrote Piepmeyer. “This is true even if there is an economic crisis across the country in the next few quarters. However, growth in Idaho in terms of population and employment is expected to slow down. “

The forecast assumes further migration to the state, and the overall population will increase from about 1.94 million this year to 2 million by 2025.

Non-agricultural employment is projected to increase from 829,000 to 895,000 over the same period.

“The economy has a hard time shrinking while increasing the number of people, jobs and higher wages,” Piepmeyer noted.

The only major change identified in the report is single-family and multi-family housing, which is projected to decline by nearly 24% in Idaho next year, followed by an additional 7.5% drop in 2024.

Nationally, IHS predicts a 22% drop in construction starts next year, followed by an 8% increase in 2024.

The slowdown is largely fueled by higher mortgage rates, which have more than doubled this year in response to aggressive efforts by the Federal Reserve to bring down inflation.

The central bank raised the benchmark overnight rate by 3% this year, and today another increase of 0.75% is expected. This in turn pushed 30-year mortgage rates up from around 3.22% in early 2022 to around 7.2% on Tuesday, according to financial firm Freddie Mac.

“Today, inflation rates unseen in 40 years and the strong moves by the Federal Reserve to contain inflation are the main reasons for the heightened risk of a recession,” notes the DFM report.

The US Bureau of Labor Statistics does not calculate inflation at the state level. However, it takes into account regional price increases, and the US western and inter-mountain states tend to experience the highest inflation in the country.

“This is likely due to high levels of migration to the area and higher average gas and other fuel prices,” wrote Piepmeyer. If that is the case, “Idaho could be experiencing some of the worst (inflation) in the country given the high rate of migration and limited access to fuel refineries.”

The Finance Management Department’s economic forecast for October, along with other economic and income reports, can be found online at dfm.idaho.gov/publication/economicpublications.

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