John Maynard Keynes said, “It is better to be vaguely right than precisely wrong.” I’m going to make an attempt to be vaguely right about Utah’s near-term economic forecast. The Utah economy has started to moderate. I think this modest growth will continue and now is a good time for businesses and households to “stop, look and listen.”
Utah’s rate of job growth has now decelerated for three consecutive months. Year-over job growth reached 3.8 percent in 2015, 3.5 percent in 2016 and an estimated 3.0 percent this year. I think next year will be even slower.
The reasons for the moderation are many. With an unemployment rate south of 4 percent, labor is in short supply. Labor shortages impact nearly every industry, but are particularly acute in Utah’s rapidly growing tech and construction sectors. It’s difficult to sustain growth without labor inputs.
The labor shortage means wages are on the rise, a huge positive. Analysts forecast Utah’s average annual wage will increase by 5 percent this year. That’s great news for Utah households, which have endured nine years of wage growth below 3.3 percent. The challenge is that higher labor costs increase the cost of doing business.
National forecasting firm Moody’s Analytics calculates Utah’s cost of doing business ranking has changed from 13th most affordable in the nation in 2006 to 21st most affordable in its most recent analysis. That’s a change of eight spots in nine years.
Labor is not the only thing becoming more expensive. Development costs are increasing rapidly. Land, material and regulatory costs continue to rise. This is creating a serious housing affordability problem because too few homes are being built.
Adding fuel to the affordability challenge will be rising interest rates as the Federal Reserve Board continues to normalize monetary policy. The makeup of the Fed’s Board of Governors is changing to be more “hawkish.” I expect three to four 25-basis point increases in the federal funds rate in the coming year.
Even with these challenges, there are many reasons to be positive. The U.S. economy remains steady, adding about 200,000 new jobs every month. More people are moving into Utah than are moving out. This fuels more consumer demand. The Salt Lake City International Airport is an economic gift to the state, pumping over $3 billion of stimulus from airline gate fees, rental car royalties, Federal Aviation Administration grants and past savings into the Utah economy. And let’s not forget a stock market that continues to soar.
For all these reasons, I’m advising business leaders to pay close attention. We live in a prosperous time, but expansions don’t last forever. They say contractions follow expansions like night follows the day. There are a lot of things we know and a lot of things we don’t know.
One thing we do know is the Utah economy is nearly two years ahead of the national economy in its expansion. Our expansion is mature and moderating.
When I was in high school my mother gave me a book by an economist named E.F. Shumacher. I’ve always been fond of a quote from the book that reminds us that judgment is not a four-letter word. Schumacher said:
In his attempt to obtain reliable information about his essentially indeterminate future, the modern man of action may surround himself by ever-growing armies of forecasters, by ever-growing mountains of factual data to be digested by ever-more wonderful mechanical contrivances. I fear that the result is a little more than a huge game of make-believe and an ever more marvelous vindication of Parkinson's Law. The best decisions will still be based on the judgments of mature non-electronic brains possessed by people who have looked steadily and calmly at the situation and seen it whole. "Stop, look and listen" is still a better motto than "Look, it up in the forecasts.”
My judgment tells me we will experience more modest growth in the Utah economy in the coming year.