Utah economy ‘firing on all cylinders’

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Utah’s economy is doing well, and so is the national and local economy. Those words of encouragement come from Robert Spendlove, senior economist for Zions Bank, who recently visited Logan and participated in a Cache County Economic Summit.

Business and political leaders from throughout the region attended the summit and Spendlove says they discussed conditions affecting the national, state and even the regional and local economy. He says they also discussed some of the current challenges facing those economies.

Unemployment levels in Cache, Rich and Box Elder counties are very low. The national rate is 4.4%, but Cache County’s at 2.8%, the lowest in the state. Unemployment rates for Box Elder and Rich counties are also very low.

“What that reflects is a very tight labor market. Job growth is so strong and plentiful. It really is kind of a struggle. When you have unemployment so low, it’s great for the economy, but it can also constrain the economy. We’re hearing quite a bit about labor shortages.”

Spendlove says one of the areas facing the greatest shortage right now is in the building industry. He says the demand on qualified workers has slowed construction growth because there aren’t enough of them.

Overall, the construction industry has been one of the strongest drivers of the Utah economy over the past year. Over 3,100 construction jobs were added in the state, which signifies a 3.5% growth rate. Median home sale prices are also approaching pre-recession highs. Spendlove says the median home sale price in Utah is around $260,000 and the all-time high was at $270,000. He says foreclosures throughout the state are also down significantly.

Residential construction activity is up but it is nowhere near the pre-recession numbers. He says approximately 20,000 building permits were issued in the state in 2015 and a similar number is expected for 2016. He says as high as that sounds, nearly 27,000 building permits were issued right before the recession and the building frenzy helped contribute to an economic bubble that ultimately burst.

Spendlove does have some concerns, and that is in the value of new construction, which has nearly risen to pre-recession levels.

“Our fundamentals are there,” he says. “Our household formation is strong, our population growth is strong, our economic growth is strong. But it appears that new construction is getting very expensive, which is starting to price out new homeowners or people entering the market for the first time.”

The Utah economy is doing well overall and has been recognized by numerous national publications for its current economic conditions. Spendlove says it is due to a dynamic employment mix and strong population growth over the past two decades, plus a strong Western U.S. dynamic. Utah is also consistently in the top five in job growth. When these get added together, Spendlove explains, and considering Utah’s low unemployment numbers, that equals strong wage growth.

“Utah, in the second quarter of this year, had the very highest personal income growth in the country, at 1.4%. So we really see the economy in Utah firing on all cylinders.”

Utah’s employment growth in September was the fifth highest in the country. A few months ago it was number one and is anticipated to be back on top again soon. 

Speaking nationally, he says the economy is improving but there remain some uncertainties which can filter down to the local level.

“The biggest struggle with an election is uncertainty,” Spendlove says of the Presidential race and its affect on the national economy. “Markets don’t like uncertainly. They like predictability. They like to be able to have some idea of what will happen in the future based on conditions today. With a national election that really could swing either way, that uncertainty is higher.”

Spendlove says a perfect illustration of that is what happened Monday to the Stock Market when the FBI announced they would not pursue further litigation against Hillary Clinton. Stocks shot up over 340 points after the announcement. 

“A lay observer may say ‘that shows that markets like Hillary Clinton.’ That’s not what it really reflects,” he explains. “What it really reflects is that markets want certainty. If there is less of a chance of Hillary Clinton being pursued or prosecuted by the FBI, uncertainty goes down and probability goes up. So the markets have reacted strongly.” 

The fundamentals of the local and regional economy are very strong, Spendlove continues, but he says the weakness, or the risk, that we are facing is the impact of national and international weakness. The national economy is not robust and there are weaknesses in China, Europe and developing countries, which means a strong dollar is depressing demand for exports. Another issue negatively affecting the economy is the current price of oil. Low energy prices are nice for consumers, but they are having a devastating impact on areas of Wyoming, the Dakotas and the Uintah Basin.

An increase in interest rates is also a possibility, says Spendlove. The Federal Reserve will meet next month and he expects that they will raise interest rates, most likely by about 25 basis points, or about a quarter of a percent. Current rates are at an all-time low but based on current economic conditions, Spendlove expects the Fed to bring those rates back to normal levels.

Spendlove says people can see more information about current economic conditions locally and regionally at zionsbank.com/economy.

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