On July 13, a sign reading “Hiring Now” is displayed outside Staker Parson in Salt Lake City. Utah’s economy is doing well, for now, but how will inflation and the looming recession affect the economy? (Laura Seitz, Deseret News)
Estimated reading time: 4-5 minutes
SALT LAKE CITY — Utah’s jobs roundup for the month of June further reinforces the notion that the Beehive state’s economy is doing better than the national economy.
“Currently, the economic numbers are still strong here in Utah,” Mark Knold, chief economist for the Utah Department of Workforce Services, said Friday.
The state’s nonfarm payroll employment for June is up about 3.5% over the last 12 months, with the state’s economy adding a cumulative 56,300 jobs since last June, bringing Utah’s current job count to 1,666 300, according to the June 2022 report from the Utah Department of Workforce Services. Employment Summary.
Additionally, the unemployment rate is “historically low” at just 2%, well below the national average of 3.6%, according to the summary.
“History has shown that when the economy is running at such a vibrant pace, it doesn’t stay there for long. Usually something exogenous comes along to temper such a frenetic pace,” Knold said. “The economic harbingers of such a change may be before us.”
The main omen is economic inflationhe said.
“When prices rise sharply in the eyes of the consumer, it negatively affects both their economic psychology and their enthusiasm,” Knold said.
Due to the negative influence that inflation has, Knold noted that those who guide the government’s actions with respect to the economy may tend to take an aggressive stance on inflation with the intention of returning inflation to a more passive economic position.
“The board of governors of the Federal Reserve System, or the Fed, are the overlords of the nation’s economy,” Knold said.
When inflation is high how it is now, the Fed’s tendency is to raise interest rates in order to lower inflation.
This process, however, may slow or impede the US economy, Knold said.
“Everyone expects the Fed to move aggressively to raise interest rates in order to reduce inflation, even if it means stopping the overall economic pulse of the US in the short term,” he said.
What factors drive inflation?
So what is driving inflation?
Knold said there are multiple factors, some the Fed has influence over and some it doesn’t.
“Disruptions in the supply chain of products have limited the flow of goods from other countries, such as China, which contributes to rising product prices and thus fuels inflation,” Knold said. “The Fed does not have the power to reopen supply chains.”
He added that Russia invasion of ukrainethat has skyrocketed gasoline prices, is not something the Fed has control over.
“In contrast, a national economy in which workers’ wages are rising rapidly, producing rising prices that contribute to inflation is something that falls under the purview of the Fed,” Knold said.
He pointed out that while the Federal Reserve does not have the absolute power to alter inflation, it does have the power to make consumers change their spending habits.
“If you can’t increase the supply of goods, your other option to maintain price stability is to reduce domestic demand for goods,” Knold said. “That’s what many expect from the Fed moving forward and many anticipate a US recession in 2023 because of this.”
Utah’s Economic Health and the Job Market
If a recession hits, Knold said the current health of Utah’s economy, which is at the “most favorable level possible,” will work in the state’s favor.
“There is plenty of room for economic slowdown before that weakening moves to levels that become painful and damaging to the economy,” Knold said.
He also noted that the Utah housing market could use some time to invigorate supply while demand recedes a bit.
“The current hyper-restricted labor market may have such a unique composition that what we would normally expect from recessions, such as notable amounts of job losses and high unemployment, may not be the results we will see if a recession were to emerge within the next year,” Knold said.
Knold said a national recession “looks very likely” next year. What is less clear, he said, is how that recession will affect both the US and Utah economies.
This is due in part to the fact that there has never been a time when the US has faced so many workers leaving the workforce without an equal (let alone excess) force aging.
“Future recessions may not have as many hiccups and disruptions in labor markets as in the past,” Knold said. “Setting new levels of recession expectations may be part of the economic stories of Utah and the United States going forward.”