A “Now Hiring” sign is pictured in front of Staker Parson in Salt Lake City on July 13. Utah’s economy is strong for now, but how will inflation and a looming recession affect the economy? (Laura Seitz, Deseret News)
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SALT LAKE CITY — Utah’s employment summary for the month of June further reinforces the notion that the Beehive State’s economy is doing better than the national economy.
“Right now, the economic numbers are still strong here in Utah,” said Mark Knold, chief economist for the Utah Department of Workforce Services, on Friday.
The state’s nonfarm payrolls in June rose an estimated 3.5% over the trailing 12 months, with the state’s economy adding a total of 56,300 jobs since last June, bringing the current number of Utah jobs to 1,666,300. according to the Utah Department of Workforce Services’ June 2022 Summary of Employment.
In addition, the unemployment rate is “historically low” at just 2%, well below the national average of 3.6%, the summary said.
“History has shown that an economy that runs at such a dynamic pace does not stay there for long. Usually something exogenous arises to dampen such a rapid pace,” said Knold. “The economic portents of such a shift may lie ahead.”
The main omen is economic inflation, he said.
“If prices rise noticeably before the eyes of consumers, this has a negative effect on both business psychology and enthusiasm,” says Knold.
Because of inflation’s negative impact, Knold pointed out that those who direct government actions in relation to the economy can tend to take an aggressive stance on inflation, with the intention of turning inflation back into a more passive economic position bring to.
“The Board of Governors of the Federal Reserve System, or the Fed, are the influential overlords of the country’s economy,” Knold said.
When inflation is as high as it is now, the Fed tends to raise interest rates to bring inflation down.
However, this process could slow down or hamper the US economy, Knold said.
“Everyone expects the Fed to act aggressively to raise interest rates in a bid to bring inflation back down, even if it means the broader US economic pulse is curbed in the near term,” he said.
What factors are driving inflation?
So what drives inflation?
Knold said there are multiple factors, some over which the Fed has control and others over which it has no control.
“Disruptions in the product supply chain have restricted the flow of goods from other countries such as China, which has contributed to higher product prices and thereby fueled inflation,” Knold said. “The Fed doesn’t have the power to reopen supply chains.”
He added that the Russian invasion of Ukraine, which has pushed up gas prices, is not something the Fed has control over.
“Conversely, a domestic economy where workers’ wages are rising rapidly and producing rising prices that contribute to inflation is something that falls under the control of the Fed,” Knold said.
He noted that while the Fed doesn’t have the absolute power to change inflation, it does have the power to get consumers to change their spending habits.
“If you can’t increase the supply of goods, your other option for maintaining price stability is to reduce domestic demand for goods,” Knold said. “That’s what many are expecting from the Fed, and many are anticipating a US recession in 2023 because of this.”
Utah’s Economic Health and Labor Market
If a recession comes, Knold said the current health of Utah’s economy — which is at “the best possible level it can be” — will work in the state’s favor.
“There is plenty of scope for an economic slowdown before such a weakening moves to levels that become painful and detrimental to the economy,” Knold said.
He also noted that the Utah housing market may take some time to pick up supply while demand dwindles somewhat.
“The extremely tight labor market right now can have such a unique composition that what we would normally expect from recessions – like tangible job losses and high unemployment – may not be the results we will see if it were to come within a recession next year,” said Knold.
Knold said it “appears very likely” that a national recession will occur within the next year. What’s less clear, he said, is how this recession will affect both the US and Utah economies.
This is partly because the US has never seen so many workers retiring without an equal (let alone excessive) aging of the workforce.
“Future recessions may not affect and disrupt labor markets as much as they have in the past,” Knold said. “Defining new levels of recession expectations could be part of future economic history for Utah and the United States.”
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Logan Stefanich is a reporter for KSL.com covering the communities, education, economy and military of southern Utah.
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