PROVO — The state and the nation are experiencing record growth, and that trend is likely to continue despite recent concerns of a global health scare, a Utah economic expert says.
Orn Bodvarsson, an economics professor and dean of the Bill and Vieve Gore School of Business at Westminster College, said the country is on a decadelong expansion trajectory that shows almost no sign of faltering anytime soon.
Bodvarsson, who specializes in labor markets and immigration, shared his perspectives on the local and national economies Thursday with an audience gathered at the Utah Valley Convention Center. He said that in spite of what’s going on globally with coronavirus, there’s no indication that Utah or the national economy are heading into a recession.
“My forecast for 2020 is that we should expect a growth rate of about 2% in real (gross domestic product). Inflation should stay at about the same rate. I wouldn’t expect an increase in business defaults, and I wouldn’t expect any interest rate cuts by the (Federal Reserve) for the foreseeable future,” he said.
However, he noted that if the stock market continues to decline and the collective level of panic (about coronavirus) continues to rise, it is possible the Fed could intervene with some accommodative policy.
“They’ve not signaled that yet. It is a possibility. But otherwise, assuming that this coronavirus thing is kind of contained over the next week or two, I would not expect any interest rate cuts in the foreseeable future,” Bodvarsson said.
He also noted that the current economic expansion has already exceeded previous historic norms. In prior years, the national economy typically fell into recession about every seven years or so, but the most recent expansion has gone on for over a decade.
We have been undergoing the longest economic expansion in U.S. business history. It is now 128 months old.
–Orn Bodvarsson, Bill and Vieve Gore School of Business at Westminster College
“Since we cratered during the financial crisis in 2009 and ’10, we’ve been on a steady climb,” he said. “We have been undergoing the longest economic expansion in U.S. business history. It is now 128 months old.”
He said there are a variety of macroeconomic indicators that show the strength of the expansion explaining what’s been driving the ongoing growth.
“The No. 1 driver has been easy money, a very accommodative Fed,” Bodvarsson said. “Interest rates are historically very, very low. They’ve been declining for the last 40 years, and the Fed has been expanding the money supply and that has made credit more and more readily available and it’s lowered interest rates.”
Locally, one area of concern, however, is that some rural counties in the Beehive State have been unable to participate in the historic expansion.
“It’s kind of a tale of two Utahs, and that’s a concern to me, the fact that we have such inconsistency across the state with regard to the expansion,” he explained. “Whenever that happens, there’s a likelihood that it’s going to hold the state back.”
He said Utah policymakers have to take the lead and figure out solutions to address the inequitable distribution of the economic gains across the state.
“There’s about three or four counties that actually experienced declines in employment. The thing is that these are counties where there are just very limited economic opportunities, so people are leaving,” Bodvarsson said. “These are counties that are experiencing out-migration. There is a role for policy, whether it’s investment in infrastructure, investment in jobs programs or creating incentives for businesses to locate in these places.”
The second piece of the economy puzzle is that Utah “is really quite dependent on the national economy.”
“There’s a very high correlation between the performance of the nation and the performance of the state,” he said. “If we go into a recession nationally, we will go into a recession in the state.”
He said the third issue of importance in Utah is housing prices, particularly in the Salt Lake region. He said policymakers will need to work diligently on developing long-term solutions that can mitigate the increasing prices of rental and residential housing units, but the problem hasn’t become as extreme as in larger metropolitan areas like New York, San Francisco or cities in the Pacific Northwest.
“There’s definitely room for policy. The argument that I (make) is that until it is clear that housing prices are either deterring in-migration or inducing out-migration from the area, I do not think that they are a significant problem,” Bodvarsson said. “They’re aggravating right now, but they’re not at that level of problem that we’re beginning to see in Portland or in the Bay Area.”