An updated economic forecast suggests Idaho will see a modest slowdown in employment growth next year but won’t dip into a recession regardless of what happens nationally.
The state Division of Financial Management released the updated forecast this week. It’s based on the latest national forecast from IHS Markit, a London-based firm that provides global economic projections.
A number of economists think the United States is already in a recession, after gross domestic product declined during the first two quarters of 2022.
GDP edged up at an annual rate of 2.6% during the third quarter ended Sept. 30. However, IHS Markit expects growth to dip again over the final three months of the year, followed by a continued decline through the first half of 2023.
Overall, the company sees the U.S. economy contracting by about 4% before the recession ends. It also reduced its growth forecast for the remainder of 2023 and 2024.
“It’s clear IHS is viewing growth as more difficult to attain,” noted the Division of Financial Management. “With the switch in IHS’s position, it’s worth reconsidering the likelihood of a gloomy future for Idaho.”
After doing just that, Greg Piepmeyer, the division’s chief economist, determined that the state’s economy should stay on its upward path.
“After evaluating the risks and data in this report, it is our conclusion that Idaho is not currently in, nor headed for a recession,” Piepmeyer wrote. “This is true even if the nation overall experiences economic contraction over the next several quarters. However, growth in Idaho in terms of population and jobs is expected to slow down.”
The forecast calls for continued in-migration into the state, with the overall population increasing from about 1.94 million this year to 2 million in 2025.
Nonfarm employment is projected to increase from 829,000 to 895,000 during that same period.
“It’s difficult for an economy to contract while simultaneously adding more people, jobs and higher wages,” Piepmeyer noted.
The only major blip highlighted by the report is in single- and multi-family home construction, which is predicted to drop nearly 24% in Idaho next year, followed by an additional 7.5% decline in 2024.
Nationally, IHS is projecting a 22% decline in housing starts next year, followed by about an 8% increase in 2024.
That slowdown is largely driven by higher mortgage interest rates, which have more than doubled this year in response to the Federal Reserve’s aggressive efforts to bring down inflation.
The central bank has increased the benchmark overnight lending rate by 3% this year, with another 0.75% increase expected today. That in turn has driven 30-year fixed mortgage rates up from about 3.22% at the start of 2022 to about 7.2% as of Tuesday, according to finance company Freddie Mac.
“Today, rates of inflation not seen in 40 years and strong moves by the Federal Reserve to constrain inflation are the primary causes of heightened recession risk,” notes the DFM report.
The U.S. Bureau of Labor Statistics doesn’t calculate inflation at the state level. However, it does look at regional price increase, and the western U.S. and intermountain states typically experience the highest inflation in the country.
“This is likely driven by high levels of migration into the area, and higher average gas and other fuel prices,” Piepmeyer wrote. If that’s the case, “Idaho may be experiencing some of the worst (inflation) in the nation given our high levels of in-migration and limited access to fuel refineries.”
The Division of Financial Management’s October economic forecast, together with other economic and revenue reports, can be found online at dfm.idaho.gov/publication/economicpublications.
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