Economist: ‘It will be different’ as Idaho economy rebounds

Despite continuing hardships from 2020, local finance and economy experts are optimistic about some aspects going into 2021. Moreover, at the state level, Idaho is making a promising comeback, though not without a warning about current and rising housing prices potentially pricing out low-income groups.

Idaho became the first state in the country to regain net positive job growth, said Robert Spendlove, economic and public policy officer with Zions Bank, and Idaho is back to where it was in terms of labor force participation rate. While the nation continues to be down about 6% in net job gains, Idaho is up 0.5%.

Idaho, Utah, and other states in the region are leading the nation’s economic comeback post-2020 and the start of the COVID-19 pandemic. Part of that is due to the vaccine’s rollout. This means parts of the economy that have been constrained will be able to be reopened.

“Luckily things are looking good in our region,” Spendlove said during Zions Bank’s second annual economic forecast presentation in early January. “We should see strong growth in the latter half of 2021.”

Spendlove, focusing on high frequency data, commented on several measures of the economy’s status, including employment to population ratio, labor force participation rate, consumer habits and, of course, unemployment.

“Coming out of it, the economy will continue to struggle,” Spendlove said, adding that’s why continued state and federal support, such as with CARES Act funding, remains crucial.

“We can’t back down now,” he said.

What we’re seeing right now

Jobs and the labor force participation rate are coming back nationwide, but are still hurting.

The labor force participation rate is at a rate not seen since 1972, including the dip seen from 2015-2020 as baby boomers were retiring.

The 2008 recession saw a loss of nearly 9 million jobs, Spendlove said; March and April of 2020 saw a loss of over 22 million jobs. So far, about 12 million jobs are back, but “there’s 10 million people that still haven’t been able to find jobs,” Spendlove said.

“That’s putting a strain on the U.S. economy,” he added.

April 2020 saw a peak unemployment rate of 14.7%, according to Spendlove, which exceeds 2008-09 recession numbers, topping at 9-10%. As of November 2020, the national rate was at 6.7%. Idaho’s, at that time, was 4.8%, according to Idaho Department of Labor.

Long-term unemployment is something to care about, Spendlove said, because the longer someone is unemployed, the harder it is to re-enter the workforce.

“It’s increasing,” Spendlove said. “We want to keep (that) as low as we can.”

Some retail sectors are thriving, but overall gross domestic product spending — two-thirds of the economy — is down.

Every industry has been affected by the pandemic, Spendlove said, the biggest being leisure and hospitality. Also noticeably, the energy sector is still 20% below pre-pandemic.

Support sectors are thriving: Couriers and messenger services are up almost 22%, computers and electronics are up 7.5% and building materials and garden supply stores are up 7.4%.

Fourth quarter in 2019 saw $19.3 million in GDP spending; third quarter in 2020 saw a decrease of $700,000, at $18.6 million. Consumer confidence is a big part of that, according to Spendlove.

“The pandemic is causing people to change their consumer habits,” Spendlove said. “You’re going to see dramatic impacts.”

The nation’s savings rate saw a spike of 33.7% in the pandemic. It’s coming down now, Spendlove said, but is higher than pre-pandemic. One reason is support from the federal government.

“Ultimately, 2021 will be shaped by COVID-19,” said Scott Anderson, president and CEO of Zions Bank, but he, Spendlove, and Zions Bank are optimistic.

“It’s important to keep in mind it will be different,” Spendlove said, calling 2020 and the coronavirus pandemic a “black swan event,” an event characterized as being extremely rare, unexpected, and the impacts being fast and extremely severe.

Inflation, national debt are two concerns

While Spendlove encourages the state and federal governments to continue providing financial aid to residents and businesses alike, a common criticism of that approach is that the nation will see very high inflation. Now, Spendlove said, we are starting to see some signs of it.

A long-term concern, he added, is the growing national debt. It is currently approaching levels not seen since WWII, according to Spendlove. Being in the middle of a pandemic, that’s our first concern, he added. However, once through that emergency, Spendlove advises a focus on the national debt.

U.S. government debt is expected to exceed the size of the economy for fiscal year 2021, according to Spendlove.

“As long as the virus continues to surge,” he said, “the economy will continue to struggle.”

The Q & A session

Following the presentation, participants had a few questions for Spendlove.

Looking at the GDP, was the drop across all (components), or were some components more heavily affected?

Government spending and net exports were two components that grew in the second quarter, Spendlove said. However, the vast majority dropped by 24%, and that was really what dragged the economy down.

What impact will the federal impacts have on the national debt?

“This is one of the biggest debates going on right now,” Spendlove said, and, likely, we will have big inflation later in the year, because we are “flooding the market with cheap dollars.”

Right now, some sectors, like housing and some consumer goods are seeing inflation, though, “we’re not seeing it in aggregate.”

How has the presidential election affected things?

“I think we all agree we have more consistency than we did six months ago,” Spendlove said, and, with current Democratic control across the board, we can expect to see more fiscal stimulus and more CARES funding, in the short term. If this happens, Spendlove said, this would boost the economy, but will increase the national deficit.

Advice for investors

Richard Mebius, portfolio manager for Zions Bank, also had some things to share during the economic forecast presentation that investors might find helpful.

First and foremost, Mebius approached the 2021 stock market with advice: Stay invested, even in a pandemic.

While the situation is an abnormal one, Mebius said, “the volatility is normal,” and should be expected.

“While we would all love to miss the worst days, history suggests that’s really difficult to do,” Mebius said, adding that, often, the best days follow within two weeks of a low. The more days missed, on average, the more is lost, according to Mebius, so he advises investors to stay in the market during such times.

Going into 2021, corporate earnings are expected to increase, according to Mebius, and as interest rates remain low, stocks remain attractive. “There is still room” to get into and rally in a bear market.

Regarding the bond market, the current low return rate could be a challenge, such as in bond attractivity, Mebius said. However, it is still recommended investors diversify their portfolios with bonds, as they provide a buffer when other stocks are struggling.