Brice Wallace
The economy has three possible future paths and Utah companies need to be ready for whichever becomes reality, according to a speaker at a recent economic gathering.
Phil Dean, chief economist and public finance senior research fellow at the Kem C. Gardner Policy Institute, told the audience at the recent Economic Outlook & Public Policy Summit to “scenario-plan,” to prepare for the future whether the economy continues as is, faces a recession, or experiences something in the middle of those ranges.
“There’s a lot of uncertainty,” Dean said at the event, hosted by the Salt Lake Chamber. “That’s, for me, the single word of 2023: economic uncertainty. There’s a number of different ways that this can go. Kind of like the economy, risks are very different and you need to respond to them very differently.”
The first scenario would feature continuing growth, in which inflation recedes, interest rate hikes stabilize, historically high financial reserves and low debt levels prop up consumer spending, employers work to retain employees, and international geopolitical and supply chain challenges stabilize. That likely would mean 2023 real GDP growth in the 2 percent to 4 percent range.
The second scenario would be a “shallow recession,” with high inflation shrinking slowly, continued rapid interest rate hikes driving down consumer and firm demand for large capital acquisitions, sizable construction slowdowns and layoffs extending broadly into other sectors, and continued international challenges remaining disruptive similar to 2022. GDP would change slightly.
The third scenario would include decelerating growth, with inflation moderating somewhat, interest rate hikes continuing but slowing down, household financial buffers only partially offsetting broader economic challenges, and GDP growth being zero to 2 percent.
Dean said the economy has “ever-shifting pockets of strength and weakness.”
“We’re still not back to an economic equilibrium in any sense,” he said of the post-pandemic period. “We’re still trying to find that ‘new normal,’ even though we have a lot of stabilization that has occurred in the economy.”
It’s because of those shifts that companies need to prep for any and all possible futures, he said.
“Prepare your response for each of these scenarios,” Dean said. “It’s important for each of us to scenario-plan. Are you going to be able to respond quickly if economic growth is strong? Or, if there is a recession, are you prepared to weather that? And then, finally, if it’s somewhere in-between, are you ready to take advantage of the opportunities that are there?”
Dean said Utah has several strengths that could help the state weather any problems. They include strong population growth, strong job growth, broad-based economic growth, a strong labor participation rate and a low unemployment rate.
“That’s very much a buffer to the economy, that the economy could actually absorb some layoffs and still be OK,” he said of the low unemployment rate. “We’re not a balanced supply and demand right now in terms of labor.”
Utah’s energy prices have shrunk but are still strong enough to encourages production in its energy sector. Tourism remains “very strong.” The number of supply chain disruptions affecting companies have shrunk. Home prices have moderated.
Dean cautioned that a low unemployment rate could result in higher wages.
“I do want to raise a warning voice,” he said. “You see a very big difference between job-switchers and job-stayers in terms of the wage increase. If you want employees in today’s world, you’re going to have to pay for them, or your competitors are going to be paying for them.”
Incentives to keep workers can include not just wages but non-wage benefits. “You need to be looking at each of these,” he said. “I think in some cases in Utah, we have the strategy of cheap, readily available labor that’s always going to be there. I’m here to tell you, it’s not. The Grim Reaper is coming for that business model.”
Utah companies also have had to adjust to the retirement of many baby boomer workers, but Dean said to not expect that to change.
“We’ve been talking about this for 70 years, right?” he said. “This is why I say that the days of cheap, readily available labor are over. It shows up in all sort of different economic and demographic data that you can look at, but it’s our current reality and it’s our future reality.”
Dean is co-chair of the Utah Economic Council, which presented to Gov. Spencer Cox the annual “Economic Report to the Governor.” The council prepares the report under the direction of the University of Utah’s David Eccles School of Business and the Governor’s Office of Planning and Budget.