Spendlove: 50% percent chance of recession, but Utah will be OK

Brice Wallace 

The economic forecasting season has begun, and Robert Spendlove has thrown out the first pitch.

At the recent Zions Bank 2024 economic outlook event, the bank’s senior economist pegged the chances of a national recession this year at 50-50 but added that Utah likely would get through it OK.

“I’ll tell you that that has been the thing that has gotten a lot of economists scratching their heads, because we all thought it was going to happen in 2023 and it didn’t happen,” Spendlove said at the event, held at the Zions Technology Center in Midvale.

“I still think there’s about a 50 percent chance. A few months ago, six months ago, I was at closer to 65, 70 percent, so I do think that probability of recession has gone down, but there still are some of those factors that could tip the U.S. into a recession nationally. I think locally we are part of the national economy so we are exposed to that risk, but I think we’re well-positioned and if we do go into a recession, I think we’re in a good position.”

Utah has been a “good position” for several years now. Spendlove cited some U.S. News & World Report rankings showing Utah as the best state overall, tops in fiscal stability and the economy. Its population continues to grow, fueled by in-migration. It’s second among states with positive job growth since before the COVID pandemic, and its unemployment rate of 2.8 percent remains low. Utah also has seen its labor participation rate increase.

However, housing affordability remains a bugaboo. Utah home prices relative to household income sits at 6.2 but should be about 3, he said.

“What this is saying is, housing is too unaffordable in Utah,” Spendlove said. “Housing is very difficult, especially for low-income, especially for young families, people trying to get in. And how do you fix that? You essentially need to dramatically drop house prices, you need to dramatically increase income or you need to start thinking outside the box of what housing looks like. What we’re going to see is more multi-generational households, more multifamily households, and we’re going to have to start talking very seriously about thinking of different ways of what housing looks like in our communities.”

Prefacing Spendlove’s presentation, Scott Anderson, Zions Bank’s president and CEO, likewise had an overall positive outlook for Utah’s economy this year.

“As we head into 2024, our Utah economy remains strong and resilient,” Anderson said. “We continue to benefit from strong population growth and net in-migration, low unemployment and solid job growth. I’m confident that what we’ll see here in Utah will be a strong economy this year and that we’ll continue to thrive, even though other parts of the world and other parts of the U.S. economy may suffer a bit.”

Most of Spendlove’s remarks focused on the national economy, which he said is still being distorted by the effects of the COVID pandemic. That is leading to a lot of economic uncertainty for 2024, just as it affected 2023.

Last year, experts expected the economy to slow or contract, with a drop in GDP and employment demand. “We saw a little bit of that, but the economy ended up being very resilient and very strong,” he said. “We saw inflation has been coming down, employment has been improving, but people are still grumpy. That is one of the things that I hear all the time, is people say, ‘Well, you know, yes, things may be a little bit better, but they’re not the way they should be and they’re not the way they were before.’”

GDP in the third quarter actually jumped, with 4.9 percent growth, but Spendlove told the audience that that is not an accurate reflection of what is happening in the economy.

“I don’t think any of you think that the economy dramatically accelerated in the third quarter, but it’s some of those distortions from the pandemic that we have to be really careful about,” he said. “However, it’s very clear that we didn’t contract. In the third quarter, we didn’t contract in 2023, and this is a sign that the economy is much more resilient than we had expected in 2023.”

Still, the economy could enter a recession in the second or third quarters this year, but he believes it would be relatively mild “and we’ll move through pretty quickly.” The big question is whether any “black swan” events — huge, upsetting surprises — would shock the system and amplify volatility.

Nonetheless, consumer spending, which accounts for two-thirds of the economy, remains strong. Consumers “are all grumpy but you’re still spending,” he said.

“That has been another one of the big surprises, is even with consumers being grumpy — you all went out and bought your Black Friday gifts and you all went out and got holiday presents for everyone and it kept the economy going — but you still are grouchy.”

Spendlove foresees Federal Reserve interest rate cuts this year, inflation continuing to slow but remaining “sticky,” the labor market growing, unemployment increasing, the economy slowing but remaining broadly resilient, and international uncertainty and elections possibly adding to volatility.

Anderson likened the past three years to a roller coaster ride but added that the national economy in 2023 transitioned toward pre-pandemic norms. The Fed raised interest rates and tightened monetary policy, but the economy avoided a recession and remained resilient, he said.

The Fed now figures to lower rates, with the first reduction as early as the second quarter.

“And why would they do this? I believe that they looked at inflation and they saw that it had dropped dramatically from mid-2022 and where it fell from a 40-year high of more than 9 percent in June of 2022 to about 3 percent in November of 2023. But with food and energy prices coming down, getting to the Fed’s target of a 2 percent annual inflation rate could take some time. We’re not there yet.”

Higher interest rates and housing inflation colored consumer opinions about the economy in 2023, but recent consumer surveys have found that people are feeling more optimistic about 2024, he said.

“And this is important,” Anderson said, “as consumer sentiments can drive behaviors like spending and investments, often acting as a self-fulfilling prophecy.”