Utah Outlook
Winter 2005

Best Since ‘98
The Utah economy continues to surprise on the upside, with strong gains in total employment a welcome change following three years of economic stagnation. Utah’s job gains of the most recent 12-month period were the strongest in six years. More importantly, we expect solid employment gains to continue in 2005 and 2006.

Utah’s impressive economic rebound is in line with a similar rebound of other states in the Intermountain area. As is usually the case, Nevada is leading the nation in job gains, while Arizona, Colorado, Idaho, and Wyoming are also performing better. Each state in the region is benefiting from the strongest U.S. and global economic growth in a generation.

The Utah economy has added roughly 34,000 net new jobs over the most recent 12-month period, a growth rate of 3.1%. Not since 1998 has the state enjoyed job growth as strong as the current period.  We expect job gains in 2005 of roughly 2.2%-3.2%, an addition of roughly 25,000-35,000 net new jobs.

Quality
Various voices note the stronger level of job gains in both Utah and the nation of the past 12-15 months. They have suggested, however, that while the quantity of jobs has improved, the quality of new jobs is somewhat poor.  We beg to differ…

The majority of new jobs added in Utah and the U.S. over the past year have been in professional/business services, construction, health care, energy, and financial activities. Manufacturing jobs also rose in Utah and across the nation. Job additions in retail trade and the tourism sectors, typically lower wage jobs, have actually been modest.

Utah’s unemployment rate has averaged 4.6% since May, a major improvement from the 5.9% average of 2002 and 2003.  A modestly lower jobless rate is likely in 2005 and 2006, although a surge of new entrants into the labor market could limit such declines.

Construction Boom
The state’s residential and non-residential construction sector is doing well. Extremely attractive mortgage interest rates have allowed thousands of Utahns to purchase their first homes, while also providing the ability for second- or third-time homebuyers to move up the housing ladder.

One change to be expected is stronger home price appreciation across the state.  By various measures, Utah real estate has experienced some of the weakest price appreciation in the country in recent years.

However, a combination of stronger Utah job and income gains, and the fact that Utah real estate is again “bargain priced” when compared to real estate in much of the West, should lead to the strongest home price appreciation since the late 1990s. Many realtors now talk of Californians “cashing out” of sky-high priced real estate and buying much more home for much less money across the Wasatch Front and in Southern Utah.

Total construction spending in 2004 is likely to reach $5 billion and break the record established the year before.  In addition, 2004 will enter the history books as a very solid year in the commercial real estate sector.  Impressive levels of absorption and declining vacancy rates were welcome after three years of relative weakness.

Utah’S Powerhouse
Southwestern Utah can easily lay claim to being the state’s—and one of the West’s—most vibrant areas.  Washington County enjoyed rock solid economic growth in recent years, even as Utah’s population center in the North struggled with recession.

The St. George area has boomed over the past 20 years, led by thousands of retirees and sun-seekers, primarily from the Wasatch Front and California. Washington County employment has risen nearly 10.0% in just the past 12 months, with unemployment below 4.0%. Utah’s Dixie will continue to garner a larger and larger share of overall Utah economic activity.

More Tax Dollars
A positive by-product of much stronger Utah economic performance has been a replenishment of state tax coffers. Solid economic growth has led to a considerable revenue surplus.

We expect surpluses to remain the norm over the next few years.  Higher revenues will be extremely critical in meeting both the state’s funding requirement for a rising school-age population and in continuing efforts to rebuild the state’s transportation system.

Utah in 2005
Solid economic growth now underway is expected to continue in 2005.  Utah’s private sector companies are eager to expand again, following the painful performance during 2001-2003. Vibrant real estate activity should also continue with home price appreciation closer to national norms. Utah’s return to economic vibrancy is a welcome change.
 

Thredgold Economic Associates, 136 South Main St, Salt Lake City, Utah