What does 2023 hold for Utah’s economy? It will go one of three ways

In its report to the governor, the Utah Economic Council says interest rates will set the pace.

(Francisco Kjolseth | The Salt Lake Tribune) On Wednesday, June 29, 2022, new housing will be built in Eagle Mountain. Rising interest rates have made it harder to address Utah’s housing deficit.

The Utah Economic Council has issued its annual “Economic Report to the Governor,” and how Utah’s economy plays out over the next year will largely depend on what happens nationally and globally.

In particular, interest rates — the Federal Reserve’s main tool for fighting inflation — could determine whether Utah continues to experience high growth (2% to 4% increase in GDP), slower growth (0 to 2%), or a mild recession (Jan % to 1%).

Rising interest rates are also exacerbating Utah’s biggest challenge: housing.

“We still have this backlog from the Great Recession of a housing shortage,” said Phil Dean, chief economist and senior research fellow in public finance at the Kem C. Gardner Policy Institute and co-chair of the council.

The council consists of 30 economists and other experts from the public and private sectors. It publishes an annual economic report ahead of the legislative session, which begins on Jan. 17 this year, part of the University of Utah’s David Eccles School of Business.

While nothing in the report indicates a slowdown in Utah’s economy, uncertainty mounted in 2022. The nation danced with a possible recession due to rising interest rates but also continued to face low unemployment.

“The post-pandemic economy has transformed many traditional economic relationships. These economic shifts make accurate predictions difficult, as it is unclear if or when old patterns will return, or if new arrangements will chart a different economic course,” the report highlights say.

Here are the three scenarios of the report:

“Sustained growth: inflation is falling, interest rate hikes are stabilizing, historically high financial reserves and low debt support consumer spending. With recent hiring challenges and international geopolitical and supply chain challenges stabilizing, employers are working to retain employees, which combine to create 2% to 4% real GDP growth in 2023 (similar to Q3 and Q4 in 2022).

“Shallow recession: High inflation is slowly coming down. Continued rapid rate hikes are driving down consumer and corporate demand for large capital acquisitions. Significant construction delays and redundancies extend largely to other sectors. The ongoing international challenges remain disruptive similar to 2022, resulting in a relatively short (two to three quarters) and slight change in real GDP of -1% to 1% in 2023.

“Growth deceleration”: Inflation weakens somewhat. Rate hikes continue but are slowing. Households’ financial buffers (like short-term savings) are only partially offsetting broader economic challenges, including layoffs in interest-rate-sensitive sectors like construction, resulting in real GDP growth in the 0% to 2% range in 2023.”

A particularly acute impact of interest rates in Utah has been a decline in housing permits at a time when housing is not keeping pace with population growth, making it even more difficult for the state to meet its housing shortage. Builders must obtain housing permits from cities or counties prior to construction. An apartment is a house or an apartment building.

(Christopher Cherrington | The Salt Lake Tribune)

More than 40,000 residential permits were issued in Utah in 2021. That number fell below 30,000 in 2022 as rising mortgage rates pushed buyers out of the market, and the report estimates approvals will be closer to 23,000 in 2023 and 2024.

Still, Dean believes the state has some advantages. “I think we have an opportunity to increase housing supply when other states might not be able to.”

Above all, he sees two levers that the state could pull. One of them is the zoning policy. Even some suburbs are now beginning to accept more housing per acre. The other uses the remaining government stimulus dollars to build more infrastructure, such as water and sewage, to support housing development.

Michael Parker, vice president of strategy at Ivory Homes and a member of the council, said that in addition to zoning, cities need to streamline their permitting processes for new construction and have better defined affordable housing plans required by the state.

Parker expects the Utah Legislature to increase both the carrot and the stick for cities during the upcoming session to address housing issues, but the state can’t simply buy its way out of the problem.

“We need public policy change to address this problem because we cannot subsidize ourselves to solve it,” Parker said. “We could spend all of the budget surplus and wouldn’t be in a better place.”

https://www.sltrib.com/news/2023/01/12/what-does-2023-hold-utah-economy/ What does 2023 hold for Utah’s economy? It will go one of three ways

Justin Scacco

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