Jan. 7—BOISE — Idaho’s economy should remain among the best in the nation over the next couple of years, although rising home prices and a tight labor market may dampen activity somewhat.
That was the basic message a diverse group of economic analysts had for state lawmakers Thursday morning.
Speaking to the joint Economic Outlook and Revenue Projection Committee, legislative budget director Keith Bybee noted that state revenue collections are running well ahead of projections. That’s largely due to a combination of strong population growth, low unemployment rates and rising wages.
“All of those lead to a very robust economy,” he said.
Even with the historic $163 million tax cut the Legislature approved last year, Bybee said, income tax collections through the first five months of fiscal 2022 are up nearly 10 percent compared to the same period of 2021. They’re also running $110 million ahead of projections.
The Division of Financial Management will release an updated revenue forecast Monday, in coordination with the governor’s State of the State Address and fiscal 2023 budget recommendation.
Given the strong revenue collection activity over the past several months, Bybee expects the forecast to increase. However, he also added a note of caution.
Following major revisions in the federal tax code in 2017, he said, Idaho made similar changes in its tax laws and “completely redefined our definition of income.”
What that meant in practical terms, Bybee said, was that the state revenue forecast was essentially “flying blind.” It could no longer rely on past history to serve as a guide for future expectations.
The COVID-19 pandemic also played havoc with economic projections. Last year, for example, state general fund revenues came in almost $905 million or 18 percent ahead of forecast. By comparison, the highest forecast error during the previous decade was 6.4 percent and the average was 2.6 percent.
“We’ve had three tumultuous years — and that may be underselling what’s been going on,” Bybee said. “There is some uncertainty out there, I’ll say it that way.”
Craig Shaul, the research analyst supervisor for the Idaho Department of Labor, also noted that the steep rise in housing prices and tight labor market could affect growth rates in the future.
The latest figures from November, for example, put Idaho’s unemployment rate at 2.6 percent — slightly above the all-time record low of 2.3 percent and about half the long-term average.
With 4 to 5 percent unemployment, Shaul said, employers have a reasonable expectation of finding someone to fill any job opening.
“At 2.6 percent, we’re in a labor shortage where employers are trying to lure workers away from each other,” he said. “The competition isn’t just for customers, but for workers to get the job done.”
As of November, Shaul said, about 24,000 Idahoans were unemployed and looking for work. That was down from about 100,000 at the beginning of the pandemic.
There were nearly 56,000 job postings that same month, he said, or 2.3 jobs for every available worker.
At the same time, the job participation rate — the percentage of adults who are either employed or actively looking for work — hit a record low in Idaho of 62.3 percent.
“A lot of that is people choosing to retire early,” Shaul said.
Housing prices in Idaho have increased as well. Between 2015 and 2021, prices jumped an average of 150 percent, he said. That was five times the national rate, and five times the rate of personal income growth.
All those factors together could hinder economic growth, because workers either can’t afford to live here or are simply choosing to withdraw from the labor market.
However, while Shaul recommended that lawmakers keep an eye on these issues, he didn’t expect them to have a significant negative impact on the state’s economy over the next few years.
“One thing in Idaho’s favor is population growth,” he said. It’s been one of the fastest — if not the fastest — growing states in the nation over the past decade, and that influx of people should continue to drive economic activity.
After taking input from a number of public and private sector economists Thursday and today, the 18-member Economic Outlook Committee will get out its crystal ball and provide its own revenue estimates for the remainder of fiscal 2022 and for fiscal 2023.
The joint budget committee will then take that recommendation, combined with the recommendation from the governor’s budget office and determine what revenue figures to use as it crafts a revised budget for fiscal 2022 and a new budget for fiscal 2023.
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