LARAMIE – Economic metrics produced in the last two weeks for both Wyoming and the U.S. paint a rosy picture of growth. But the factors aiding Wyoming’s recovery aren’t the same as the ones leading to an estimated 4.1 percent growth of U.S. gross domestic product in the second quarter.
On Friday, the U.S. Department of Labor announced the national unemployment rate dropped to 3.9 percent, and the Wyoming Economic Analysis Division’s July report indicates the state’s unemployment rate declined slightly to 3.7 percent in June.
State data show 10 consecutive months of job growth in Wyoming, with 3,700 more jobs in May than there were a year prior.
Housing prices in Wyoming had an annual growth of 3.2 percent in 2018’s first quarter, and building permits are also up.
The recovery has been led by a recovery in oil production. By May, 1,500 new mining jobs had been created in the past year.
In a year-over-year comparison, natural gas production increased 4.3 percent in April, and oil production increased 16.1 percent.
However, the oil and gas recovery isn’t bringing the same number of jobs it had before Wyoming’s economy bottomed out in 2016.
State economist Jim Robinson said oil and gas companies still in business have cut costs and become more efficient.
“More use of automation and less reliance on workers is the current trend,” he said.
By May, oil and gas jobs in Wyoming had grown by 900 – just 7 percent.
The decline in Wyoming’s coal production also appears to have now bottomed out.
The 2018 fiscal year’s production was just 1.7 percent less than 2017. Underground coal mining elsewhere in the U.S. has already started to rebound, though University of Wyoming economics professor Rob Godby noted that increased automation in underground mining is also a trend.
When production in the Powder River Basin eventually picks up, Godby expects slower job growth could also be a trend for Wyoming coal – though any technological advances won’t be felt as much, given how automated surface mining already is.
A July 27 revenue report from the Consensus Revenue Estimating Group, which projects income for Wyoming’s state government, also provided positive news for the state.
Wyoming’s severance tax collections in the 2018 fiscal year were ultimately $58.4 million more – 10.5 percent – than what was brought in during 2017.
The state’s federal mineral royalties are 2.6 percent higher than what was anticipated in January.
Sales and use tax collections are $100.1 million more – 17.1 percent – than last year. In January, CREG anticipated sales and use tax collection would rise just 8.5 percent.
The July 27 CREG report credits the state’s new mineral extraction with boosting tax collection by reviving manufacturing, transportation and professional businesses. By July, sales and use tax collection related to mining was 57.2 percent more than what was brought in during the 2017 fiscal year.
Godby said sales tax collections are one aspect of the Wyoming economy that’s likely benefitted from national economy growth.
Wyoming’s tax collection is helped by the strong economy in Utah and Colorado’s Front Range, as well as tourism from elsewhere in the U.S.
In one of the biggest – and most unanticipated – revenue boosts for the state, the state’s distributed gains for the 2018 fiscal year are expected to be $294 million percent more – 27.2 percent – than what had been forecasted for the year.
“That’s surprising given what’s happened in the markets,” Godby said.
Since hitting a peak of 26,616 points in January, the Dow Jones Industrial Average has dropped about 1,300 points.
Godby said the state’s increased capital gains are likely the result of management decisions in the Treasurer’s Office that CREG wasn’t aware of.
While Wyoming’s latest economic growth is the result of mineral production, the national GDP growth appears to largely be the result of political factors – especially trade.
Most economists have said the 4.1 percent GDP growth is largely the result of increased agricultural exports – especially soybeans – in anticipation of tariffs imposed in a budding trade war spurred by President Donald Trump.
On Wednesday, Trump suggested he’ll impose tariffs as high as 25 percent on Chinese goods. Anticipating tariffs on U.S. goods to be issued in response, commodities traders are now buying American farm products before prices rise.
However, the tariff talk has yet to greatly affect Wyoming, said Wenlin Liu, chief economist for Wyoming.
“We don’t really produce a lot of soybeans,” he said. “Later down the road, if the trade conflict continues, that could affect the livestock operation.”
This week, U.S. Sen. John Barrasso, R-Wyo., credited his party’s policies with spurring the latest GDP growth.
“It’s Republican tax cuts, regulatory relief that’s allowed the economy to grow,” he said. “Consumer confidence is now at a 14-year high, and wages are now noted to be up as well. The economy continues to hit on all cylinders, and it’s a result of the policies that the Republicans – working the House, the Senate and the president together – have been able to pass and put free market principles into action.”
While noting that the White House tariff policies are very much counter to “free market principles,” Godby said Barrasso is right to take some credit.
Godby said the Republican tax bill passed in December likely provided the economy with a boost in capital by changing how companies invest and bringing more money back into American markets. However, that incentive’s effect “dies out over time.”
The regulatory relief touted by Barrasso is less likely to have impacted GDP, Godby said.
Many pre-Trump regulations hated by conservatives – like the Clean Power Plan – never took effect, and many of the regulatory rollbacks promised by Republicans have likewise not yet gone into effect, Godby notes.
If any industry has benefitted from a Republican administration, it’s the energy sector Wyoming relies on.
Rather than being impacted by rule changes, Godby said the energy sector could be benefitting from less enforcement by the Environmental Protection Agency.
If there’s a “cloud on the horizon” of the U.S. economy, it’s that wages aren’t rising significantly while there’s low unemployment, Godby said. That’s likely the result of “marginally attached” workers rejoining the labor force for the first time since the 2007-08 financial crisis.
With a new group of people joining the workforce, the unemployment rate can remain low without companies becoming more competitive with wages, Godby said.
It’s also hard to predict the future for the U.S. economy given the “uncertainty that the administration has made around trade,” he said.
“(Trump’s) basically picked a fight with everybody on trade,” Godby said. “It’s a very different policy than what any administration has had for decades.”
With tariffs reaching levels not seen since before World War II, Godby said it’s “very likely that there will be some kind of unintended consequences.”
After the U.S. having seen 10 years of consistent economic growth, Godby said lingering “wounds” of the Great Recession could also lead companies and consumers to expect the economy to eventually tank.
“In a worst-case scenario, consumers will stop spending. If they stop spending, we will be in a recession,” he said. “A big aspect of the economy is psychological, and psychology is hard to predict.”