Econ Matters: When will it begin to feel like a recovery?
Further, the National Bureau of Economic Research experts on business cycles proscribed that the recession ended in June 2009. So at the national level, we must have spent more than a year enjoying economic recovery.
Although there were productivity gains realized during 2010, employment gains did little to dent the losses accumulated during the recession. Moreover, the national data show that economic growth slowed during the second half of the year.
With modest improvement and some sign that growth is slowing, the more agnostic among us will ask: When will it feel like a recovery?
According to the broadest measures of local economic activity, there is a sense that Columbia’s economy is gaining momentum. These signals, at best, contradict the national evidence or suggest that we are due for a slowing.
By looking at year-to-date sales tax collections for Columbia, we see a pattern of early year declines followed by steady, albeit modest, improvement during the course of 2010. Sales tax collections are useful indicators of current and future economic activity. Because consumer spending accounts for such a large fraction of total economic activity and because the retail sales tax base is related to consumer spending, we pay attention to these receipts. In addition, consumer spending reflects households’ forecast of their expected future economic situation.
In my analysis, I focus on year-to-date values more than month-to-month fluctuations in sales tax collections. There are ample data considerations for making this choice, the most important being that year-to-date values allow one to get a clearer signal.
Here is what we know: Through September 2010, year-over-year city sales tax has increased 2.2 percent. After recording reductions between October and February, year-to-date sales tax receipts have been reported growth rates that have increased to the 2.2 percent rate. This improvement has been recorded for seven consecutive months. Hotels, theaters and petroleum products have reported the strongest growth among the categories of local taxpayers.
The takeaway is consumer spending did improve during 2010, though 2.2 percent is not robust growth. Such growth does not signal that Columbians are expecting economic growth to be very strong in the near future.
The sense that the recovery is modest appears in other reports regarding the local economy. Compared with a year ago, Columbia’s unemployment rate has edged down. In October 2010, the unemployment rate stood at 6 percent, down from 6.3 percent the year before. Columbia reported employment growth equal to 0.9 percent during this period. Compared with Missouri statewide, Columbia is an oasis of economic strength. Between October 2009 and October 2010, Missouri reported employment losses.
Still, the first year of economic recovery will frequently see employment rebound. In this recovery, the bounce back was as if the air had been let out of the ball during its decline.
Based on data from Columbia’s city utilities, growth is modest. The number of residential sewer customers increased 1 percent in 2010. Commercial customers increased at a 3.3 percent rate. Note that commercial sewer customers are one-tenth the size of residential customers.
After looking at broad measures of economic activity, economic data are limited to specific sectors. The signal from the local construction and real estate sector reflects the same modest recovery.
The number of building permits for detached single-family homes fell from 23 in 2009 to 21 this year. However, the value of the permits increased to $4.5 million in 2010 from $3.8 million in 2009. So fewer new houses were planned, but the average new house was more expensive.
Commercial building permits fell more dramatically, from 28 in 2009 to 14 in 2010. The value of the commercial building permits was even more dramatic, falling to about $800,000 this year from about $10.5 million in commercial permits in 2009. Overall, the construction sector is not experiencing the economic recovery.
Economic recovery is almost always bumpy. Locally and nationally, this one is relatively slow and uneven. There are pockets in which modest growth is being reported while other sectors are still mired in recession.
Looking forward, there are signs of improvement. Within the past several weeks, many professional forecasters have raised their predictions for 2011 growth by one-quarter to one-half a percentage point. Such gains might not seem like much. A lot of people will benefit if economic growth is closer to 3 percent than 2 percent. Then it will feel more like a recovery.