Utah Foundation report predicts lingering impacts from economic recession
Although the economic recession currently affecting the nation and Utah may be nearing an end, the negative impacts will likely linger for many months.
Utah Foundation has released a new research report, charting the economy's performance during the 10 recessions since 1948, including an analysis of the current financial situation and how it is impacting Utah.
Entitled Economic Recessions, Taxes and Utah: Lessons Learned From the Past, the evaluation's highlights include:
The average length of recessions since 1948 registers at 11.6 months.
However, it takes an average of 21.3 months for the United States economy to fully recover from a recession.
Utah's economy has diversified during the last 54 years.
Utah's financial situation appears more similar to the national economy in terms of employment than during any prior recession.
Utah has been faring better than the nation as a whole during the current downturn.
But recent job losses reported throughout the state have increased at a surprising rate.
The tax most affected by the recession is the corporate franchise tax, due to plummeting corporate incomes.
Individual income taxes are growing while sales tax remains flat.
Past evidence indicates that, even if the current recession ends very soon, state and local revenues will likely languish for many months while the economy recovers to pre-recession levels.
"Even if the recession is over tomorrow, it will probably continue to dampen tax revenues and business activity for the rest of 2002 and possibly into 2003," noted Stephen Kroes, director of Utah Foundation.
"When people hear that the recession is over, they are sometimes surprised that it's still difficult to find a job, unemployment remains high and government budgets are still in the red. The end of a recession is the bottom of the cycle. It takes some time after that for the economy to get back to normal levels," pointed out the foundation director.
In the current downturn, the state's unemployment level has been mild compared to past recessions.
However, a large decline in the number of jobs in Utah during January 2002 suggests that the effects on employment statewide are just beginning to be felt.
The effects on Utah tax revenue, however, are already a concern, pointed out the foundation.
At press time for the report, the state budget shortfall was estimated at $202 million. The state's financial shortfall has since jumped to $256 million.
The largest revenue shortfall has been witnessed in the corporate franchise tax as corporate profits have plummeted, reiterated the foundation.
Revenues from the tax are currently half the amount posted during the same time period of fiscal year 2001.
Compared to last year, sales and use tax growth is flat and individual income taxes are growing, but not at the rate expected in the budget, concluded the Utah Foundation research report.