Robert Spendlove, an economist and senior vice president at Zions Bank, presented a mixed view of Idaho’s economy Tuesday at a small business conference organized by Google in Idaho Falls.
“Idaho’s economy is doing very well,” Spendlove said.
Idaho experienced the third-highest rate of population growth in the nation last year. The overall economy is booming. In most months since late 2011, more businesses have been created than have gone out of business. Exports have grown rapidly, and the products Idaho exports have become more diverse.
Spendlove asked the small business owners in attanedance about several constraints on their business, asking which were the greatest. Few or none said it was the regulatory climate. Several said finding qualified employees was the biggest challenge. One added the high and rising cost of health care.
But the economy has reached a somewhat precarious moment, Spendlove said, where low unemployment is constraining businesses without leading to wage growth. Spendlove also predicted that another recession isn’t too far away.
Spendlove said unemployment has fallen so low that it may be hindering economic growth.
In an interview, Spendlove said he had spoken with one mayor who was trying to attract a major employer. The mayor had bragged about the low unemployment rate, and that was enough to scare off the business, Spendlove said. Without an unemployed population, it could be difficult for the company to find employees.
When the unemployment rate is low — and in Idaho it has been far below the “natural rate of unemployment” that economists expect in a good economy — or when there are too few workers with the necessary skills, economists expect robust wage growth. But Idaho’s unemployment rate has been below 5 percent for more than three years, and wages have barely budged.
“That’s one of our greatest struggles,” Spendlove said.
Spendlove said it’s a vexing problem that economists still don’t fully understand. Every time new economic numbers come out, employment improves; the number of people who have been discouraged from seeking work drops; but wages remain stubbornly low.
“Everyone is just scratching their heads,” Spendlove said. “It doesn’t make sense.”
One contributor, Spendlove said, has been the abnormally low rate of inflation. Inflation has been stubbornly stuck below the Federal Reserve’s target of 2 percent since the Great Recession, with only a few brief periods of higher inflation.
The low rate of inflation means that prices are rising more slowly than they usually do in a healthy economy, and that may mean companies can’t raise the prices of their goods and services quickly enough to pay their employees more, Spendlove said.
Spendlove said it’s not clear what would cause wages to start rising again, as they did in the 1990s, the last period of significant real-wage growth. And while the economy seems healthy now, he foresees another recession, perhaps within two years.
A recession could come from the Fed raising interest rates in an attempt to prevent or deflate asset bubbles — and some already believe the stock market is in a bubble, he said. Or it could come from the bursting of such a bubble, or from a sudden change in commodity prices, or from some unknown cause.
But the longest period in recent memory without a recession lasted about 10 years, he said. It’s been eight since the Great Recession. Everyone always thinks “this time is different,” he said during the presentation, but it never is. Every time, it’s the same.
No recession since the Great Depression has been as long and deep as the Great Recession, so the next recession may be much easier to weather. But it will mean higher unemployment, and even less economic pressure for wage growth.