OKLAHOMA CITY – “Are we in a recession? is the most common question economist Russell Evans asks himself these days.
“We’re not there yet, but you’ll know when we get there,” Evans said Tuesday during his midyear economic outlook report to the Oklahoma City Council.
The recession represents more than a few quarters of decline in gross domestic product, he said. This will lead to widespread job losses, higher unemployment rates, lower wages and salaries and lower incomes.
Right now, the data is inconsistent, Evans said.
Oklahoma’s real GDP – a measure of total economic activity – fell 3.7% between the fourth quarter of 2021 and the first quarter of 2022, but at the same time, non-farm employment increased by 3 .7%.
“Contradicting data shows that many states produce fewer goods and services but do so with more people,” Evans said. A big part of that is the economy catching up with the political response to the pandemic, he said. “The labor market is still very strong even though economic activity is weakening.”
Employers are still adding jobs. They try to get a sense of where things are and where they are now, but don’t necessarily look to the future, Evans said.
In February, he predicted that nonfarm employment in Oklahoma City would grow 4.1% in 2022, and in the first five months of the year it grew 3.8%. Forecasts indicate that employers will want to hire, but the challenge will be whether they can find workers. “Right now they’re finding people and filling positions,” Evans said.
The city hires Evans as a contract economist. He is Associate and Chief Economist of the Thorberg Collectorate and former Acting Dean of Business at Oklahoma City University.
“With the way things are going in the economy, they’re so unpredictable at this point, it’s really helpful to have his ideas and his help,” City Manager Craig Freeman said.
Evans said the other big question today is, “What can we do to mitigate the effects of inflation on households?”
“If the Federal Reserve is diagnosing inflation as a problem of excess demand, which it has, and if it intends to rein in that excess demand by tightening financial conditions, which it appears to be, it doesn’t there’s just not much that states and cities can do about it,” Evans said.
The difficult task is how to prepare for the pain ahead, he said, noting that Federal Reserve Chairman Jerome Powell has repeatedly said there will be pain.
“What we’re still trying to figure out, of course, is the duration and the depth of this economic pain,” Evans said. “The Federal Reserve is trying to work its way up to make this pain manageable but big enough to achieve its goals.”
The US economy is slowing at a very modest pace, he said. It shows in the monthly data – the rate of job openings is slowing, credit card delinquencies are increasing, the average number of days homes are on the market are increasing, and the growing number of homes being priced down before the sale.
Powell looks back to the 1970s when the Fed’s unwillingness to keep monetary policy tight enough for long enough meant that its policy had to be even tougher in the early 1980s and trigger an even deeper recession because they missed the opportunity on their first try, he said.
The Fed says a “mild but manageable recession” is better than trying to avoid a recession altogether and risk having to be more aggressive to offset that early release of the brakes, he said.
Oklahoma and Oklahoma City continue to have strong economies, though the oil, gas and agricultural industries are underperforming compared to other states, Evans said.
He noted that there is some shift in consumer behavior, not yet in how much people spend, but what they buy.
Sales tax collections are indexed to inflation, and inflation has not peaked, Evans said.
“As inflation increases, the value of these transactions increases; as the value of these transactions increases, the sales tax checks increase,” he said.
The first quarter of the fiscal year shows sales tax growth of approximately 8.2%.
“The inflation that is indexed into your sales tax will not immediately come out of the system. It will happen slowly,” Evans said. A pattern shows it could return to long-term levels by the start of the next fiscal year.