Important Details
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Consumer Confidence

The Zions Bank Utah Consumer Attitude Index increased 2.4 points to 99.2 in March. The U.S. Consumer Confidence Index® increased 4.0 points to 82.3 in the same period.

Housing Market

In February, the CoreLogic® Home Price Index (HPI) for Utah—which measures home price appreciation—increased 9.6% year-over-year. Nationally, the HPI increased 12.2% during the same period.

Consumer Prices

The Zions Bank Utah Consumer Price Index increased 0.2% from January to February for a trailing 12-month inflation of 1.1%. In the same period, the U.S. CPI increased 0.4% for a trailing 12-month inflation of 1.1%.

Job Report

Utah’s unemployment rate remained at 3.9% February, while the national unemployment rate remained at 6.7 % in March.

May 2014

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Randy Shumway, Zions Bank Economic Advisor

Utah Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

The 2014 Utah Legislative Session concluded last month, marked by often-spirited debate that ultimately led to the passage of 486 separate bills. From improving Utah’s air quality, to increasing funding levels for K-12 public education, these bills highlighted a range of critical issues that will have a significant impact on the state’s economy.

In his annual State of the State Address, Governor Herbert affirmed that improving public education remains a top priority for the state. In alignment with this vision, Utah’s lawmakers made little alteration to the Governor’s proposed $3.6 billion in public education spending. Utah’s House and Senate also approved an additional $62 million to compensate for the estimated 10,300 new students who are expected to migrate to Utah on an annual basis in the coming years. With this funding, districts that are seeing a rapid influx of students will be able to hire teachers, purchase curriculum materials and develop new classrooms and learning environments. Also, lawmakers settled on a 2.5 percent increase in the weighted pupil unit for fiscal year 2015, allowing the state to spend more on each individual student in the public education system. Additional legislation related to education included HB150, a bill that facilitates high-quality professional development of educators in areas related to science, technology, engineering and mathematics (STEM). By creating financial incentives for Utah’s teachers to earn an elementary or secondary STEM education endorsement, this bill also expands the scope of STEM education to 7th and 8th grade students across the state. Investing in the education and skills of Utah’s future workforce will return significant economic benefit as these students enter the state’s job market.

Lawmakers gave special attention to legislation aimed at improving Utah’s air quality. Twenty-two bills related to air quality were introduced—12 of which passed—and over $4.6 million in funding was appropriated. New air-quality-focused legislation provides a tax credit for purchasing energy-efficient cars, funding to help homeowners who rely on wood burning to convert to cleaner fuels, and appropriations for an air quality public awareness program. To reduce the negative impact of poor air quality—from lost tourism dollars to declining public health—these legislative actions are an important step in the direction of promoting more responsible practices.

Another issue that could have a major economic impact for the state involves the potential relocation of the Utah State Prison (currently in Draper). During the 2014 legislative session, lawmakers approved the creation of a commission responsible for identifying a potential site for the prison’s relocation. The commission has been awarded $3.5 million, which will be used to research and bid on potential property. Although the move is not certain, it could be approved as early as in next year’s legislative session. Supporters of the relocation cite the enormous economic potential of the land where the prison is currently located. A report presented to the Prison Relocation and Development Authority estimated that moving the prison would cost roughly $1 billion, but that if the land were then redeveloped with commercial and residential property, it could generate $1.8 billion each year for the state’s economy. In addition to the potential economic impact of the proposed move, lawmakers will focus on improving the state’s prison system when making decisions related to relocation.

Overall, this year’s legislative session brought tangible improvements in public education that will develop a better-skilled future workforce, and improvements in air quality that will promote both economic and physical health. Lawmakers took initial steps toward potentially enhancing the state’s economy by relocating the prison. As state leaders consider upcoming legislative action, their commitment to Utah’s economy, environment, and responsible prison system will benefit the state’s residents.

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U.S. Economic Outlook

Short-term U.S. Outlook: The U.S. economy is picking up momentum as the country’s coldest winter in four years comes to a close. Since a number of weather-related disruptions led to lower-than-expected growth in the first quarter, experts predict that the second quarter of 2014 will mark strong progress in consumer spending and business investment.

Federal Reserve Chairwoman Janet Yellen indicated on record that severe winter weather played a role in weakening economic activity in early 2014. In particular, harsh weather conditions negatively impacted consumer spending levels, which account for roughly 70 percent of overall economic activity. Consumer spending grew only modestly in February, causing experts to revise GDP growth downwardly for the first quarter. January’s consumer spending was revised to 0.2 percent from the month prior, and February’s measure of the same indicator was revised to 0.3 percent. These modest increases caused experts to rethink first-quarter GDP growth, and their estimates now fall in the 1.2– 2 percent range. For the fourth quarter of 2013, consumer spending was revised upward, showing a 3.3 percent increase over the previous three months, which is the strongest pace in three years. This slow start marks another hiccup in an economic recovery defined by inconsistent growth, but analysts believe the second quarter of 2014 will buoy a weak first quarter and set a precedent for strong growth in consumer spending levels through the remainder of the year.

Gains in consumer spending and economic growth through the remainder of 2014 are expected to be generated by a number of interrelated factors. At this point, the impact of last year’s tax increases is fading, personal income levels are rising, and home values are increasing. Personal income levels made significant gains in the beginning of 2014 after making negligible progress at the end of 2013. A seasonally-adjusted measure shows personal income increased 0.3 percent in February from the month prior (after experiencing the same growth in January), marking four consecutive months of increases. While experts believe the gains are impacted substantially by the expansion of Medicaid benefits under the Affordable Care Act, higher proportions of expendable income will generate increases in spending in the future.

Improvements in stock market performance increased consumer spending power and corporate profit levels, thereby positioning businesses to invest in 2014 economic growth. In the fourth quarter of 2013, after-tax corporate profits rose to $1.9 trillion—representing 11.1 percent of the nation’s GDP—and business investment increased to a 5.7 percent annual rate in the same time period. These statistics reveal that businesses remain, to an extent, hesitant to hire amid ongoing national and global economic uncertainty, and that they are instead upgrading equipment and technology to drive productivity and output. While hesitation to hire new workers underlines inconsistent gains in the labor market, business leaders’ conservative build-up of resources positions the nation’s corporations advantageously for future growth.

Long-term U.S. Outlook: The nation’s long-term economic future continues to hinge on significant global factors. For instance, the Crimean crisis serves as a reminder of the risks associated with an increasingly-connected global economy. Uncertainty about the eventual outcome of the situation in the Ukraine and its related economic impact in Europe, China and the U.S. is causing corporations and governments to rethink global strategies. U.S. companies with sizeable investments in Russia—such as General Electric Co., Exxon Mobile, and Boeing Co.—are concerned that sanctions imposed by the U.S. and the EU will impact their interests. At the same time, these corporations could suffer negative impact from any Russian retaliation in response to tightened regulations. U.S. business and government leaders will keep a close eye on developments in the Ukraine, hoping that the situation will not escalate into a conflict that causes further instability. While the U.S. economy has recently gained momentum and is poised for strong growth through 2014, geopolitical unrest could potentially undermine national economic progress in the long term.

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utah labor utah labor

Labor Market

The labor market has started to show signs of real progress with the conclusion of winter, during which severe storms lowered demand and slowed hiring. Both the nation as a whole and Utah in particular saw hiring increase and unemployment claims decrease this month. This improvement suggests that the last few months’ stats have been something of a weather-induced aberration, and not necessarily a sign of a decelerating labor market.

The unemployment rate in Utah remained steady in February at 3.9 percent. There were increases in eight of the ten nonfarm industries, with the biggest growth in Construction, up 6.2 percent, and Leisure/Hospitality Services, up 4.3 percent. On the other hand, the Information industry lost 100 jobs for a decrease of 0.3 percent, and Natural Resources saw no change.

Nationally, unemployment remained at 6.7 percent in March, and 192,000 jobs were added to the economy. According to the Bureau of Labor Statistics, this surge in hiring had no impact on the unemployment rate due to previously discouraged workers reentering the job market. While this number was slightly below the 200,000 jobs experts expected, March’s hiring gains represent steady improvement in the labor market. The largest gains were seen in Business Services (57,000), Health Care (19,000) and Construction (19,000).

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Housing Market

The national housing market continues to move forward, though key indicators show its recovery is more tepid than would be optimal. Housing prices increased 0.8 percent last month, but sales of previously-owned homes fell 0.4% in February, according to the National Association of Realtors. This marked the sixth month in the past seven of decline for previously-owned homes. While much of the decrease in sales can be attributed to rising home prices and increasing mortgage rates, some of the fault can also be ascribed to adverse weather conditions. While existing home sales decreased in the Northeast and Midwest where late-winter storms caused disruption, sales actually increased slightly in the South and West where the weather didn’t have as strong an effect. Weather conditions are bound to improve, but the issue of affordability might not. The Fed has indicated that it will likely tighten rates over the coming years, and the combination of potentially higher interest rates with modest rises in housing prices may dissuade potential home buyers.

Utah’s increasing rate for housing prices—up 0.9 percent—slightly outpaced the national market. Since prices have been steadily increasing for a few years now, a number of Utah-based builders are projecting that demand for single-family homes will continue to rise. Others, however, see affordability as a developing issue and anticipate a movement toward apartment rentals. The jury is still out on which option more Utahns will prefer in the future, but as the state’s population continues to expand, there may very well be room for growth in both areas.

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Zions Bank Utah Consumer Attitude Index

The Zions Bank Consumer Attitude Index (CAI) increased 2.4 points to 99.2 from February to March. The CAI has now increased for five consecutive months. Additionally, consumer attitudes have markedly improved over the last year, as the year-over-year CAI is up 20 points. For comparison, this month’s national Consumer Confidence Index® (CCI) increased 4.0 points to 82.3.

This month’s increase in the CAI was largely due to swelling confidence in current business conditions. Forty-one percent of Utahns think that business conditions are good, while only 8 percent think conditions are bad and 51 percent believe conditions are normal. The percentage of Utahns who believe current business conditions are good has increased 12 percentage points over the last 12 months, with an increase of another 4 percentage points from February to March alone.

However, Utahns are becoming more concerned about the impact that rising prices may have on their incomes, and this is likely a primary reason why the CAI has not moved even higher. Eighty percent of Utahns think prices for consumer goods in general will rise over the next 12 months, up from 73 percent in February. Consumers are becoming convinced that gasoline prices will go up over the next 12 months as well: 85 percent of Utahns think gasoline prices will be higher 12 months from now, a 14-percentage point increase from February. At the same time, consumers are less confident that their household incomes will rise at a higher rate than inflation. Fifty-one percent of Utahns think it is unlikely their household income will increase more than the rate of inflation during the next two years, up from 46 percent in February and 42 percent in January.

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Zions Bank Utah Consumer Price Index

The Zions Bank Wasatch Front Consumer Price Index (CPI) increased 0.2 percent from January to February on a non-seasonally-adjusted basis. Over the last twelve months, prices have increased in Utah by 1.1 percent. The national Consumer Price Index, released by the Bureau of Labor Statistics, rose 0.4 percent from January to February on a non-seasonally-adjusted basis, and has increased 1.1 percent over the past twelve months.

Utahns paid 1.3 percent more for recreational activities in February than they did in January. More specifically, consumers saw prices increase for cable and satellite television. One of Utah’s primary providers of satellite television raised prices by an average of 3.7 percent for each of its service bundles, citing rising programming fees from content providers and broadcast networks. Consumers could potentially see further substantial price increases for television services following February’s announcement that Comcast and Time-Warner Cable will merge. Although the proposed merger will take months to complete, many analysts believe the new company will have unprecedented control in the market, and could therefore increase prices considerably.

Consumers also paid slightly more for gasoline in February than they did in January, which is in line with typical seasonal trends. Still, this year’s seasonal price increase started much more slowly than it did last year. Last year, the average price per gallon of gasoline jumped to $3.30 in February from $2.91 in January; however, in February 2014, the average price per gallon of gasoline only increased to $3.14 from $3.11 in January. This may reflect a lack of major geopolitical tension in oil-producing countries, and suppressed demand because of cold temperatures. Because gasoline prices were substantially higher in February 2013 than in February 2014, year-over-year transportation costs are down 2.5 percent overall. In the months ahead, consumers can expect to see gasoline price increases accelerate as demand grows and companies make the seasonal switch from winter-blend gasoline to summer-blend gasoline.

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Our Interconnected Economy

A few weeks ago, Russian President Vladimir Putin annexed Crimea, thereby incurring a string of economic and political sanctions from the United States and the European Union. As Western leaders emphatically denounced Putin’s blatant breach of international law, many Americans struggled to understand why they should even care. Aside from geopolitical or moral concerns, there are tangible economic implications, even for our small state.

Admittedly, the United States and Ukrainian economies are not directly connected, but tension in Ukraine bears significant impact on the economies of Russia and the European Union. Its ripple effects can be expected to influence the global, U.S., and ultimatelyUtah economy. While the U.S. and Russia only trade about $40 billion of goods each year (under 0.3 percent of the United States’ GDP), and we trade even less with Ukraine, we are linked to Russia through the EU. Overall, Russia is the European Union’s third-largest trade partner—to the tune of about $500 billion in goods annually. Therefore, the European Union has, to this point, trod more cautiously than the U.S. has in imposing economic sanctions. Since the EU is the U.S.’s fourth-largest trade partner, any negative impact on the EU is certain to yield eventual impact on the U.S., and it could disrupt the global economic recovery.

Utah is already experiencing one short-term effect of the crisis in Ukraine, but not because of sanctions placed on Russia. Currently, Ukraine is a significant global exporter of corn and wheat, and prices for these commodities have risen dramatically based on the concern that Ukrainian exports might cease or be significantly affected by the crisis. Because Utah farmers and ranchers rely on consistency in grain prices, price fluctuations can threaten their viability. For instance, before the crisis, prices for wheat and corn had been decreasing, so many farmers sold future feed contracts earlier this year. As Ukrainian tensions caused prices to jump, farmers and ranchers have been left reeling.

If the European Union were to issue even harsher sanctions than it has to date, Russia might reciprocate by wielding its most prominent economic weapon: natural gas supply. Currently, the EU relies on Russia for approximately 30 percent of its natural gas. If Russia were to decide to shut off or taper this supply, an opportunity for United States energy companies to sell natural gas to European countries may emerge. The U.S. could step forward as a significant source of energy resources for Europe, potentially providing much of the continent with a larger share of the energy resources it needs in the future. However, because 60 percent of Russia’s export-centric economy comes from energy commodities (nearly a quarter of its GDP) this scenario is unlikely to happen. Russia’s economy needs the EU more than the EU’s economy needs Russia—a factor that EU leaders must consider as they address this evolving situation.

While the potential increased demand for natural gas exports would be positive, especially for our region of the country, the net costs of the ratcheted tension could still be substantial. Global stock markets have remained on edge since the inception of the crisis, and further escalation as Russia continues to threaten neighboring lands has the capacity to promulgate further global economic unrest.

As the effects of crisis in the small region of Crimea ripple through world stock markets and impact even small rural farms in Utah, we are reminded of the interconnectedness of the global economy. Conflict in a small region that most Americans couldn’t locate on a map can create real global economic repercussions. President Putin may augment his popularity in Russia by stoking nationalistic flames, but the aggregate impact of sanctions ultimately hurts most everyone —particularly over the long-term. In responding to political exigencies, leaders in the U.S., EU, and Russia must remember that long-term global economic health does not flourish amid sanctions, tariffs, and protectionism; rather, the seeds of prosperity and peace bloom amid free trade and economic engagement.

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International Trade

In 2013, Utah’s export shipments totaled over $16 billion. According to the Bureau of Economic and Business Research at the University of Utah, international trade supports almost 80,000 jobs in the state, and the percentage of jobs in Utah tied to international exports has more than doubled in the last 20 years. International trade is a critical component of Utah’s economy, and the state has developed trade relationships with nations across the globe. Utah is also dependent on goods imported from international destinations—in 2013 the state imported over $10.6 billion in goods from foreign countries, with Mexico, China and Canada representing the biggest importers to Utah. As the global community becomes increasingly connected, international trade will continue to enhance Utah’s economic vitality.

In recent years, rising levels of international trade increasingly subject Utah’s economy to global economic fluctuations. For example, in 2013, Utah imported nearly $160 million in goods from Chile. Chile is Utah’s eighth-largest trade partner (in terms of goods imported into the state), and one of the state’s biggest sources of fresh produce. Last autumn, Chile experienced the coldest seasonal temperatures in 80 years, which reduced its fresh produce exports by 30 percent. This drop caused Utah’s produce prices to jump more than five percent over the course of three months, for a total climb of over 15 percent. While Utah’s trade relationship with Chile might not be well known, the economic reverberations of Chile’s harsh winter had a daily impact on the lives of Utah’s residents. Economic progress and setbacks in the U.S. and across the globe have a substantial impact on the state’s economy.

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Consumer Confidence

The U.S. Consumer Confidence Index® increased 4.0 points to 82.3 in March. The Present Situation Index fell 0.6 points to 81.0, while the Expectations Index jumped 7.0 points to 83.5.

Housing Market

In February, the CoreLogic® Home Price Index (HPI) for Idaho—which measures home price appreciation—increased 9.9% year-over-year. Nationally, the HPI increased 12.2% during the same period.

Inflation

The U.S. Consumer Price Index increased 0.4% from January to February. Year-over-year, the index increased 1.1%, which is below the Federal Reserve’s target annual inflation pace of 2–3%.

Job Report

Idaho’s unemployment data is not available this month due to a delay for end of year calculations. The national unemployment rate increased 0.1% to 6.7% in February.

May 2014

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Randy Shumway, Zions Bank Economic Advisor

Idaho Economic Outlook

Randy Shumway, Zions Bank Economic Advisor

After 74 days marked by often-spirited debate, the 2014 Idaho Legislative Session concluded last month. From improving Idaho’s justice system, to increasing funding levels for K-12 public education, the bills that passed highlight a range of critical issues that have a significant impact on the state’s economy.

In his annual State of the State Address, Governor Butch Otter placed great emphasis on improving public education in Idaho. Aligning with this vision, Idaho’s lawmakers passed a public education budget that adds $66 million in funding—representing a 5.1% increase over the year prior. This larger budget allocates $35 million to restoring operations lost during recessionary cuts, over $27 million for increasing teacher pay, and roughly $12 million toward classroom technology and other curriculum materials. It also increases funding for each classroom unit from $20,000 to $22,401. While the legislature’s efforts to improve the public education system have been successful, the fiscal year 2015 education budget remains more than $100 million short compared with funding levels in the 2009 budget. Many lawmakers believe that funding for education must increase in order for the state’s future workforce to reach its true potential.

Lawmakers also passed legislation to improve Idaho’s justice system. Policy changes approved in the 2014 session will promote public safety, lower costs, and reinvest savings into efforts that reduce crime and inmate recidivism. Passing unanimously through both the House and Senate, the Justice Reinvestment Bill (SB 1357) calls for reforms to Idaho’s probation and parole systems. The bill was created in response to an analysis of the state’s justice system, which revealed that Idaho has one of fastest-growing prison populations in the nation even though it enjoys one of the lowest crime rates. Experts predict that the bill could help the state avoid $288 million in new justice system spending over the next five years. To attract out-of-state business relocation and support in-state business expansion, the legislature passed the Idaho Tax Reimbursement Incentive Act. This allows new and existing business to negotiate for tax incentives based on three factors: the quality of new jobs, the return on investment, and the overall economic impact that results from potential expansions or relocations. After meeting a series of preset stipulations, companies could recoup up to 30 percent of new income, sales and payroll taxes paid. This legislation is designed to promote state-wide economic growth by encouraging businesses to expand within or relocate to Idaho.

Overall, this year’s legislative session brought tangible improvements in public education that will enhance Idaho’s future workforce, and improvements in the justice system that will reduce crime. Taking advantage of new negotiable tax incentives, many businesses will choose to call Idaho home. As lawmakers consider upcoming legislative action, their commitment to Idaho’s economic health and long-term prosperity will benefit the state’s residents.

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U.S. Economic Outlook

Short-term U.S. Outlook: The U.S. economy is picking up momentum as the country’s coldest winter in four years comes to a close. Since a number of weather-related disruptions led to lower-than-expected growth in the first quarter, experts predict that the second quarter of 2014 will mark strong progress in consumer spending and business investment.

Federal Reserve Chairwoman Janet Yellen indicated on record that severe winter weather played a role in weakening economic activity in early 2014. In particular, harsh weather conditions negatively impacted consumer spending levels, which account for roughly 70 percent of overall economic activity. Consumer spending grew only modestly in February, causing experts to revise GDP growth downwardly for the first quarter. January’s consumer spending was revised to 0.2 percent from the month prior, and February’s measure of the same indicator was revised to 0.3 percent. These modest increases caused experts to rethink first-quarter GDP growth, and their estimates now fall in the 1.2– 2 percent range. For the fourth quarter of 2013, consumer spending was revised upward, showing a 3.3 percent increase over the previous three months, which is the strongest pace in three years. This slow start marks another hiccup in an economic recovery defined by inconsistent growth, but analysts believe the second quarter of 2014 will buoy a weak first quarter and set a precedent for strong growth in consumer spending levels through the remainder of the year.

Gains in consumer spending and economic growth through the remainder of 2014 are expected to be generated by a number of interrelated factors. At this point, the impact of last year’s tax increases is fading, personal income levels are rising, and home values are increasing. Personal income levels made significant gains in the beginning of 2014 after making negligible progress at the end of 2013. A seasonally-adjusted measure shows personal income increased 0.3 percent in February from the month prior (after experiencing the same growth in January), marking four consecutive months of increases. While experts believe the gains are impacted substantially by the expansion of Medicaid benefits under the Affordable Care Act, higher proportions of expendable income will generate increases in spending in the future.

Improvements in stock market performance increased consumer spending power and corporate profit levels, thereby positioning businesses to invest in 2014 economic growth. In the fourth quarter of 2013, after-tax corporate profits rose to $1.9 trillion—representing 11.1 percent of the nation’s GDP—and business investment increased to a 5.7 percent annual rate in the same time period. These statistics reveal that businesses remain, to an extent, hesitant to hire amid ongoing national and global economic uncertainty, and that they are instead upgrading equipment and technology to drive productivity and output. While hesitation to hire new workers underlines inconsistent gains in the labor market, business leaders’ conservative build-up of resources positions the nation’s corporations advantageously for future growth.

Long-term U.S. Outlook: The nation’s long-term economic future continues to hinge on significant global factors. For instance, the Crimean crisis serves as a reminder of the risks associated with an increasingly-connected global economy. Uncertainty about the eventual outcome of the situation in the Ukraine and its related economic impact in Europe, China and the U.S. is causing corporations and governments to rethink global strategies. U.S. companies with sizeable investments in Russia—such as General Electric Co., Exxon Mobile, and Boeing Co.—are concerned that sanctions imposed by the U.S. and the EU will impact their interests. At the same time, these corporations could suffer negative impact from any Russian retaliation in response to tightened regulations. U.S. business and government leaders will keep a close eye on developments in the Ukraine, hoping that the situation will not escalate into a conflict that causes further instability. While the U.S. economy has recently gained momentum and is poised for strong growth through 2014, geopolitical unrest could potentially undermine national economic progress in the long term.

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idah labor

Labor Market

The labor market has started to show signs of real progress with the conclusion of winter, during which severe storms lowered demand and slowed hiring. Both the nation as a whole and Idaho in particular saw hiring increase and unemployment claims decrease this month. This improvement suggests that the last few months’ stats have been something of a weather-induced aberration, and not necessarily a sign of a decelerating labor market.

The unemployment rate in Idaho dropped a tenth of one percent in February to 5.3 percent, marking a post-recession low. Payrolls increased by 6,500 and total employment increased 1,100 from January. However, the labor force participation rate hit a record low of 63.7 percent. Further analysis is needed determine whether this drop indicates merely that more retirees are moving to the state, or whether it shows that workers are becoming discouraged.

Nationally, unemployment remained at 6.7 percent in March, and 192,000 jobs were added to the economy. According to the Bureau of Labor Statistics, this surge in hiring had no impact on the unemployment rate due to previously discouraged workers reentering the job market. While this number was slightly below the 200,000 jobs experts expected, March’s hiring gains represent steady improvement in the labor market. The largest gains were seen in Business Services (57,000), Health Care (19,000) and Construction (19,000).

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U.S. Consumer Price Index

The national Consumer Price Index (CPI), released by the Bureau of Labor Statistics, increased 0.4 percent from January to February on a non-seasonally-adjusted basis, marking the second month in a row with a month-over-month inflation rate of 0.4 percent. Consumers paid more for food (up 0.4 percent) and for energy (up 1.0 percent) from January to February. Over the past twelve months, the CPI has only increased 1.1 percent despite year-over-year price increases in both housing (up 2.6 percent) and food (up 1.4 percent). This is primarily because consumers have paid 8.1 percent less for gasoline in 2014 as compared to 2013. Although year-over-year gasoline prices are down substantially, consumers can still expect to see gasoline prices rise in the months ahead as demand grows and companies make the seasonal switch from winter-blend gasoline to summer-blend gasoline.

Important to many residents of Idaho, food prices could rise even higher in the next few months due to a recent report from the U.S. Department of Agriculture (USDA). Corn prices in commodity markets rose sharply last month after the USDA estimated that farmers will plant 91.7 million acres of corn this spring—a 4-percent decline from last year and the lowest total in four years. Last year, the U.S. had a record-setting corn harvest that led to sharp declines in corn prices, and this prompted many farmers to instead plan to plant soybeans this spring. Additionally, farmers are experiencing a wet, cold spring that could negatively affect this year’s yield.

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U.S. Consumer Confidence Index

Consumer confidence rebounded in March. The national Consumer Confidence Index® (CCI) (how consumers feel about the economy) increased 4.0 points to 82.3. The Present Situation Index (how consumers feel about their current business and employment situation) was relatively unchanged, down 0.6 points to 81.0, but the Expectations Index (how consumers feel about the economy six months from now) showed a strong gain, increasing 7.0 points to 83.5.

Consumers are becoming progressively more confident that the economic improvement seen over the past few months could accelerate during 2014. The percentage of consumers expecting business conditions to improve over the next six months increased to 18.1 percent from 17.3 percent, while those anticipating that business conditions would worsen declined markedly to 10.2 percent from 13.6 percent. Consumers generally believe the labor market is on a solid trajectory as well—those expecting more jobs six months from now increased slightly to 13.9 percent from 13.7 percent, while those expecting fewer jobs fell to 18.0 percent from 20.9 percent.

A rebound in consumer confidence was especially important this month, as harsh weather lowered expectations for economic growth earlier this year. The most recent consumer spending report from the Commerce Department corroborated this rebound in confidence, showing that consumer spending rose 0.3 percent in February—higher than many economists predicted. As we move into the spring and summer months after the coldest winter in four years, economic growth and spending should pick up noticeably.

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Housing Market

The national housing market continues to move forward, though key indicators show its recovery is more tepid than would be optimal. Housing prices increased 0.8 percent last month, but sales of previously-owned homes fell 0.4% in February, according to the National Association of Realtors. This marked the sixth month in the past seven of decline for previously-owned homes. While much of the decrease in sales can be attributed to rising home prices and increasing mortgage rates, some of the fault can also be ascribed to adverse weather conditions. While existing home sales decreased in the Northeast and Midwest where late-winter storms caused disruption, sales actually increased slightly in the South and West where the weather didn’t have as strong an effect. Weather conditions are bound to improve, but the issue of affordability might not. The Fed has indicated that it will likely tighten rates over the coming years, and the combination of potentially higher interest rates with modest rises in housing prices may dissuade potential home buyers.

Increases in housing prices were more modest in Idaho, showing a month-to-month rise of only 0.1 percent in February, and marking a year-over-year increase of 9.9 percent. With winter weather coming to a close, Idaho can look forward to more activity on the housing front since summer usually brings higher levels of construction and buying.

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International Trade

International trade is a critical component of Idaho’s economy, and the state has developed trade relationships with many nations across the globe. For instance, in 2013, Idaho exported nearly $6 billion in goods to foreign destinations. The top importers of Idaho’s products include Canada, South Korea and Taiwan. Idaho is also dependent on international goods—in 2013, the state imported over $10.6 billion in goods from foreign locations, with China, Canada and Taiwan representing the biggest importers to Idaho. As the global community becomes increasingly connected, international trade will have an even greater impact on Idaho’s economic vitality.

In an effort to increase levels of international trade, Idaho’s leaders and trade-related organizations actively forge new global relationships and educate Idaho businesses about significant international trade opportunities. With the goal of enhancing international trade within the state’s economy, Governor Otter has developed relationships with businesses and individuals in foreign markets through regular trade missions. A 2012 trade mission to Mexico generated an estimated value of $30 million in initial sales, and recent trade missions to Asia and Russia will promote the future growth. Additionally, the Idaho Department of Commerce works with Idaho-based businesses to identify prospects and find financing to support the development of international trade. The Department also matches Idaho businesses with local resources that provide export services.

New relationships in international markets will bolster trade for Idaho’s businesses. As the global community becomes more aware of Idaho’s high-quality products and services, the importance of international trade in the state economy will increase.

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Our Interconnected Economy

A few weeks ago, Russian President Vladimir Putin annexed Crimea, thereby incurring a string of economic and political sanctions from the United States and the European Union. As Western leaders emphatically denounced Putin’s blatant breach of international law, many Americans struggled to understand why they should even care. Aside from geopolitical or moral concerns, there are tangible economic implications, even for our small state.

Admittedly, the United States and Ukrainian economies are not directly connected, but tension in Ukraine bears significant impact on the economies of Russia and the European Union. Its ripple effects can be expected to influence the global, U.S., and ultimately Idaho economy. While the U.S. and Russia only trade about $40 billion of goods each year (under 0.3 percent of the United States’ GDP), and we trade even less with Ukraine, we are linked to Russia through the EU. Overall, Russia is the European Union’s third-largest trade partner—to the tune of about $500 billion in goods annually. Therefore, the European Union has, to this point, trod more cautiously than the U.S. has in imposing economic sanctions. Since the EU is the U.S.’s fourth-largest trade partner, any negative impact on the EU is certain to yield eventual impact on the U.S., and it could disrupt the global economic recovery.

Idaho is already experiencing one short-term effect of the crisis in Ukraine, but not because of sanctions placed on Russia. Currently, Ukraine is a significant global exporter of corn and wheat, and prices for these commodities have risen dramatically based on the concern that Ukrainian exports might cease or be significantly affected by the crisis. Because Idaho farmers and ranchers rely on consistency in grain prices, price fluctuations can threaten their viability. For instance, before the crisis, prices for wheat and corn had been decreasing, so many farmers sold future feed contracts earlier this year. As Ukrainian tensions caused prices to jump, farmers and ranchers have been left reeling.

If the European Union were to issue even harsher sanctions than it has to date, Russia might reciprocate by wielding its most prominent economic weapon: natural gas supply. Currently, the EU relies on Russia for approximately 30 percent of its natural gas. If Russia were to decide to shut off or taper this supply, an opportunity for United States energy companies to sell natural gas to European countries may emerge. The U.S. could step forward as a significant source of energy resources for Europe, potentially providing much of the continent with a larger share of the energy resources it needs in the future. However, because 60 percent of Russia’s export-centric economy comes from energy commodities (nearly a quarter of its GDP) this scenario is unlikely to happen. Russia’s economy needs the EU more than the EU’s economy needs Russia—a factor that EU leaders must consider as they address this evolving situation.

While the potential increased demand for natural gas exports would be positive, especially for our region of the country, the net costs of the ratcheted tension could still be substantial. Global stock markets have remained on edge since the inception of the crisis, and further escalation as Russia continues to threaten neighboring lands has the capacity to promulgate further global economic unrest.

As the effects of crisis in the small region of Crimea ripple through world stock markets and impact even small rural farms in Idaho, we are reminded of the interconnectedness of the global economy. Conflict in a small region that most Americans couldn’t locate on a map can create real global economic repercussions. President Putin may augment his popularity in Russia by stoking nationalistic flames, but the aggregate impact of sanctions ultimately hurts most everyone —particularly over the long-term. In responding to political exigencies, leaders in the U.S., EU, and Russia must remember that long-term global economic health does not flourish amid sanctions, tariffs, and protectionism; rather, the seeds of prosperity and peace bloom amid free trade and economic engagement.

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This page was last modified on Thu May 21 14:31:39 MDT 2015