Is Wyoming Prepared For A Recession?
On Laramie's western edge,TNT Motorsports is lined with dirt bikes, Sea-Doo watercrafts, and gear with neon and flashy patterns. Yamaha and Fox logos hang on the wall as a yellow-shirted customer eyes the latest YZ 450 dirt bike.
Andy Thompson, VP and Sales Manager of the store, recalled the recession back in 2008. He said revenues dipped back then, they didn’t hire part-time workers back if they left, and financing got a lot harder for customers. Recession really hurts shopslike this.
“We’re in the recreation business - it’s mostly for play. It’s not like a grocery store where people have to go and get stuff.” Thompson said, “during a recessionary time that gets to be a more questionable product.”
While the store has recovered since then, the idea of another recession in the next few years does not excite Thompson. He said it would be tough.
"It always is, isn’t it? That’s one of those things that you do worry about."
A recession could come sooner than expected. A Goldman Sachs Investment Management Division report says the chance of a recession is at 17.6 percent, up from under 10 percent in the first quarter of 2016. Since that analysis in January, economists have become increasingly concerned. Dr. Ernie Goss, professor at the Heider College of Business at Creighton University said there are a number of factors now occurring that could lead to a recession. One major worry is the impact of tariffs that would affect automakers, agriculture, and manufacturing.
“If in fact it's met with higher trade restrictions, more trade skirmishes with our trading partners, that will slow global and U.S. growth,” Goss said.
Plus, something called yield curve. It’s flattened right now and close to inverted. An inverted yield curve has correctly signaled every recession for the past 60 years except for one false-positive.
Meanwhile, Rob Godby, Director of the University of Wyoming Center for Energy Economics and Public Policy, said the economy is on overdrive. Most economic signs are positive.
“That would suggest that we’re at the top of the business cycle...We have good growth. Manufacturing is growing. If we look at the service sector it’s growing."
Unemployment is coasting below 4 percent. Stock markets are doing well, oil prices aren’t too high or too low.
“But the trouble is when you’re on top, there’s only one direction to go,” Godby said.
If that downward direction comes soon, Godby said he does not think the state is prepared to handle it for a few reasons.
"One is it would hurt our energy sector because energy demand would go down and economic activity would go down. And that would reduce our revenues when we’re already in a revenue shortfall situation,” he said.
Godby explained energy prices and production have been low for a while and a recession could make that even worse. Tariffs would also hurt Wyoming which depends on exporting coal, trona, agriculture products, and meat. Tourism could go down too, though Wyoming is a cheaper vacation alternative. All of it would pile on to that revenue shortfall Godby mentioned. While getting through a recession calls for lean times, Wyoming is already there.
“We would have to turn to either more austerity, greater cuts, or we may have to try to raise additional revenues at a time when the economy is not doing very well,” Godby said.
Godby said the state’s difficulty with a recession would go beyond revenue.He added Wyoming also lacks buffers like economic diversity or a big rainy day fund.
"We’re using our buffer right now, while the rest of the country is in good times,” he said. “That’s probably a bad place to be."
This past legislative session,$341 million was allotted from the rainy day fund, according to Don Richards from the Legislative Service Office.
Wyoming’s revenues generally go up when the rest of the country is in recession, however, Godby saidenergy prices are currently too low to outweigh a recession.
Still, not everyone thinks Wyoming is in a bad position. Chairman of the House Revenue Committee Mike Madden disagrees with Godby’s assertion the state's rainy day fund wouldn't be enough to fill revenue gaps. He points out it’s valued at$1.5 billion.
"Compared to other states, we’re in an enviable position because we do have a pretty good cushion that we can lean back on,” Madden said.
He admitted, if it’s a long-term recession, that could change things. During the energy downturn the past three years, legislators have spent$613 millionof the fund. Too much more burn of that account would not be good.
Another member of Joint Revenue Committee Senator Cale Case said getting through another recession would push the legislature to seriously look at getting rid of tax exemptions or at increases in a wind tax or corporate income tax.
Case said he does see Wyoming as particularly vulnerable to a recession right now and perhaps even worse off than back in 2008 when energy prices were much higher.
“We haven’t broadened our tax base,we haven't shrunk government services and things that we have to pay for in any appreciable amount."
According to Creighton University’s Dr. Ernie Goss, he could see a real economic slowdown coming as soon as the second half of 2019. So, the state will find out if it’s prepared soon enough.