As Oklahoma thaws out from a spring ice storm, the latest state economic data doesn’t indicate that the state economy is thawing yet.
This week the Office of Management and Enterprise Services (formerly the Office of State Finance) released the latest state General Revenue Fund collections. Preston Doerflinger, the Oklahoma Secretary for Finance and Revenue, tried to put a positive spin on the data stating in a press release, “Our economy is still expanding, although perhaps at a more moderate pace.” However, the data is not so kind. Overall, state General Revenue collections were 13 percent below the estimate and 4.7 percent below last year — the second consecutive month that revenues fell below both benchmarks.
Loyal readers might recall that despite the glowing comments on the state of the economy that have been coming from state officials, I’ve been warning for the past eight months of “dark clouds on the horizon of the Oklahoma economy.” Essentially, I’ve been concerned that the underlying fundamentals of the economy were not keeping pace with the glowing reviews from our state leaders. Now, the slowing Oklahoma economy is becoming more apparent in the state revenue figures.
If people looked close enough though, the information has been there all along.
Why have the pronouncements of state officials been so disparate (and wrong) from mine? First, when commenting on the economy state officials often look at data that are not good indicators of current economic activity — unemployment rates, personal income or state GSP data. Sometimes this data isn’t released in a timely manner, and sometimes the current data simply reflects old economic activity (this is the case with unemployment rates, which tend to lag the state of the economy).
Second, even when state officials use current data like tax collections, they often interpret it incorrectly. Some state tax collection data, for example income tax collections, are highly volatile from month to month. Thus, it is difficult to isolate the information on the state of the economy from the noise of normal volatility.
This is why I prefer to look at state sales tax collections when I’m trying to understand the current state of the economy. State sales tax collection data is released monthly and reflects spending from the previous month. Thus, it is relatively current. Also, state sales tax collections are much less volatile than income tax data making it easier to detect changes in economic activity. It is true that sales tax collections vary throughout the year, but they do so in a predictable fashion. For example, sales tax collections in December and January are, on average, the highest two months of the year.
Knowing of these seasonal variations, economists often seasonally adjust data to capture month-to-month changes. This is how the federal government releases most monthly economic data for the national economy. When presenting state general revenue though, officials typically compare collections from a given month to the same month from the previous year. This, however, tells us more about the economy over the last year than it tells us about the economy today.
Seasonally adjusting the monthly state sales tax data though, is a pretty simple exercise. When we do so we get a measure of state economic activity that is current and reliable.
So what does this metric tells us about the state of the Oklahoma economy? The data show that the Oklahoma economy grew quite strongly throughout 2010, 2011 and the first half of 2012. Since last summer though, when I started reporting on those “dark clouds,” the state’s economy has stagnated. It is this stagnation from the past six months that is starting to show up in the official state revenue reports (and will continue to show up for a few more months).
If one wants a silver-lining in the data, the sales tax collections from January and February were quite strong, indicating that the state economy was poised to start growing again. Unfortunately, the latest data from March was another very weak month — indicating that whatever rebound we were experiencing is not taking off just yet.
Clearly, the state economy is still comparatively strong compared to most states. However, the latest economic data continues to show that our economy is not quite as strong as state officials have led us to believe.
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.