Special to The Sun
It was nearly one year ago that I started writing about “dark clouds on the horizon of the Oklahoma economy.” Then, I was starting to detect in the economic data a significant slowing in the state economy. The good news is that I’m starting to see those clouds finally starting to clear.
The first sign last fall that the state’s economy was slowing from its torrid early 2012 pace came with a steady drop in state sales tax collections. After peaking last summer at a seasonally adjusted level of $161 million per month, state sales tax collections fell throughout the fall and to a low of $156 million per month. Since consumer behavior remains the largest component of the economy (not just in Oklahoma but across the U.S.), this decline in state sales tax collections indicated that a general economic slowdown was occurring.
Within a few months other economic data started to confirm the state economic slowdown. The U.S. Bureau of Economic Analysis reported that Oklahoma’s personal income grew throughout the end of 2012 and beginning of 2013 at one of the slowest rates in the country. Then most recently, the U.S. Bureau of Labor Statistics has reported that the state’s unemployment rate (a metric that is known to lag overall economic activity by 3-6 months) was rising. From April to July the state’s unemployment rate rose from 4.9 percent to 5.3 percent.
In short, the state economy was clearly not as strong as it had been.
In many ways this weakness should not have been a surprise. The state economy had a remarkable run as one of the strongest in the nation for more than two years. From not falling as deeply during the Great Recession as most other states, to recovering much more quickly, some correction was inevitable. When coupled with the highly-publicized struggles from a few of Oklahoma’s most well-known companies, the state economy showed some signs of distress. Still, any economic weakening is concerning.
The good news though is that the latest state revenue data is looking much stronger. This past week the Oklahoma Office of Management and Enterprise Services released the latest state general revenue report — a report that frankly is one of the strongest in the last year. State sales tax collections in July soared to $166 million on a seasonally adjusted basis. While still below last year’s level (if you also adjust for inflation) it is still a significant improvement over the past six months. If this was just a one-month bump it would be tempting to dismiss it as just an aberration. However, July’s strong reading followed smaller improvements in both May and June.
In other words, this strength is starting to look more like a trend.
Far from indicating a return to the high-flying boom years, this slight, yet still significant improvement, likely indicates a return to normal economic growth — growth on par with most other states. Yet even with this normal economic growth, state general revenue collections are likely to be well below levels forecast by the State General Equalization Board. In fact, it’s not inconceivable that state agencies will need to start slashing their budgets in the middle of the year.
The good news is that the hole does not seem to be getting deeper for now. The bad news is that the budget hole caused by the state’s economic weakness the last nine months is going to be hard to climb out of.
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.