It was just a month ago that I wrote these words: “The latest state revenue report … indicates that dark clouds might be forming on the horizon of the Oklahoma economy.” Unfortunately, the latest state economic data has done little to allay my concerns.
Throughout the spring and early summer, the Oklahoma economy was humming along — easily outpacing the growth in the national economy. In fact, state personal income growth in the second quarter of the year clocked in at the seventh fastest pace in the nation. This was further evidenced by a surge in state tax collections, including my favorite metric of current economic activity — seasonally-adjusted state sales tax collections. However, last month the data started to indicate some warning signs that trouble might lie ahead. Specifically, state officials announced that in August there was a sudden and significant drop in state income tax collections. Such declines are not usually consistent with a growing economy.
While one month’s data could be dismissed as an aberration, that data point has since been joined by another. Last week state officials released September’s state revenue report — a report that drew praise from state officials. For example, state Finance Secretary Preston Doerflinger claimed that “this report indicates to me that our recovery from the recession is still ongoing.” The reason for the optimism is that state income tax, sales tax and motor vehicle tax collections all exceeded last year’s total.
In reality though, the state revenue report wasn’t all that positive. While collections are above what they were a year ago, that growth is attributed not to the current strength of the economy, but to the strength in the first half of 2012. In actuality, seasonally-adjusted state sales tax collections — again my favorite metric of current state economic activity — fell for the third consecutive month in September. What’s even more troubling, is that not only did the metric fall, but it fell to its lowest level of the year.
Fueling even more concerns was the release of the state employment situation report by the U.S. Bureau of Labor Statistics. That report showed the state unemployment rate tick up slightly to 5.2 percent last month — the same month that witnessed a significant drop in the national unemployment rate and state-level declines in 44 states. This marks the third consecutive month that the unemployment rate rose. Furthermore, the establishment survey showed that the state economy actually shed 3,700 jobs last month.
The story that is most consistent with these various data points is that the Oklahoma economy has slowed — probably not into a recession, but into a period of slower growth — in the third quarter. Honestly, such a slowdown is not all that unexpected given the robustness of the state’s second-quarter growth — a growth that was likely too strong for the underlying economic fundamentals. The real concern though, is whether the state economy is ready to bounce back in the fourth quarter, or if the stagnation will continue.
The slowdown is already affecting my state revenue forecasts for the year. At the end of June, on the heels of that strong second quarter performance, I expected state general revenue collections to reach $5.9 billion this fiscal year. Now, that number seems unrealistically high. The impact this would have on Oklahoma’s school children, families and public service workers is clearly significant.
It is certainly still possible for Oklahoma’s economy to resume its recent performance as a national leader. The latest economic data though, indicates that if anything, during this last month those dark clouds on the horizon of Oklahoma’s economy have moved even closer.
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.