This past week the Office of Management and Enterprise Services released the latest state General Revenue report and despite the positive spin they tried to put on the data, it wasn’t a good report. Overall, state general revenues in November were down 13.0 percent ($30.9 million) from the previous year. State officials were quick to point out that gross production tax revenues in November were down $59 million, so the other taxes combined are up a combined $28 million — a good sign right?
Well, not quite.
One point of obvious concern is that income tax collections were surprisingly weak in November — down 4.1 percent from last year with a 5.4 percent drop in individual income tax collections. Income taxes though, are highly volatile so perhaps this was just a one-month aberration. However, sales tax collections, which are much more stable, are perhaps an even larger source of concern. It is true that those taxes are up 8.4 percent from last year.
However, when one seasonally adjusts the sales tax data to enable month-to-month comparisons (the same approach the federal government uses when reporting economic statistics), a darker picture appears. By this metric we see that sales tax collections rose sharply in the first few months of the year and peaking at $164 million in April. This corresponds closely to the national economic data which showed state personal income in Oklahoma rising at one of the fastest paces in the nation during the first half of the year. However, since then, state seasonally adjusted sales tax collections have steadily dropped. Unfortunately, the last time this metric decreased for this long was in 2009 when the national recession first reached Oklahoma.
In short, three months ago I commented that there were warning signs that Oklahoma’s economic recovery was weakening. Today, those warning signs are even more clear.
Clearly, the Oklahoma economy is slowing. Looking back, it now appears that the state’s robust economic growth in the second quarter of this year was simply not sustainable given the continued weak natural gas prices and the sluggish national economy. It was inevitable then that unless the underlying fundamentals changed, a correction was coming.
The real question now though, is whether the Oklahoma economy is contracting once more. The decline in seasonally adjusted sales tax collections, and the recent decline in income tax collections, certainly point to a contraction. The uptick in the state’s unemployment rate the last few months adds even more concern. And then on Friday, one of Oklahoma’s most important companies, Chesapeake Energy, announced that it was offering 275 of its employees the opportunity to “voluntarily separate” from the company. When Oklahoma’s large energy companies begin reducing payroll, it’s not a healthy sign for the state economy.
It’s been evident to me for the past three months that Oklahoma’s economy was showing signs of slowing. Unfortunately, it’s now clear that state officials’ Pollyannish proclamations that the state economy is still soaring, are simply no longer supported by the data.
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.