Economy in state OK, if not for ‘cliff’ deliberation
The economy would be doing markedly better if not for Congress and the White House, state economists told legislative budget writers Thursday.
While the recession in Europe and low natural gas prices are still a drag on the U.S. and state economies, the greatest hindrance to full economic recovery right now is uncertainty over the looming federal fiscal cliff.
The second-biggest problem is the drawn-out discussions between congressional leaders and President Barack Obama over fixing it, said Natalie Mullis and Henry Sobanet, chief economists for Colorado Legislative Council and the State Office of Planning and Budgeting, respectively.
“As long as Congress and the president continue to deliberate about these policies, the economy in Colorado and the nation will grow significantly below potential,” Mullis said. “Businesses will continue to be tentative and consumers may follow suit once they see their wages fall because of the payroll tax cut, and (if) the deliberations in Washington, D.C., continue to go on without resolution.”
The so-called fiscal cliff will go into effect Jan. 1. That’s when some temporary tax breaks end and automatic spending cuts start. The economists agree that doing nothing about the cliff, created to force action on easing the $16.3 trillion national debt, would send the nation into another recession.
If that cliff weren’t looming, or if a solution to the issue were already agreed upon and ready to go, the national and state economies would be going like gangbusters, the two economists told the Joint Budget Committee.
“Other than some unforeseen shock like we’ve seen in the last two recessions, we are really on the cusp of a sustained expansion,” Sobanet said.
As it is, the state is expected to see $159.6 million more in revenue than anticipated in the last revenue forecast three months ago, he said.
That means the state’s general fund, its main account, will be nearly $900 million above current spending and reserve levels, Sobanet predicted.
Mullis said individual income taxes, the state’s largest source of income, are up 11.5 percent from the previous year, while corporate tax revenue is are up 23.5 percent.
Meanwhile, a high consumer confidence level in the state has sent sales and use taxes to heights not seen since the recession began in 2008.
“Consumers are unfazed by the fiscal cliff and uncertainties in Washington, D.C.,” she said. “The housing market has begun to turn nationwide, and especially here in Colorado. We’ve seen Denver and the northern Front Range recover quicker than many, many other housing markets in the rest of the nation. That helps consumers feel more confident.”
As good as the economy appears now, it would be so much better if the fiscal cliff weren’t an issue, she said.
Businesses are sitting on “a very, very, very large amount of cash” but are reluctant to spend it because of economic uncertainties, particularly in federal taxes and spending, she said.
“The private sector, both in the nation and in Colorado, has healed considerably since the recession and looks ready to expand at an even healthier pace in 2013,” Mullis said.
“If big business starts feeling more comfortable about the economy and more willing to take risks and they start spending that money and making investments, that should provide a boost to the economy. The question is, when will that happen?”
The two economists said natural gas commodity prices remain low, but it will continue to put a damper on the number of drilling wells in the state, and that will keep unemployment rates higher on the Western Slope. That was why the unemployment rate in the region increased slightly in the third quarter.
A colder winter would bring an increased demand in heating fuel, sending prices higher.