Economist: Idaho flexes financial muscle

The COVID-19 economic crisis surpassed the Great Recession that shook the United States from 2007 to 2009, but the economy will bounce back faster, says Gus Faucher, PNC Financial Services Group chief economist.

During the Coeur d’Alene Rotary Club meeting Friday, Faucher, an Idaho native, broke down the nation’s recovery following the virus-triggered recession and outlined what people should expect. 

Before the pandemic, Faucher said, the country was experiencing the longest expansion in U.S. history, lasting more than a decade. The good news, he said, is that recovery is already underway.

Idaho has seen a solid expansion of its economy since the lowest crash last May, with conditions that are generally better than most states. Faucher noted that in both Idaho and the Coeur d’Alene metropolitan area, job losses were fewer than in other areas seen nationally, and the recovery is unmatched. 

“Idaho is the first state in the United States to see employment move above its pre-pandemic peak, and in general, that’s because Idaho imposed fewer restrictions on economic activity than other states,” Faucher said. 

The biggest reason for optimism for Idaho and the Coeur d’Alene economies is population growth that has been well above the national average for decades, he said. 

A significant aid to the national economy is what Faucher called an “aggressive policy response” from the Federal Reserve, cutting short-term interest rates from 1.5% to nearly zero.

Long-term interest rates were also slashed, resulting in low, long-term borrowing costs for businesses, governments, households, and potential homebuyers. This month, those rates moved slightly upward, Faucher noted, which is a good indicator for the national economy.

“That increase in long-term rates that we’ve seen recently is a sign of strength in the economy,” he said. “And I would point out that even with this increase, long-term interest rates are still very, very low on a historical basis.”

Investors are looking up, evident by the generally positive upturn in stock prices that recently reached some record highs. Faucher believes the S & P is being held up by investors seeing the continued growth and improvement in corporate profits — another sign that recovery is on the way. 

“We’ve had the election, we’ve had the pandemic, we’ve had the vaccine rollout and stimulus bill. All of these things have contributed to the volatility in the stock market, and I would expect volatility to remain somewhat elevated until we get a better sense of how the pandemic is going to progress,” he said. “But certainly, the increase we’ve seen in the stock market over the past year or so is an indication that investors think conditions will continue to improve.”

All in all, Faucher said the U.S. economy contracted about 10% between the fourth quarter of 2019 and the second quarter of 2020. To put this in perspective, he said the Great Recession contracted about 4% over two years. The third quarter of 2020 gave citizens some reprieve as businesses reopened.

Leading the recovery is home sales, renovations, and refinancing — in large part, Faucher said, by the low 30-year fixed mortgage rate. Another contributor? Federal stimulus payments and Paycheck Protection Program, allowing the 22 million people who lost their jobs to spend money and businesses to keep their doors open. 

Faucher is confident the economy will grow.

“I think we are set up to have a long and fruitful expansion,” he said.