Labor market, economy bigger and better than expected

COEUR d'ALENE — “Why is the state economy so resilient in the face of so many challenges?” research supervisor Craig Shaul asked.

Shaul conducts labor market research for the Idaho Department of Labor and sought to answer that question in a webinar earlier this month.

At the beginning of the year, the economic mood was moderately pessimistic. Bank failures in Silicon Valley and mass layoffs at tech giants like Google and Apple were feeding fears of a financial crisis or recession.

But even when faced with those significant economic hits, and with inflation rates still fairly high, the national and local economy absorbed the shock and surged forward.

“We were promised a recession, right, and we’re looking around for it,” economist Sam Wolkenhauer said. “The economy was far more durable than what people were expecting earlier in the year.”

That durability can be loosely attributed to a tipping point in June 2022, when many major economic indicators began to level off or change direction.

The spending down of savings stopped and consumers began to save again. Raw material costs dropped to normal or below, and home prices and rent all peaked that month.

June 2022 also marked the summit for pandemic-related inflation and interest rates began to normalize.

“The million-dollar question in the economy for the last few years has been the following: Can we bring down the rate of inflation without tipping into a recession?” Wolkenhauer said.

The answer this quarter has been a resounding "yes."

“2022 was probably the single strongest year of income growth in the state of Idaho that we’ve ever recorded,” Wolkenhauer said. “Every measure of income, whether looking at hourly wages, median household income, etc., they all jumped significantly. The poverty rate declined and we’ve significantly narrowed the gap with national income measurements.”

With that wage growth and leveling inflation, costs of goods have largely normalized so wage-earners are experiencing a stronger economy, resilient to things like layoffs and bank failures.

“Fundamentally, this is a remarkably strong labor market,” Wolkenhauer said. “It’s a remarkably strong economy in Idaho. And all of those concerns we had at the beginning of the year really seem to be evaporating as we speak, and we’re left with a structurally strong and durable economy.”

Wolkenhauer outlined the three largest contributing factors to inflation as increased costs of raw materials, liquidity and wage growth, but he argued that “pandemic savings and high wage growth have helped consumers weather inflation.”

Raw material costs have dropped to normal or below, stimulus checks and programs are largely ending or have ended. So two of three causes of inflation are reducing. The third, wage growth, has gone up about 6% over the past year.

While inflation is stabilizing, consumer prices are still about 20% higher across the board than in 2019, but only about 2% higher than if inflation had been average.

There are still some factors of concern, but the forecasts have been largely positive, Wolkenhauer said.

“We don’t want to pretend that inflation isn’t still a problem,” he said.