OSU releases 2010 Oklahoma Economic Outlook

Tuesday, November 17, 2009

(OKLAHOMA CITY, Ok., Nov. 17, 2009) - The Center for Applied Economic Research in the Spears School of Business at Oklahoma State University released the 2010 Oklahoma Economic Outlook report today at a conference in Oklahoma City that brought together experts from several sectors of the state's economy. The report was compiled by OSU's Russell Evans, CAER director and research economist, and Kyle Dean, CAER associate director and research economist. Major findings in the report include:

State Economic Conditions
Oklahoma is not recession proof, losing almost 50,000 jobs from May of 2008 through September of 2009. These job losses and related unemployment rates likely understate the softness in the Oklahoma labor market.
From peak to trough, Oklahoma personal income and wage and salary disbursements fell by more the $3 billion. Income reductions combined with increased savings rates continue to stifle retail sales.
While FY 2009 was challenging for state and local budgets, FY 2010 will exhibit continued deterioration of the tax base. We anticipate some tax base recovery in FY 2011, but not enough to restore tax collections to their FY 2009 levels.

State Forecast Highlights
State employment will contract modestly in 2010 before expanding at 1.7% in 2011
Manufacturing employment gains will lag other industries. Gains in Professional and Business Services likely to lead employment activity in 2011.
Tax Revenues will rebound slightly in FY 2011. The rebound could prove significant if the global economic recovery holds putting upward pressure on oil and natural gas prices.
Real personal income will be relatively flat in 2010 after contracting significantly in 2009. A return to sizable income growth expected for 2011.
Ratio of Oklahoma to U.S. personal income expected to hold steady at approximately 90% through the forecast period.
Housing prices expected to be stable across the state, but expect weakness in commercial real estate prices and construction while excess capacity remains through 2011.

Risks to State Forecast
Further deterioration of national economic conditions.
Suppressed oil and natural gas prices through 2010 and lack of resolution on energy policy from Obama Administration.
Negative multiplier effects from strained state and local budgets.
Restricted capital access to Oklahoma's small businesses.

National Economic Conditions
U.S. economic activity remains subdued; recovery expected to be modest in 2010.
Employment expected to be relatively flat for the year, with continued job losses through the first half of the calendar year potentially offset by job gains in the latter half of 2010.
"We expect U.S. Real GDP growth to be in the 2% to 2.5% range for 2010. Output demand will be met largely through productivity gains, making 2010 a year of 'jobless' recovery. Expect the unemployment rate to reach 10.5% before falling, but remaining above 9% through 2011."
No significant recovery in U.S. natural gas prices is currently projected, but much could change through this winter. End of March storage and production levels should offer more insight into the trajectory of energy prices through 2011.
Inflation is not likely a concern in the near term, although it could possibly emerge as a story before the current episode ends.
"Governments print money; banks create money. Money creation, and consequent inflationary pressure, occurs through successive rounds of bank lending from excess reserves. Currently, banks are holding rather than lending reserves, deferring any inflationary pressure from loose monetary policy until there is a change in lending/borrowing behavior."

Risks to National Economic Recovery
Falling commercial rental and vacancy rates continue to strain the commercial real estate market with the share of non-performing assets increasing on regional bank's balance sheets. The degree to which regional banks are equipped with sufficient capital to handle this stress remains unclear, as is the consequent impediment to small business capital access if one or more of these banks fail.
The U.S. dollar carry trade combined with Asian government's stimulus appears to be contributing to equity and real estate bubbles in developing economies in general and China in particular. The reach of influence from an asset bubble collapse on a tenuous global recovery remains a concern.

To view the 2010 Oklahoma Economic Outlook go to: http://spears.okstate.edu/caer/forecasts.

The Oklahoma Economic Outlook is an annual report compiled using the Oklahoma State Econometric Model to provide information on the probable performance of the Oklahoma economy in the upcoming year. The Model is in its 30th year of development and is the state's only large-scale econometric forecasting model.