Why Utah and Salt Lake County could fare better than most in a mild recession

SALT LAKE CITY — Predicting when the next economic recession will hit or how bad it will be can be difficult, especially in the years since the COVID-19 pandemic upended supply chains and the traditional ways Americans work.

Some economists have been warning of a looming recession for more than a year, and although inflation has remained high and the U.S. saw two consecutive quarters of contraction last year, other measures look more rosy.

The most recent jobs report showed the U.S. added 339,00 jobs in May, even as the unemployment rate ticked up to 3.7%, up from a previous five-decade low of 3.4%.

“This has been the most predicted recession that hasn’t happened yet,” said Natalie Gochnour, director of the Kem C. Gardner Policy Institute at the University of Utah. “We’re not in recession right now, in my opinion. Some people just are calling this the resilient economy.”

Gochnour’s comments came during an economic report given to the Salt Lake County Council and Mayor Jenny Wilson during a work session Tuesday. In addition to her work with the institute, Gochnour also serves as the chief economist for the Salt Lake Chamber.

But even with the resilience in the economy, there are still indicators that the U.S. economy could enter a mild recession in the near future.

For one, the Federal Reserve has increased interest rates faster than in any past tightening cycle since 1983. While that’s intended to reduce inflation — which has cooled slightly but remained stubbornly high in recent months — higher interest rates often slow the general economy and can increase unemployment.

The so-called yield curve — which measures the difference between short-term and long-term Treasury returns — recently inverted, meaning investors are more worried about the stability of short-term investments. Gochnour said an inverted yield curve has traditionally appeared 12 to 18 months before a recession.

“Normally, we have more uncertainty about the long-term, and so you expect higher rates (of return) out in the long run because of the uncertainty and to be rewarded for that,” Gochnour said.

“It is quite an uncertain and … complex time in thinking about the economy,” she said, adding that the likelihood of a mild recession later this year or early in 2024 is “quite high.”

How will Utah fare?

Even if the nation does enter a mild recession in the near future, Gochnour told the council that Utah’s healthy economy sets the state up well to respond to it.

Utah reported strong annual job growth of 2.6% in April, which is on pace with the national increase. Salt Lake County reported 2.5% growth, while Weber County saw 2.4% and Utah County had 2.3%.

“I will remind you that Utah County has been just killing it in terms of economic growth, and right now Salt Lake County is exceeding Utah County in job growth,” Gochnour said.

Utah’s low unemployment rate also bodes well, given that layoffs are among one of the key indicators of a recession.

“But in this economy, if you lay people off over here, they get picked up over here and it will tend to soften any kind of blow,” she said.

Utah’s economy is also more diverse than the nation as a whole, meaning it can withstand small shocks to individual sectors without putting the entire economy at risk.

Salt Lake County does have a large share of the state’s commercial real estate, which faces an especially murky future. High interest rates make financing real estate more expensive at the same time that companies are cutting back on in-person office space.

“The property owners have the dual headwinds of that lower demand and higher financing costs,” Gochnour said.

But when, or if, those headwinds start to slow down the state’s economy is still unknown.

A separate report from the Utah Department of Workforce Services last month projects that Utah’s economy will likely remain strong through the summer. That report noted that 78% of Utah’s job growth over the past year came from the four major counties along the Wasatch Front: Weber, Davis, Salt Lake and Utah counties.

‘A lot of people being left behind’

Even if Utah is able to avoid the worst outcomes of a recession as a whole, some individual households will still feel a lot of economic pain, and that pain won’t be distributed evenly.

Wilson asked if the gap between the rich and poor is decreasing in good economic times.

“I think I could show considerable evidence that there’s a lot of people being left behind in this economy, and that’s not a Utah thing,” Gochnour said. “That’s an information age thing, where we’re in an economy that has changed and it doesn’t work for everyone. … And I think as you enter a new economy, and you have an elite economy, it’s a responsibility to ask, how do we make sure that everyone’s prospering?”