Transition
The Utah economy, like much of the Rocky Mountain region and the nation, has been in transition to a slower economic growth pace in recent months. In contrast to the nation, however, neither the broad region nor the Utah economy is likely to experience recession in 2008.

Regional performance has clearly slowed, with Arizona and Nevada dealing with painful corrections from excessive home building and home price appreciation during the 2003 to 2006 period. In contrast, agriculture- and energy-rich Montana and Wyoming are thriving. Colorado, Idaho, and Utah have slowed, but continue to generate moderate employment gains.

Utah employment growth during 2008 is likely to be the weakest since 2003, although such growth will remain among the nation’s leaders. Weakness in the state’s new home construction market should continue throughout the year, before some improvement occurs in 2009.

Utah’s commercial real estate sector remains healthy, with numerous large projects underway. Other projects, however, may be delayed, falling victim to shell-shocked domestic and global credit markets which have limited credit availability in all too many economic sectors.

Job Detail
Newly revised Utah employment data notes the slowing now underway. The Utah economy added an estimated 28,000 net new jobs during the most recent 12-month period, a 2.3% growth rate. While such growth ranks among the nation’s strongest, it pales versus Utah’s job growth pace during much of the past three years.

The state’s goods-production sector has seen solid gains in manufacturing and natural resources employment, even as construction has stalled. Service-providing employment has continued to add jobs led by gains in trade, transportation & utilities; education & health services; professional & business services; and leisure & hospitality.

Less robust Utah job creation has led to a modest rise in the state’s unemployment rate. The most recent jobless rate of 3.0% compares to the 2.7% average jobless rate during 2006-2007, one of the lowest in the nation. Greater labor availability should help Utah employers of all sizes to more easily fill open positions, a challenging task in recent years.

Freeze Up
Thousands of Utah consumers and companies are being whipsawed by domestic and global credit markets that have gyrated wildly during the past 12 months. Lenders aplenty were available in recent years to finance just about anything, with many lenders around the nation focused on subprime mortgages. Such loans were then packaged with others, sliced and diced into a myriad of loan pools and investment products, and ultimately bought by investors around the globe in search of higher yields.

Such credit excesses have now given way to tens of billions of dollars of loan and investment losses, high levels of lender paranoia, and domestic and global credit markets which have routinely frozen up in recent months. Even traditional lending and investment markets beyond the subprime sector have struggled with frightening levels of paralysis at times.

One result of such market anxiety has been higher levels of mortgage interest rates than would traditionally be available. The old “rule of thumb” was to take the investment return (or yield) on 10-year U.S. Treasury notes and add 1.50%-1.60% to get a good idea as to the level of 30-year fixed-rate mortgages (known as conforming loans) destined for purchase by various government entities such as Fannie Mae and Freddie Mac.

Recent 3.30%-3.60% yields for the 10-year Treasury would typically equate to 30-year fixed-rate mortgages around 5.00%. Unfortunately, credit market anxiety now finds such mortgage rates in a 5.70%-6.30% range. In addition, many lenders have imposed more stringent requirements for borrowers to qualify for loans, including larger down payments.

The “jumbo” mortgage market has also experienced higher mortgage rates when compared to conforming loans. Such loans are critically important since much of Utah’s current excess of new and existing homes for sale is in homes priced above $500,000. One major component of the recently enacted $168 billion fiscal stimulus package temporarily increases the upper limit on conforming loans to as high as $729,750 versus the prior ceiling of $417,000, although only in three Utah counties.

Utah View
Serious global credit market anxiety and a weak Utah home construction sector have contributed to less vibrant Utah economic growth. Even as it slows, the state will rank among the nation’s leaders in job growth. Utah’s longer-term economic posture remains one of the most attractive in the nation.