Archive for Monday, April 19, 2004

Analysis: Economy sends mixed signals

State officials challenged to predict tax revenue

April 19, 2004


— A jumble of signals continues to flow from the economy, confounding attempts to measure its strength and creating uncertainty for officials who must help state government set a course for the near future.

Kansas' corporate income tax collections have been stronger than expected over the past nine months, suggesting more profits and, therefore, a stronger economy.

Unemployment is lower than it was a year ago, but some officials view job growth as relatively modest and insufficient to accommodate all of the people who say they're willing and ready to work.

While a debate continues over whether the nation is experiencing a "jobless recovery" -- with positive signs but stagnant employment -- state officials and university economists in Kansas face the job of assessing the economy and giving legislators a forecast of tax revenue.

"I just don't think things are very clear right now," said Revenue Secretary Joan Wagnon, one of the forecasters. "The signs are confusing."

Little change likely

Wagnon is among the 16 people set to meet Tuesday to issue the new fiscal forecast. The team also includes three university economists and people from the Department of Revenue, Gov. Kathleen Sebelius' budget staff and legislative research.

Legislators will use the forecast to appropriate money for public schools, state universities, services for needy, nursing home care for the elderly and a myriad of other items. Lawmakers return April 28 from a spring recess to finish the budget for the fiscal year that starts July 1.

Officials said in recent interviews that they are having a hard time reading the economy and, perhaps as a result, the new estimates are likely to hew closely to the current forecast, issued in November.

"Economically, given what's happened from last November to now, there's not a lot of change there," said Budget Director Duane Goossen, another forecaster.

Economists and state officials agree the Kansas economy already was slowing down before the Sept. 11, 2001, terror attacks, then tanked afterward, particularly as aircraft and telecommunications companies shed jobs.

But from that point, the picture becomes muddy.

Corporate income tax collections clearly are stronger. From last July through this March, they were $86.6 million, more than double the figure for the same period in 2002-03, and $18.8 million more than expected.

David Burress, a research economist at Kansas University's Policy Research Institute, said there's evidence that someone is making money.

"Income is growing because things are being produced," Burress said.

But he added, "This is not a recovery like other recoveries. This is a recovery where the people at the upper end of income distribution benefit."

John Wong, associate professor of public administration at Wichita State University, said economic recoveries were supposed to produce significant job creation, because companies are supposed to hire workers to meet consumer demands. But that model isn't working now.

"It's kind of like the shelves are full of stuff, but nobody knows who's making it. Little elves are running around," Wong said.

Job numbers

Numbers from the Department of Human Resources yield a clouded picture as well.

The number of people holding nonfarm jobs for regular pay grew by about 3,100 from March 2003 to March 2004, to about 1.31 million.

But the state continues to have fewer manufacturing jobs -- about 171,000 last month, down 3,000 from March 2003.

Meanwhile, department surveys indicate that a growing number of people are available to work: nearly 1.46 million last month, about 34,000 more than in March 2003. About 73,000 were looking for jobs and remained unemployed; some held farm jobs, and others are likely working out of their homes or only part-time, officials said.

"It's hard for me to talk about a recovery until people can find jobs," said Human Resources Secretary Jim Garner. "You still have an awful lot of folks out there who still haven't found jobs or are working at jobs that are much less than they are accustomed to, in terms of income and skill level."

Goossen said even with corporate income tax collections exceeding expectations, they still will fall well short of the $250 million the state collected during its 2000 fiscal year.

"The way things look now is that we've bottomed out and we're on the upward curve," he said. "We're not fully back to where we once were yet."

Wong questioned whether it was possible for the boom years of the late 1990s to return. He said the 1990s were highly unusual because economic expansion continued longer than the normal five to seven years and accelerated late in the decade rather than trailing off.

Maybe, Wong said, today's jobless recovery is the "flip side" of the unusual growth during the 1990s.

"But we don't know," he added.

Commenting has been disabled for this item.