Wyoming Economy Still Standing Still

In April this year I explained that Wyoming was falling behind the national economic recovery. In May I reported that Wyoming was dead last of all 50 states in job creation. A comparison of private-sector jobs April 2013 over April 2012 showed a loss of 1,800 jobs in one year. This was happening while our neighboring states were adding thousands upon thousands of private-sector jobs.

An updated data review shows that the private sector remains stalled, with zero job growth in May 2013 over May 2012. Preliminary numbers for June indicate a slight increase, but it is important to keep in mind that when preliminary numbers become permanent they have a tendency of adjusting downward.

It is not just private-sector job numbers that point to a stagnation in the state economy. Adjusted for inflation, state GDP was smaller in 2012 than it was in 2008. After two years with negative growth numbers the state economy expanded microscopically by 0.23 percent in 2012 – hardly worth mentioning.

Perhaps the biggest worry in the Wyoming economic data is that the state’s dominating industry, mining, is contracting. Again in inflation-adjusted numbers, the total value of mining activities in Wyoming in 2012 was less than it was in 2006. This is despite the very strong growth in oil and gas extraction that took place in 2006-2009 (oil and gas extraction count as “mining” in national accounts). 

Even more worrisome is the long-term trend in mining activities not related to oil and gas (such as coal). While there are no 2012 numbers yet at that detailed level, we can extract a few good points both from the data up to 2011 and from related data on the compensation of employees:

  •  Excluding oil and gas, the net-inflation value of mining activities in Wyoming was $2.18 billion in 2011;
  • With the exception of 2005 and 2008 this was the lowest number since 1997;
  • The real value of non-oil-and-gas mining fell by a full six percent from 2009 to 2011.

Again, these are inflation-adjusted numbers. Unlike data that includes inflation (“current price GDP”) these numbers give us a good indication of what is actually happening “on the ground” in the economy. When an industry is shrinking after we deduct inflation it is an indication that we can expect stagnant or falling employment and earnings numbers. This has been confirmed by the stalled jobs situation in the private sector in Wyoming.

Our inflation-adjusted numbers also give us a good idea of the market for mining support services. While this industry is very volatile, in 2011 it produced a total value that barely beat its performance in 2004. Alas, one should not be surprised that total employee compensation in the entire mining industry in the first quarter of 2013 was about the same as it was in 2008 – and that is a current-price number! If we adjust it for inflation, employees in the mining industry earned less, in aggregate, in the first quarter of this year than they did five years ago.

The bottom line is that the mining industry, while valuable to Wyoming, is no longer the locomotive that pulls the entire state with it. On the contrary, so long as our state legislators remain more or less indifferent to Wyoming’s business friendliness, our overall tax climate is losing its national edge, and the federal government persists in its anti-coal activities, we can expect this stagnation to continue. 

To make matters worse, there is a simple yet brutal explanation why neither the executive nor the legislative branch of our state government seem to get the economic-stagnation message in inflation-adjusted economic data. Their severance tax revenues are based on current-price economic activities, which means that when natural resources prices go up the government makes more money – even if that inflation is associated with fewer jobs in the industry. In other words, the economic message that our lawmakers and our governor hear when severance taxes go up is that the mining industry is doing well, when in reality all they are seeing is inflation. 

This must change. It is time for the state to shift its fiscal-policy focus, its budgeting priorities and its long-term strategic thinking away from what the severance tax may or may not bring. Instead they should put in place certain real-activity benchmarks to guide their economic policy:

1. Private-sector job growth. It is almost self-evident that when an economy is not producing any new private-sector jobs, its tax base is not going anywhere. Therefore, as an immediate reform state government spending should be tied to the growth in private-sector jobs as well as private-sector employee compensation.

2. Relative GDP growth. Before passing any budget, the state legislature should ask itself whether or not the budget will help the Wyoming economy grow. As part of the answer the legislature should compare our state’s real GDP growth to the growth in neighboring economies. It is not enough to expect that our state’s GDP will grow by one percent per year when neighbors experience growth rates of two, three or even four percent. When others fare better, we should learn from their successes.

3. Fiscal independence. Roughly one quarter of total state spending depends on money Wyoming gets from the federal government. This puts a lot of strings and restrictions on how the state can act in terms of what government should and should not spend money on. A gradual phase-out of the state government’s fiscal dependency on Uncle Sam will help the state gain considerable fiscal independence. This means a lot of latitude to design an economic policy that will benefit the growth generators in the state: consumers and private businesses. 

With these benchmarks our lawmakers can get the state economy out of its stagnation ditch. But we cannot wait forever. In addition to the slow-progressing economic “venom” that is a stagnant economy, there are dark clouds on the horizon that we need to steer away from.

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2 Responses to Wyoming Economy Still Standing Still

  1. PHILLLIP REGESKI says:

    Knowledge is the power that both guides and motivates. Thank you and WLG for your efforts.

    I am the owner of a small business (Civil Engineering) and my family and I are new to Wyoming. Please help me, and your wider audience, understand what Wyoming’s severance tax is and how it is adversarial to our economy.

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