| OCR Text |
Show Recessionary period to be felt in Utah economy A recessionary business climate will become painfully evident throughout the United States' economy in the second quarter, according to Verna! First Security Bank, quoting from the First Security Newsletter. The quarterly quar-terly report, which will be published this week, is edited by Dr. Kelly Matthews, vice president and chief economist for First Security Corporation, Cor-poration, regional bank holding company. Despite widespread economic weakness, economic policy in the months ahead will remain significantly influenced by inflation. Recently in the 16-18 percent range, the heavy burden of inflation has eroded real income and savings beyond the capacity of consumers con-sumers to sustain their inflation-i inflation-i induced spending habits. A recession, however, has very little immediate impact on cost-push inflationary in-flationary forces. Employee compensation com-pensation is expected to increase more than 9 percent in 1980, while productivity produc-tivity will probably decline at least 2 percent. The combination of these two forces indicate that the return to single-digit single-digit inflation will require an extended period of time and basic changes in economic policy to encourage greater productivity. Much of the economic weakness in the first quarter was centered on the housing and residential construction industries. In March, housing starts, nationwide, dropped to an annual rate of one million, the lowest level in nearly five years. Residential construction activity will probably decline even further in the second quarter. The national rate of unemployment is expected ex-pected to rise sharply in the months : ahead as unemployment in the housing and automobile industries spreads throughout the economy. Following the imposition of various credit restraint measures in. mid-March, mid-March, interest rates soared, with the prime lending rate reaching 20 percent. ' This Federal Reserve action was a distinct change from the policy approach ap-proach pursued during the past two years. The intent of the current policy is to limit the growth of credit, irrespective of the rates borrowers , may be willing to pay. Recently, as the economic weakness has intensified, interest rates have eased downward. There also remains some uncertainty regarding the potential large demand for commercial loans. Indicators suggest that many major corporations which normally rely heavily upon the bond and commercial com-mercial paper markets for financing, have significantly expended their . commercial bank lines of credit. Despite this potential area of uncertainty, un-certainty, interest rates will likely edge downward in the second quarter as the recession lessens the demand for credit. Continuing inflationary pressures and the potential weakening of the dollar in international exchange markets will allow interest rates to adjust downward very slowly. Locally, Utah's economy will continue con-tinue to feel the adverse impact of high interest rates and a recessionary national economy in the second quarter, says First Security. The primary areas of weakness have been centered in the residential construction and automobile industries. ; In the months ahead, however, a slower pace of business activity ;s expected to become apparei ' throughout Utah's economy. Rapid population growth, as evidenced by utility hookups, continued in Utah during the first quarter of 1980 and is anticipated to persist throughout the year. As of July 1, 1979, the population in Utah was 1,367,000, an annual increase of 50,000 or 3.8 percent. More than 76 percent of Utah's 1979 population resided in Weber, Davis, Salt Lake and Utah counties, which had annual growth rates of 2.1 percent, 5.4 percent, 3.5 percent, and 5.3 percent respectively. Favorable, but modestly slower, employment growth is expected in Utah during the second quarter. With continued growth in basic and supporting sup-porting industries, Utah's job market should remain considerably more attractive at-tractive than the national average. Wage gains in 1980 are expected to be in the 8-9 percent range, exceeding the 7M percent average increase recorded last year. Nevertheless, because of the sharply accelerated pace of inflation, the loss in real purchasing power in 1980 will probably be even more severe " than a year'ago. ' ' Residential construction activity declined sharply in the first quarter of 1980 and conditions may actually worsen in the months ahead before any improvement is realized. As mortgage rales soared, individual borrowers were either unwilling or unable to qualify for mortgage loans. Consequently, Con-sequently, a substantial inventory of newly constructed, unsold homes continues to burden the. market. Despite the difficulties involved in financing, building and purchasing a new home, real estate sales and activity ac-tivity has remained surprisingly resiliant. Most of the sales volume reflect contracts, assumptions or. money from the Utah Housing Finance Agency. x Overall consumer spending in Utah is , expected to ease in the second quarter. The recent Federal Reserve Credit Restraint program has reduced the availability and increased the cost of consumer credit and credit card borrowing. |
