Is the United States headed for a recession?
Probably so.
Is it going to hit soon?
Not likely, according to Gary Wagner, Ph.D., Department of Economics and Finance, B.I. Moody III College of Business Administration at the University of Louisiana, Lafayette.
Wagner, an Acadiana Business Economist, was the keynote speaker for Friday’ Quarterly Luncheon hosted by the Acadia Parish Chamber of Commerce at the LSU AgCenter Conference Center.
Looking first at national trends because “we don’t live on an island,” Wagner noted that the current growth expansion in the United States is the longest in U.S. history at 122 months.
“On average, we experience a 3% growth in GDP (Gross Domestic Product) every quarter,” Wagner said. “Projections for the next five quarters are a growth rate of about 2%.”
According to national economists, the probabilities of a recession are rising with “about a 1 in 4 chance” of it happening in the next year.
“But one possible reason for high expectations is that we’ve had such a long period of growth,” Wagner said. “It’s kind of like when you have a string of good luck, you just know something bad’s about to happen.”
Wagner compared economic forecasting to driving a car with a blacked-out windshield. “All you can go by is what’s in the rear mirror,” he said.
If a recession were to hit, Wagner said the most severe start would be in the financial sector, and the impetus for a start there would be tariffs.
“Our economy is growing not because of tariffs, but in spite of tariffs,” he said. “The quicker we can alleviate the trade issue, the better it will be for the national economy – and that’s something that can be done in a day.”
Twelve percent of the country’s economic activity is in U.S. exports; 15 percent is in imports, Wagner explained.
The driving force in today’s economy is household spending, according to the economist. “The severity of recessions hinges on consumer spending and households today are in much better shape that they were 10 years ago” when the last recession hit.
The household debt balance – debt relative to income – was at its highest point ever in 2008, according to Wagner. “Today, it’s the lowest we’ve ever seen.
“That means people today are better prepared to weather a recession if it comes.”
Looking more locally, Wagner’s statistics seemed to indicate that, while a national recession may be a little ways down the road, the outlook for Louisiana is more grim. “Local recessions are possible,” he noted.
Wagner compared job growth across the country, noting that the Louisiana job growth rate currently is flat. In fact, Louisiana is the only state with zero job growth the last year, according to the statistics he provided.
Zooming in closer, job growth in the Acadiana area – the Lafayette Metro Area – was at 0.9 percent, encouraging since five of the nine metro areas in the state showed negative job growth.
“The Lafayette and New Orleans Metro Areas are the only two driving job growth in Louisiana,” he said, “but not fast enough to make up for the job loss in the oil and gas industry.”
Louisiana also is lagging its neighboring states – “badly” – in GDP growth, according to Wagner.
“We’re at negative 5.6% growth since 2010. We’ve shrunk in the last decade,” he said. “Forty-six states have grown. We got smaller.”
And it’s more than just the down-turn in the oil and gas industry, he added.
“Louisiana’s tax structure is probably the worst in the country for growth,” said Wagner. “And bureaucracy is thick in Louisiana. There may be good intentions in all the bureaucracy, but it comes at a cost. That’s what’s driving businesses to Texas and Arkansas.”
He said the state needs to start thinking beyond oil and gas. Jobs in that industry are down 19% nationwide – 9% in Acadia Parish and a whopping 44% in Lafayette Parish.
However, the country is producing more oil and gas now than ever.
“Companies are extracting 70% more oil and gas with 30% fewer people,” he said. “What the oil and gas industry learned in 2014 and 2015 is that they had to get lean – and they did.”
And the state isn’t only losing oil and gas jobs, “The ‘brain drain’ is real,” Wagner said. “Louisiana is losing a lot of its educated people to other states.”
According to statistics, the state lost about 30,000 college graduates to Texas since 2000; more than 10,000 to Florida.
There are two reasons for migration,” Wagner said, “family and job. Louisiana currently ranks 50th in the nation in job opportunities.
“What really drives growth is innovation and, while you don’t necessarily need a college education to be innovative, most innovation comes from college-educated people.
“I hear it all the time at U.L., ‘We’re educating these people and they’re all leaving the state.’”
On a bit of a bright note, Wagner noted that the job climate in Acadia Parish is changing from primarily oilfield-related to more education and healthcare services.
“And that’s probably the two most stable ‘growing’ sectors there are.”
