Vt. economists deliver promising forecast
By Neal P. Goswami
VERMONT PRESS BUREAU | January 17,2014
MONTPELIER — Citing rising consumer and business confidence and improved conditions for economic growth, economists delivered optimistic news Thursday to Gov. Peter Shumlin and the Emergency Board.
Tom Kavet, an economist for the Legislature, and Jeffrey Carr, an economist for the Shumlin administration, said revenue forecasts for the coming year will not see any significant changes. They reported to the board, made up of the governor and the heads of the Legislature’s money committees, that economic conditions are improving for more rapid growth in the near future.
Interest rates and inflation remain low, and energy prices are also low, allowing businesses to maintain productivity.
“Things are starting to align in a way that might make things a lot better down the road,” Kavet said. “This is a hopeful forecast.”
The state will see a drop in revenue after the closing of Vermont Yankee at the end of the year. But other revenue sources will improve, including taxes from the purchase of motor vehicles, an indication that consumers are more willing to purchase big-ticket items.
Consumer confidence is on the rise, but not as fast as business confidence, according to the consensus forecast offered Thursday by the two economists. Carr said confidence has been the missing ingredient for expanding the economy.
“There are some surveys out there showing that business people are now feeling more secure about what’s going on in the economy, about what’s going on with policy,” he said.
Still, although on the rise, confidence is “still a good amount below where it was (before) the Great Recession,” according to Carr. He said another round of dysfunction in Congress could scuttle gains.
“Confidence is still a little on the fragile side, so another case of brinksmanship this spring surrounding the debt ceiling could be another bad development for the economy,” he said.
Kavet reported a recent surge in new investments in nonresidential buildings.
“This is saying the business community is putting their money where their mouth is,” he said.
“If you’re building new buildings it’s probably to house people that you’re going to hire and your output is going to increase,” Kavet said. “So, that’s a really good early indicator of what might be happening.”
And Carr said businesses are primed for expansion after squeezing as much productivity out of workers as possible and cutting back on costs during the recession.
“Companies have done an amazing job of increasing their productivity, because that’s how they have been boosting their corporate profits,” Carr said. “Now, what we’re hoping is that for the good of the labor market and for the overall good of the economy ... the way to increase their bottom line is to actually expand their capacity to produce.”
Meanwhile, Vermont has nearly recovered the number of jobs lost during the recession. The state will be just the second in New England to so, behind Massachusetts.
Tempering that feat, however, is the fact that a large number of people are still unemployed for extended periods, Kavet said. And the state’s unemployment rate remains among the lowest in the country, but largely because so many have dropped out of the workforce, he said.
Shumlin said the state’s reserve funds were tapped in recent years and should be replenished as revenues rebound.
“The first thing we should do is build our reserves,” he said.