When the Revenue Estimating Conference met last Wednesday to update the state’s worsening fiscal crisis, panelist Greg Albrecht, chief economist in the Legislative Fiscal Office, generated headlines by saying the state is in “a recession.”
He didn’t just say that the state budget is in a crisis. He said the Louisiana economy is in a recession.
So what’s behind this recession, just how deep is it, and how can Louisiana be in a recession when $140 billion in industrial construction and expansion projects are supposedly underway?
According to Albrecht and LSU Economist Jim Richardson, also a member of the REC, the recession began last fall and is largely attributable to the slide in oil prices that began in mid-2014. Though the state’s budget is not as heavily reliant on oil prices as it was in the mid-1980s, the state’s economy is still closely tied to the oil and gas sector. As a result, since oil prices began falling from nearly $100 per barrel in July 2014 to around $30 per barrel today, sales and corporate income taxes have fallen sharply, as have employment numbers.
From July-October 2015, the first four months of the current fiscal year, state sales tax collections were up 2.8% over the same period in 2014. In November, however, they fell sharply and were down 10.4% from the previous year. The year-over-year slide continued in December, when they were down 8.1%, and January, when they were down 8.4% over the previous January.
The state’s job count has showed a similar decline. It was down 0.43% in October, compared to the same month the previous year, and fell by 0.58% in November and down 0.88% in December.
“These are the key economic indicators we use at the state level and they’re trending in the wrong direction,” Albrecht says. “It shows a definite dampening and slowing down of the economy.”
As for the much-touted industrial construction boom, Albrecht notes that of the $140 billion in announced projects, much of the work has been put on hold or is still up in the air. An estimated $60 billion is under way or has been completed, but the other $80 billion is very much up in question. And even of the $60 billion under way, Albrecht says that impressive dollar figure does not necessarily represent $60 billion of actual spending in the Louisiana economy.
“If you take a plant and it drops $1 billion in Louisiana that means it brings in equipment, vessels, whatever, but a lot of that is made elsewhere and is barged in,” Albrecht says. “We didn’t employ tons of people and companies making that high value component. We installed it, but that’s it. That’s not to say those projects have had zero effect it’s just that we end up with a much smaller portion of that $1 billion than the numbers would initially suggest.”
As for how long the recession might last, Albrecht says that largely depends on oil prices. But it’s important to remember that the state’s economy was not particularly strong to begin with.
“Even when our economy was growing, the growth was not particularly robust,” he says. “We were never really rolling.”
—Stephanie Riegel
