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Saturday, January 11, 2020

Only Mining Is Growing in Wyoming

Well, that is not entirely true. But the non-minerals part of the economy is doing much worse than the national average.

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When you break down the latest state GDP numbers from the Bureau of Economic Analysis, it does not look very good for Wyoming. 

Superficially, it does, of course, with a 3.7-percent real increase in economic activity over the same quarter in 2018. The same superficial look at private-sector industry activity is even better at 4.4 percent.

The good news in that is that government activity actually declined. The bad news is that when you scratch the surface of the private sector, you see a very different picture than what the high growth number would suggest:
  • Of the 19 industries that comprise the private sector, economic activity declined in five and increased by less than one percent in another four;
  • Of the inflation-adjusted $1,432 million in growth from Q3 2018 to Q3 2019, $1,298 came from the minerals industry.

In other words, minerals contributed 90.7 percent of the inflation-adjusted growth.* This does not bode well for the numbers we can expect for the fourth quarter (due out in three months). I have said in previous articles that economic activity outside of minerals changed markedly during the third quarter; the November employment and earnings numbers from the Bureau of Labor Statistics forebode a bad Q4 GDP number.

The third-quarter numbers, again, are not very encouraging, despite the positive aggregate figure. The five industries that contracted were:
  • Transportation and warehousing, -1.6 percent
  • Administrative services, -1.8 percent
  • Utilities, -2.3 percent
  • Business management services, -3.3 percent
  • Arts, entertainment and recreation (AER), -5 percent

To these, we should add the four industries that grew at less than one percent:
  • Information, 0.95 percent
  • Finance, 0.6 percent
  • Health care, 0.24 percent
  • Manufacturing, 0.03 percent

In fairness, there are some mediocre number for the national economy, but they pale in comparison to Wyoming. In Q3, only three industries saw a decline in economic activity over the same quarter 2018, and the decline numbers were marginal:
  • Utilities, -0.15 percent
  • Construction, -0.5 percent
  • Transportation and warehousing, -0.8 percent

The negative numbers from Wyoming overshadow those in the national economy, suggesting - as always - that we have created our own economic problems here. I would expect the disparity to increase for the fourth quarter.

It is also worth noting that the number of industries with growth that is weak (less than one percent) or negative has increased from the previous quarters this year. In Q1 only two industries - transportation and AER - were in decline, and only health care fell into the weak-growth category. In Q2 five industries declined, but the average negative growth rate for those industries was a tick smaller than it was in Q3.

Plainly spoken: our state's economy showed early sings of weakness already in Q3.

Again, we will not have any idea of GDP growth for the fourth quarter until after the 2020 legislative session is over. However, we will have labor market numbers for December, and we do have a brand new CREG report to sink our teeth into. That one is not a happy read.

More on that in a separate article. For now, let us note that the non-minerals industries, which make up about three quarters of our state's tax-paying, remain essentially in a standstill - while the national economy continues to grow in every cardinal direction.

It is tempting to quote Marcellus, from Hamlet, about the State of Denmark...
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*) This percentage is mildly misleading. The total amount for private-sector growth is based on a price index for the private sector as a whole, while the number for the minerals industry is based on an industry-specific price index. This means that if we sum up inflation-adjusted growth industry by industry, we get a higher number than the as-a-whole number for the private sector. In other words, the 90.7-percent figure marginally exaggerates the role of minerals. However, since we cannot use the "total private sector" price index for minerals - nor should we - this is the closest estimate we can get of how significant the minerals industry is for real economic growth. 

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