Winthrop Quigley of the Albuquerque Journal covered a speech given yesterday in Albuquerque to the Economic Forum by an economist, Mark Snead, for the Kansas City Federal Reserve Bank, which covers New Mexico. The graph on the right is taken from the web site of the Bank. Click here for story.
Bottom Line: New Mexico is now in the first serious recession it has experienced since World War II. The major driving force is the price of energy, which is depressed. Quigley quotes Snead as saying, "I think we hit the life-time low in oil prices last summer." With natural gas prices at $1.90 per thousand cubic feet, "that's shut-down levels...Gas prices drive (economic growth) in the region." There is nothing out there that looks like it will reduce output. "I'm very concerned about that," he said.
Given New Mexico's heavy reliance on oil and gas for state tax revenues, it seems to me the fiscal situation of state government may not be improving significantly for a while. Sen. John A. Smith has been saying this, not just in the past few months, but for several years. He came to one of my classes two and a half years ago with this message, for which he has been unfairly demonized by people who felt it was in their political interests to ignore these realities. Smith's power as Chair of Senate Finance has prevented even worse fiscal disasters for the state, and he is owed the gratitude of the citizens of New Mexico not only for doing what was right but also doing so when it was not popular, and politically dangerous.
Another serious cause for concern is the housing sector (see graph) which, in New Mexico, is not recovering as strongly as it has in many other places. Employment (see graph) is also down in New Mexico, and Snead explained to his audience yesterday that federal unemployment figures tend to very wrong is energy states and New Mexico was probably not growing as fast as the data indicated.
The data in the charts to the right are serious cause for concern. Goods producing sectors are down about 15% from last year, and manufacturing and construction are down even more.
One clear lesson from this unhappy experience? The state needs to do something about it's reliance for revenues on non-renewable energy. The state has diversified its economy considerably in recent years, and our taxation system needs to reflect these new realities. We can argue over whether the overall level of taxation and revenue collection is appropriate or not, but we certainly can agree to shift the tax structure so that state government is not as badly hurt when energy costs, which are very cyclical, go down.