|12/17/2008 - Jackson, Miss.
The December issue of the Mississippi Economic Review and Outlook, published by the Center for Policy Research and Planning of the Institutions of Higher Learning (IHL), is now available online at www.mississippi.edu/URC. This issue focuses on the course of the recession in Mississippi and its implications for employment and incomes. There is also an article on state population projections.
Mississippi Economic Forecast. State employment is forecast to continue its downward trend well into 2009, negatively impacting incomes and consumer demand. So far, manufacturing has been the sector hardest-hit in terms of employment. Next year most sectors, with the exception of health care, are expected to suffer some job loss.
"The state should brace for double-digit unemployment rates," states senior economist Dr. Marianne Hill, who prepares the state economic forecast. "This downturn, by many measures, appears to be as severe as that of the early 1980s; nationally, the turmoil in financial markets and the drop in housing are even greater than during that period." The turnaround in the state economy is forecast for mid-2009, in line with national trends. This outcome, however, is dependent upon appropriate stimulus spending by the federal government and other factors.
National Economic Outlook. Housing starts this year have been below an annual rate of one million for the first time since 1945, and the financial crisis has brought the prime interest rate down to its lowest level in over forty years. Falling demand has led to a sharp decrease in inflation, and consumer prices are expected to drop in 2009, the first time this has happened since 1955.
Despite such record numbers, the recession is not expected to be worse than that of the early 1980s in terms of job loss and decline in output. Government intervention is key to this outcome, and the increased importance in the economy of relatively recession-proof service industries, such as health-care, also plays a role in moderating the downturn.
There is, however, a 25% probability that the recovery will begin later than the middle of next year, should the financial crisis continue into the spring or the global economy worsen.
State Budget: The Road Ahead. "Besides the challenge of short-term recessionary pressures, the state is facing longer-term revenue problems," warns Dr. Marianne Hill. At the national level, researchers have been advising the states for years to address what they see as widespread structural deficits. In Mississippi, Katrina-related federal spending have brought some relief from a downward trend in the growth rates of revenues from major taxes, but this hurricane-related stimulus is drawing to a close. The rising federal debt and shifting national priorities will likely mean a reduction in federal funding of -l some current programs in the states by 2011. (Fifty percent of Mississippi's FY2009 budget is being financed by federal dollars; this percentage may well return to the 35% range in a few years.)
Given these trends, there is a need to look seriously at the state's tax base. Hill examines the sales tax, the personal income tax and the corporate income tax, and considers several changes that could bring in more revenues. "Careful calculation of the effects of any change in taxes is required to ensure that such change improves both the equity and efficiency of the tax system," she states. In addition, she notes, "It is generally easier to recommend cuts in tax rates and increases in exemptions and deductions, than it is to end existing tax breaks or to raise taxes on some to equalize the burden between groups."
Population Projections. Dr. Barbara Logue's projections for the state population in 2015, 2020 and 2025 are now available online. "Relatively slow population growth for the foreseeable future in Mississippi will be accompanied by the many challenges of a shrinking work force, an aging population, and rising aged and total dependency burdens", she concludes.
For more information, contact Dr. Marianne Hill, senior economist, at 601-432-6376. The full text of the Mississippi Economic Review and Outlook is available at www.mississippi.edu/URC.