(INTRO) The Vermont legislature and Governor Douglas will get some difficult economic news to swallow this afternoon. Commentator Timothy McQuiston is editor of Vermont Business Magazine, and he explains what that bad news is.
(MCQUISTON) The book definition of a recession is two consecutive quarters of a decline in gross domestic product. By that definition, a recession is a serious economic situation because you’re talking about six months of pain.
For that reason, I’ve been saying that the United States would not enter into recession. According to many sources, not only does it look as if I’ll be wrong, but that I’m already wrong. As you can guess – because we’re looking at three month increments – we might not know we’re in a recession until we’re just about out of it. Or maybe all the way out of it. In any case, across the country and here in Vermont, the economy has slowed.
In Vermont, recently reported general fund tax revenues are about 10 percent below targets. The Transportation Fund is even weaker. Basically, March was a bad month for consumer spending. While the income tax posted pretty good numbers – up 12.4 percent for March and up almost 10 percent for the year-to-date starting last July – rooms, meals, and sales taxes struggled. The gasoline tax especially suffered, down more than one percent for the year and down more than 15 percent just in March. This consumer spending isn’t just below targets, it’s actually showing losses. That’s when people start talking recession.
The targets themselves reflect what the state THOUGHT was going to happen. The state’s Emergency Board will meet this afternoon to set new targets.
Consumer spending patterns make sense – people are tighter with their money. Of more concern, perhaps, is that corporate profits are down. This is a clear indicator of a decline in economic activity.
Meanwhile, it looks as if personal income tax refunds will be up, meaning that the state tax revenues will decline. Of course, taxpayers getting more money back is a good thing, for individuals and the economy. Our economy is based on consumerism. The more money people have in their pockets, the better they’ll feel about spending it. So if we’re all hanging on to a bit more cash these days, once confidence in the economy returns, we’ll spend it, or at least some of it.
Vermonters and their government are pretty conservative with money. The legislature and the governor are right now in the process of cutting the budget. Our federal government should be so wise. The feds are still running budget deficits without shame, letting giant Wall Street firms off the hook, and allowing Florida real estate developers to recoup on bad business decisions.
Vermont is not bullet proof, just wiser and more frugal than most other places. So I might be wrong and the US might slide into recession this year. But Vermont will find a way to keep going, as it always has.