Contact: Stephen Kroes, Executive Director
(801) 288-1838, ext. 122
steve@utahfoundation.org

THE EFFECTS OF THE CURRENT RECESSION LIKELY TO CONTINUE FOR MANY MONTHS

Although the economic recession currently affecting the nation and Utah may be nearing an end, its effects will likely linger for many months. Utah Foundation has released a new research report, charting the economy's performance during the ten recessions since 1948, including an analysis of the current recession and how it is impacting Utah. The report, entitled "Economic Recessions, Taxes, and Utah: Lessons Learned From the Past," is attached to this release; it may also be obtained at: http://www.utahfoundation.org/reports.html. Some highlights are as follows:

• The average length of recessions since 1948 is 11.6 months. However, it takes an average of 21.3 months for the US economy to fully recover from a recession.
• Utah's economy has diversified over time and looks more similar to the national economy in terms of employment than during any prior recession.
• Utah has been faring better than the nation as a whole during the current downturn, but recent job losses increased at a surprising rate.
• The tax most affected by this recession is the corporate franchise tax, due to plummeting corporate incomes. Individual income taxes are growing while sales tax is flat.
• Evidence from past recessions indicates that even if the current recession ends very soon, state and local revenues will likely languish for many months while the economy recovers to pre-recession levels.

Stephen Kroes, Executive Director of Utah Foundation, said, "Even if the recession is over tomorrow, it will probably continue to dampen tax revenues and business activity for the rest of 2002 and possibly into 2003. When people hear that the recession is over, they are sometimes surprised that it's still difficult to find a job, unemployment remains high, and government budgets are still in the red. The end of a recession is the bottom of the cycle. It takes some time after that for the economy to get back to normal levels."

In the current downturn, unemployment has been mild compared to past recessions. However, a large decline in the number of jobs in Utah during January 2002 suggests that the effects on employment are just beginning to be felt.

The effects on Utah tax revenue, however, are already a concern. At press time for this report, the state budget shortfall was estimated at $202 million. It has since grown to $256 million. The largest revenue shortfall has been seen in the corporate franchise tax as corporate profits have plummeted. Revenues from this tax are currently half the amount seen during the same time period of fiscal year 2001. Compared to last year, sales and use tax growth is flat, and individual income taxes are growing, but not at the rate expected in the budget.

Utah Foundation is a nonprofit, non-advocacy research organization. Our mission is to encourage informed public policy making and to serve as Utah's trusted source for independent, objective research on crucial public policy issues.