The January report from the Mississippi Institutions of Higher Learning was not all gloom, however. Leading indicators such as retail sales, tax collections and housing starts have trended upwards since July. Both retails sales and general fund tax collections are ahead of last year’s pace, according to the report, which also noted a sharp rise in housing starts and building permits, a trend seen elsewhere in the country as well.
“In Q2 of 2012, starts were 18 percent higher than a year ago,” the report said. “The value of residential building permits issued was up sharply, and the median home price increased. The upsurge in permits issued and in housing starts bodes well for the sector in 2013.”
What doesn’t bode so well is the effect of the re-instatement of a 2 percent portion of the federal payroll tax that had been suspended as a way to stimulate consumer spending. The return of the full Social Security tax led state economists to lower expectations for overall economic growth across Mississippi.
Increased payroll tax deductions will cut personal income growth from a projected 3 percent to 2 percent and cause an expected 1 percent growth in job levels to fall to 0.8 percent, said Marianne Hill, senior state economist.
A further economic toll of reinstatement of the payroll tax is a lowering of forecasts for the state’s gross domestic product to grow by only 1.4 percent, down from a previous forecast of 1.6 percent.
Nationally, the return of the tax is expected to cut the growth in the gross domestic product from an initial forecast of 1.9 percent to an even more anemic level of about 1.7 percent, according to HIS Global Insight, an international provider of economic forecasts. The forecaster attributed the drop in growth expectations to the 16 percent average increase in Social Security taxes brought by reinstatement of the payroll tax.
The end of the first quarter should give economists a glimpse of just how damaging expiration of the payroll tax cut will be nationally. Global Insights expects consumer spending for the quarter will decline from a previously projected 2.6 percent to 1.4 percent.
“The looming debt-ceiling crisis will also restrain growth,” Global Insights said.
Hill said most economists had expected President Obama and Congress to work out a gradual phase-in of the payroll tax return. Instead, economic growth must now bear the cost of a sudden drop in worker incomes, she said. “Even though the economy may not go into recession, it is closer to the brink than it was.”
Mississippians saw a 3.1 percent increase in personal income the first nine months of 2012. State economists expect that final calculations for the year will show a leveling off in income growth to 2.9 percent.
Payroll employment in 2012 fell 0.2 percent below 2011 levels, based on year-to-date numbers through November, according to the report.
“On the other hand, the household survey, which includes the self-employed, shows employment of residents was up 1.4 percent,” the report said. “The payroll figures, however, are considered to provide a more accurate assessment of trends within establishments.”
Mississippi’s unemployment rate ticked up to 8.6 percent in December from 8.5 percent in November, the Bureau of Labor Statistics said, matching Connecticut and Georgia for the eighth-highest unemployment rate among the states.
The BLS said the unemployment rate rose because the state’s labor force increased faster than people found jobs. Mississippi reported 115,000 unemployed people in December, up from 113,000 in November, but down from 141,000 in December 2011.
What decline the state has seen in its jobless rate can be attributed in part to Mississippians retiring or giving up the job search, the BLS says.
Among business sectors where payrolls fell in Mississippi in December were trade, transportation and utilities; leisure and hospitality; construction; manufacturing and government. The professional and business service sector posted a healthy gain, though, and also rising were education and health services and financial activities, the Associated Press reported last week in its analysis of the BLS data.
For the year, however, transportation and utilities showed the strongest gains among business sectors, according to the Outlook report. Those sectors grew an estimated 4 percent, and in health care and social assistance and mining and logging all grew about 2.2 percent. Manufacturing employment rose 1.1 percent for the year, with durables manufacturing up 2.2 percent, based on the November data, the IHL report said.
The remaining major sectors employed fewer workers in 2012 than in 2011, including government (down 0.2 percent, construction (down 6.3 percent, trade (down 1.4 percent), leisure and hospitality (down 0.7 percent) and business and professional (down 1.8 percent.
Overall, employment in 2012 was about 5.5 percent lower than at the start of the recession in 2007, the state economists reported.
That assessment followed a November forecast by IHL economists that the state will be nearing the end of this decade before job numbers in manufacturing, leisure & hospitality and several other sectors returns to the pre-recession levels of 200.
The November report noted Mississippi’s businesses have not performed as well as their counterparts nationally in the recession years, having recorded bankruptcies at twice the national rate in the previous decade.
“The recent recession makes clear that the economic landscape in the state has changed,” said Hill, the economist for the IHL. “Data indicate that the skill and resource deficits here are limiting the ability of smaller firms to survive and thrive as market realities change.”
Business bankruptcies rose 129 percent in Mississippi between 2000 and 2010, versus an increase of 60 percent in the United States as a whole, she said.