I would be kidding you if I told you I'm not worried about this." I am very worried."
There are three people you don’t want to hear these words from. At least three.
Your proctologist, your tax preparer, and your state economic and revenue forecaster. Not necessarily in that order.
In this case, the above quote came from Arun Raha. He’s the economist who had the bad timing of taking over as the state’s top economic analyst just as the world was plunging into the worst downturn in 80 years.
Raha has become the face of the state’s now-two-year-old budget crisis, not because he wrote the budgets but because he’s the one who tells budget writers how much they have to spend.
And nearly every quarter since he started has been worse than the quarter before. Lately, however, Raha has been able to report what now passes as good news: The end is in sight. In June, when he gave his most recent quarterly update, Raha said that while the recovery lost some steam in May because of the end of home sales tax credits and census jobs, “we expect the economy to gain traction over the summer, and close out the year on a more positive note.”
So what’s to worry about? On Monday, Raha released a monthly revenue update that suggests that once again the relatively pessimistic forecast wasn’t pessimistic enough.
Actual collections in the month of June were down by $84.5 million. Some of that is due to one-time write-offs. Too much, however, might be caused by weaker-than-expected taxable economic activity, especially retail sales. If it keeps up, it will put the state budget in the hole sooner and force deeper budget cuts than already being planned.
So, is it a blip or a trend? A “nervous” Raha said he isn’t sure.
“I am at a loss,” he said this week. He will wait another month to see if state consumers make up the difference. He isn’t brimming with optimism. Economic trends in the state and nation are weaker than they were just one month ago, Raha and his staff reported this week.
Of the U.S. economy, Raha wrote: “We had expected economic weakness in May. But, activity turned out to be even more anemic than that. The downside risk that the economic recovery stalls has increased over the past month.”
And of the state economy: “The downside risks have increased and the near-term outlook appears weaker than anticipated in June. We still expect the state economy to outperform the national economy in what is turning out to be a modest and moderate recovery.”
Why should the average Washingtonian care whether the state has more tax dollars or less? They might care if they have kids in school or college, if they have a parent getting senior services, if they want ex-cons supervised and at-risk children protected.
But the other reason is that we all live in the same economy as state government. The same weak economic numbers that affect tax collections affect businesses and family budgets.
How bad is this recession? Raha said its depth and length have already topped all recessions since the Great Depression. That was a whopper, though, lasting 16 years. He now expects what is being called the Great Recession to last until 2012.
“If we can get back to where we fell off from in four years rather than 16 years, then I’d say that’s a victory,” Raha said.
But even if this week’s numbers are confirmed as being a negative trend, Raha said he thinks the state and nation are still in recovery. He has described this as a U-shaped recession rather than a V-shaped recession. That means it fell sharply and will bounce along the bottom for a while before heading up again.
Using that analogy, what might this week’s numbers mean?
“I think it is near-term weakness,” he said. “The bottom of the ‘U’ just got stretched out a little more.”