The UNM Bureau of Business and Economic Research (BBER) just released its 2020 second quarter economic forecast for the state, outlining impacts of unemployment, plunging oil prices and an economy on pause.
The New Mexico Economic Forecast (FOR-UNM), produced by BBER, is a tool for decision makers in the private and public sector to understand historic, current and future economic trends in New Mexico. The forecast is used by the state government for revenue projections in setting the state budget. The forecast can also be useful to public and private organizations.
The following is a portion of the FOR-UNM Snapshot, which can be viewed here in its entirety.
In a matter of weeks, COVID-19 has thrown the global economy into crisis. It is all but certain that the US and all other countries in the world will enter what likely will be the deepest recession since 1929. New Mexico has not been spared. In just six weeks, nearly one in six employed persons in New Mexico has applied for unemployment insurance. The oil & gas industry, which generates more than a third of State government revenues, has collapsed; the price of oil is below $20/barrel. Federal emergency funding may help to soften the blow but many households and businesses have not been able to access the programs in a timely manner.
New Mexico has both advantages and disadvantages in confronting the crisis. On the downside, households in New Mexico have limited savings; the state is highly dependent on customer-service industries impacted by the spread of the virus; and many are employed by small businesses that have limited access to financial supports. On the upside, the state is well supported by federal dollars, both in terms of contracts to businesses and direct transfers to households; and the state permanent funds have more than $20 billion in assets.
New Mexico’s Economic Outlook
The forecast anticipates the loss of 85,000 jobs (-10%) through the third quarter, small gains through mid-2021, and stronger recovery through 2022.
FOR-UNM projects a near-full recovery of 2019 employment levels by the end of the forecast period in 2025. The outlook for personal incomes is considerably better, thanks in part to a surge in transfer payments in 2020. Oil production is forecast to contract in 2020 and 2021 but with higher prices accompanying the global recovery, production will recover to 2019 levels by 2023.
Job losses will be greatest in retail, as the response to stay-at-home orders accelerates the long-term trend toward big box retail and online commerce. Administrative services, which include temporary employment services, will also suffer deep losses, as businesses cut costs during the downturn and seek efficiency during the recovery.
The COVID-19 crisis is expected to highlight the value of professional & technical services, which are expected to be more resilient during the downturn and stronger during recovery. In New Mexico, the sector will also benefit from relatively stable federal funding.
Due to the initial surge in transfer payments and relatively stronger recovery of higher-wage industries such as professional services, the outlook for personal incomes is more favorable. FOR-UNM expects 2.4% (nominal) growth in personal income in 2020, flat growth in 2021 as transfers are withdrawn, and stronger growth thereafter.
Gross State Product (GSP) is forecast to fall sharply, by 9.2% in 2020Q2, 8.8% in 2020Q3 and 7.6% in 2020Q4, indicating a slight easing as we move later into the year. The loss will be recovered in 2021 (up 5.9%) and 2022 (3.5%). Thereafter, GSP will grow by a modest 1.6% per year.
Oil and gas production are forecast to contract in 2020 and 2021. With modest growth thereafter, oil production in 2023 exceeds 2019 levels.
FOR-UNM offers three alternative scenarios. In the optimistic scenario (10%) the recession is less severe (2020 ends with 16,000 fewer jobs) and improved fundamentals allow for stronger growth of higher-wage jobs in mining, construction and professional services. The forecast period ends with 8,000 more jobs than in the baseline scenario, but still nearly 50,000 fewer jobs (-5.5%) than in January’s baseline scenario.
There are two pessimistic scenarios. The first (35%) follows a U-shaped path of recession and recovery. Job losses in the second and third quarters are crushing (165,000 jobs, 19.5%), concentrated in retail, leisure & hospitality and administrative services, but with a stronger recovery the state replaces most of the lost jobs, ending 2025 with 14,000 (-1.7%) fewer jobs than in 2019. Recovery is stronger in low-wage sectors, leaving personal incomes well below baseline.
The worst case scenario (10%) combines the pessimistic scenario’s steep decline and baseline scenario’s slower rate of recovery, tracing an L-shaped path similar to New Mexico’s experience following the Great Recession. The state ends 2025 with 750,000 jobs, 84,000 (10%) fewer than in 2019, with deep losses in retail and administrative services. A weak global recovery depresses oil markets, capping 2025 oil production in New Mexico below 2019 levels.
The full economic report remains accessible only to BBER subscribers. This service is a quarterly subscription package which projects over 300 economic variables for the state as a whole, as well as for each of the major metropolitan areas – Albuquerque, Farmington, Las Cruces, Permian Basin, Santa Fe and non-metro. For more detailed information on this service visit the New Mexico Economic Forecasting page.