(The Center Square) — Vermont’s economy is poised to avoid a recession with inflation dropping and revenues improving, according to a new report, which comes as state lawmakers prepare to get to work on a new budget.
The report was submitted to the state’s Emergency Committee, which includes Gov. Phil Scott and lawmakers from the House and Senate budget and tax committees. It cited the state’s fiscal resiliency, efforts to bring down inflation, and historically low levels of unemployment in both U.S. and state labor markets for the post-pandemic economic turnaround.
Brushing aside previous concerns about a mild recession, Vermont’s economists told panel members that the economy and the state’s revenues are strengthening.
“Despite all the pessimism about this time last year, people who practice what we practice thought the economy would be hitting a recession. Here we are a year later, the economy’s still making forward progress,” Jeffrey Carr, an economist for the state Agency of Administration, told members of the committee in testimony last week. Inflation is, in fact, coming down.
Carr said the unemployment rate in Vermont is hovering near historic lows, at 2.5% last month. In 2024, the state is projecting a $29.3 million increase in the General Fund, he said.
The findings come nearly a year after the state’s economists predicted Vermont’s general fund revenues would drop nearly 9% in the fiscal year that begins July 1, outpacing even the 2009 downturn during the Great Recession.
While the likelihood of a session has subsided, the report’s authors told policymakers that the state’s economy will still slow, along with state revenues, in coming years. They also noted that federal pandemic-related relief is drying up, which will mean less federal revenue for the state.
“The ‘soft landing’ runway may be in sight, but sticking the landing still carries considerable downside risks and will require both skill and luck to achieve,” they wrote in the report.
The report’s authors said while commodity and other product inputs will drive down price pressures, lagging labor costs “could do the opposite” to state revenues.
“Wage increases are often associated with catch-up to past inflation, especially at the onset of an inflation spike, rather than anticipating future costs,” they wrote. “Amidst current labor market conditions, there is likely to be continued upward wage and salary pressure from both organized labor and occupations experiencing labor shortages.”
