In June 2009, as Idaho’s unemployment rate hit 7.4 percent and foreclosures seemed to gobble up whole subdivisions, Moody’s Analytics delivered a little hope.
Idaho, the economic analysis firm said, would be one of five states to lead the country out of recession, albeit slowly.
And life would start to improve by 2010.
By the third quarter of this year, employment in Boise would be at prerecession levels, Moody’s predicted.
The state’s tech industry, hit by layoffs of 3,500 Micron Technology Inc. employees in Boise in 2008 and 2009, would be revived. And the state would cash in on its population growth, which helped it during boom times.
That’s not how it turned out.
In 2011, Idaho averaged 49,400 tech jobs, 51 more jobs than in 2009, according to the Idaho Department of Labor. Idaho’s population grew less than 1 percent in 2011, far off the 2 percent to 3 percent the state averaged in the years before the recession.
As for Boise getting back to prerecession employment by the third quarter of this year? Moody’s now says it could be mid-2014.
Boise is outperforming the country in job creation, said Timothy Daigle, who follows Idaho for Moody’s Analytics. But, he said, “Overall job creation is kind of disappointing. Everything is happening slower than we originally thought.”
Moody’s wasn’t the only forecaster to miss Idaho’s mark.
Read on for a look at what forecasters said then — and how those forecasts look now.
WHO MISSED THE RECESSION
The state’s April 2007 economic forecast projected through 2010. Derek Santos, now the state’s chief economist, wrote then: “Idaho’s housing starts will not collapse over the forecast period.”
Within a few months, foreclosures started their long rise and housing prices began their long descent. When the local housing market imploded, the Treasure Valley became one of the hardest- hit regions in the country, right up with Las Vegas and Phoenix.
A state forecast in January 2008, looking ahead to 2010, missed the depth of the declines both in housing starts and in personal income, which includes wages, profits, investments and government payments such as Social Security and unemployment.
Even as the state sank into recession, forecasters were hopeful that 2010 would be a turnaround year and housing and personal income would improve.
The state expected that young people who completed college would go out on their own and some would buy houses, helping improve the home market.
“When the job market went south, they started moving home,” Santos said. “We lost a tremendous demographic driver.”
Employment, which the state hoped would improve personal-income numbers, didn’t get better in 2010, either. The unemployment rate hit 8.9 percent in August 2010. As stock prices stayed low and interest rates fell, the recession whittled away at investment income, said Wayne Hammon, director of the Idaho Division of Financial Management, the agency that employs Santos.
Meanwhile, in 2009, IHS Global Insight tagged Coeur d’Alene as one of only six metropolitan communities in the nation whose workforces would return to prerecession levels by the end of that year.
It hasn’t happened yet. In 2006, a year before the recession began, Coeur d’Alene had 54,596 workers. In 2011, it had 51,598. IHS did not return a phone call to discuss its projection.
WHY MISSED FORECASTS MATTER
Idaho’s Division of Financial Management publishes an economic forecast four times a year. The forecast plays a role in state estimates of how much tax revenue the state will collect. The Legislature studies those estimates before deciding how much to spend each year.
The state forecasts also help businesses. When a state forecast changes, Hammon said, he hears from businesses in the financial sector: mortgage brokers, investment groups and banks.
“(They) want to know if commercial clients are going to have customer growth,” Santos said.
Wall Street bankers who follow Idaho’s economy because of their interest in lending or bonds also pay attention to the forecast, Santos said.
WHY THE FORECASTS WERE SO FAR OFF
Economists say many of the misses resulted from the models they use to try to predict the economy. “The dirty little secret about economic forecasts is that economists are incredibly unable to forecast turning points — in particular, the peak and subsequent downturn,” said Mike Ferguson, former chief state economist who now directs the Idaho Center for Fiscal Policy, a nonprofit, nonpartisan organization established by the Mountain States Group.
Idaho’s economic model is based on an amalgam of federal and Idaho data. Economists call it a regression model, because it depends heavily on history to forecast the future.
The Great Recession, however, broke new ground. Dropping property values weren’t part of the model. Neither were banks’ reductions in lending as a result of worsening financial conditions.
“There was no model of the bank’s financial situation,” said Brian Greber, who did economic forecasting for wood-products maker Weyerhaeuser and now directs the Business Research and Economic Development Center at Boise State University.
Moreover, the Great Recession was financially driven, unlike most recessions, which come as the nation overproduces goods, causing a slowdown. In a financial recession, people lose wealth, so consumer spending cannot lead the nation back to prosperity, as it usually does, Ferguson said. So recovery takes longer.
WHAT ONE ECONOMIST HAS LEARNED
As the state descended into recession, Santos stepped up the pace of his economic forecasting to try to keep ahead of events that were changing by the week. The state’s economic model was revised. More Idaho data now goes into the forecasting mechanism. Santos uses Idaho data on the number of jobs in the state instead of relying on federal data because he believes it is more effective.
But Santos knows his model is still flawed. So he says he is bringing more of his own judgment to forecasting. For example, federal job projections didn’t take into account the coming of the Chobani yogurt plant this year to Twin Falls, which is adding an estimated 400 or more jobs. So Santos factored those numbers into his forecasts.
And he’ll be much more watchful of housing. “I have become more sensitive to bubbles,” he said. “If those prices start to really rise fast, we have to look really hard at that.”
Bill Roberts: 377-6408, Twitter: @IDS_BillRoberts