The Road Not Taken

Columnist : L. Henry

PA not participating in surging national economic growth

The big story in 2006 is the remarkable performance of the U.S. economy.  Fueled by tax cuts in President George W. Bush’s first term, our economy has not only recovered from the September 11, 2001 terrorist attacks and the devastation wrought by last year’s Gulf coast hurricanes, but has surged to new levels of productivity.  At the same time, a lengthy series of poor public policy decisions has prevented Pennsylvania from fully participating in the growth and recovery being experienced by most other states in the nation.

Nationally, positive economic indicators abound.  Recent statistics show unemployment dropping to a point many economists view as full employment.  The Dow Jones Industrial Average has hovered at or above the 12,000 level while more Americans are invested in the stock market than at any time in our nation’s history.  Both factors are clear evidence that the economic recovery is both wide and deep.

Further evidence of strong economy growth comes from analyzing the Gross Domestic Product (GDP).  Real U.S. GDP over the past four quarters grew at a solid 3.5%, the fastest among the major industrialized nations.  Further, productivity so far this decade is running well ahead of productivity growth in the 1870s, 1980s and 1990s.

As mentioned, job growth is another bight spot.  Payroll jobs increased by 51,000 in September, and 188,000 in August – capping 37 consecutive months of job growth.  Overall, the economy has added 1.8 million jobs in the past year and 6.6 million jobs since August of 2003.  Job security is at its highest level in five years as fewer people have been laid off or fired.

At the same time, inflation has been held in check.  Core consumer prices (excluding energy and food) have risen by 2.9% over the past twelve months. As for energy, gasoline prices have fallen by an average of 80 cents per gallon since early August.

While the national economy is speeding along in high gear, Pennsylvania’s economy is stuck in neutral.  The Lincoln Institute’s Fall 2006 Keystone Business Climate Survey found employers unhappy with the current business climate and pessimistic of the future.  Neither the limited business tax cuts approved by the General Assembly and signed into law by Governor Ed Rendell, nor the state’s first effort at property tax reform are viewed by the business community as having been very significant.  The lack of significant progress on taxation is the prime factor driving the continued negative assessment of Pennsylvania’s business climate by employers.

In general, 34% of the business leaders who participated in the Lincoln Institute poll said business conditions have gotten worse in Pennsylvania over the past six months, while just 12% felt business conditions had improved. A majority, 53% said the state’s economy had remained about the same.  That isn’t saying much – confidence in the Keystone state’s business climate has been mired for the past four years at its lowest point since the inception of the poll in 1995.

To make matters worse, business leaders do not see the situation improving in the near future.  Thirty-five percent say they actually expect business conditions in Pennsylvania to get worse over the coming six months, while only 15% expect the state’s economy to improve.  Employment levels have stagnated in the past six months; 16% of businesses expect to trim their payrolls over the coming six months with only 13% planning to increase the number of people they employ.

Further indication of Pennsylvania’s declining economic fortunes comes from the Tax Foundation which recently issued its 2006 State Business Tax Climate Index.  After having been rated 16th among the 50 states in 2005, Pennsylvania’s tax climate tumbled to 22nd in the most recent report.

With the national economy surging the inescapable conclusion is that Pennsylvania’s poor economic performance is the result of state level policies that prevent our businesses from reaching their full potential.  A new General Assembly is about to take office that will include a record number of new legislators in its midst.  These sobering statistics point to the need for new approaches as well.