Three big economic shifts challenge City of OKC in coming year

Last Updated on August 6, 2023, 2:50 AM | Published: February 8, 2023

OKLAHOMA CITY — According to economist Russell Evans, there have been some significant shifts in the economic outlook for the Oklahoma City metro that should be watched closely as the City of Oklahoma City prepares its budget for a new year starting July 1.

But, City of Oklahoma City Budget Director Christian York doesn’t believe that the city will have to cut any budget items, and is “planning to fully fund the same service level for next year.”

Three big takeaways

After his economic outlook presentation to city officials at the City of OKC Budget Workshop Tuesday, Free Press asked Evans to list the three biggest differences between February of this year and February of last year.

• Policy shift — Twelve months ago “policy was very supportive” both in the Federal Reserve’s low interest rates and as the federal government “was pumping trillions of dollars of grant dollars and household income support dollars. Those policy dollars have all pretty much dried up as well.”
• Household budget strength — “Twelve months ago, we were flush with savings, our home values were up 20%. Now our home prices are stagnant. Maybe you gave back some of those gains, stock markets are down instead of up, you’ve churned through your savings.”
• We’re adjusting to post pandemic behaviors — Evans listed several areas where people are re-assessing their spending, such as: “How do I gauge the labor market? How do I want to shop? Where do I want to travel? Do I want to go to work, What kind of office do I want?” Evans said all of those questions are still “shifting ground” right now and have not been established as they were before the pandemic.

As in recent years, Evans was back Tuesday to give city officials an assessment of the economic outlook for Oklahoma City and the nation.

The City’s Budget Workshop is a convening of all city officials who help construct the new budget that runs from July 1 through July 31 of the next calendar year.

‘Not planning cuts’

“We’re not planning for cuts,” York, the budget director, told Free Press after the meeting. “In fact, we’re planning to fully fund the same service level for next year.”

“I think what I would say is that our approach for next year is restrained,” York continued. “What we’re looking at is incremental growth of about 1%. So we will be able to add some services and staff. But we just don’t want to be so aggressive that we have to cut back if the recession does hit us.”

Take a closer look at details

Evans cited several key realities that will have a big effect on whether people spend at the rate they have in the last five years:

Anticipation of economic weakening during 2023

• There is not sufficient strength on household balance sheets to withstand additional weakening in 2023
• Household net worth is declining
• Households have largely spent through the accumulation of saving from pandemic relief policies.

Indicators of weakening personal spending are:

• Credit card balances reached a record high at the end of 2022
• Delinquencies and the share of households making less than a full payment on credit card bills are increasing
• Average debt per borrower increased 12.7% to $5,474

Evans pointed to several key elements of the national, state, and city economy that will be significant in the coming year:

U.S. economic outlook

• The sentiment is improving …
  • From expecting 2023 to be really bad to expecting 2023 to only be a little bad
• Inflation reduction requires either
  • A reduction in demand from tighter monetary policy
  • An increase in supply from resolved supply-chain disruptions
  • Or some mix of both: This is the case for optimism
• The unknown is the degree to which the labor market will have to be disrupted to constrain inflationary forces

Oklahoma City economic outlook

• A case study in the national tension between slowing economic activity and labor market resiliency
• Long-run strengths are in place with strong population growth and a growing share of the state’s economic activity
• Do not expect the local economy to be immune to any 2023 national excitement

Evans then summarized the fiscal outlook for the City of Oklahoma City in the coming year:

City of OKC fiscal outlook

• A recession is on the 2023 horizon
• Economic growth did slow considerably through the end of 2022
• There is a reasonable chance of recession in 2023
• Sales tax did end FY 2022 strong and will see its FY 2023 strength in the first half of the year
• Astonished, surprised, amazed at the degree of sales tax strength through the first half of the year
• Instead of 2.5% to 4.5% growth in the first half of the year, it will be closer to 9.6%; instead of growth slowing to 0% to 2.5% by the end of the year that range is more likely 5.5% to 7.5% (summer update was 6.3%)

---