Ep. 47: Are we in a recession?
Recession is the buzzword of the week as the economy begins to cool. So, are we in a recession or not? And what does that mean for Illinois? Bryce Hill joins the Policy Shop to talk about the state and national economic picture. Learn more by subscribing to the Policy Shop newsletter at illin.is/newsletter.
This week’s Policy Shop is by Director of Fiscal and Economic Research Bryce Hill.
Is it a recession … or isn’t it?
While experts and pundits take pains to re-establish what constitutes a recession, the fact remains: The U.S. has contracted for two consecutive quarters. Whether we look at gross domestic product, job openings, hiring, personal consumption expenditures, inflation or something else, the signs are there. The economy is softening.
But just for fun, let’s look at labor market trends first.
Illinois sees nation’s largest drop in job openings
There were 102,000 fewer job openings for Illinoisans in May compared to April, according to new data from the U.S. Bureau of Labor Statistics. The decline dropped Illinois’ job opening rate by 1.5 percentage points, the most of any state in the nation.
Shave and a haircut
OK, so there are fewer jobs to be had. What about how far our money’s going?
The average Illinoisan needed a pay raise of $5,920 to keep up with inflation during the past 12 months. That worker only got a little more than $3,057, meaning it was really a $2,862 pay cut.
On an annual basis, the average Illinois worker will shell out $1,483 more for gasoline this year, $929 more for housing, $523 more for groceries and $387 more for utilities. By the time you add up all the different ways inflation nickels and dimes you, the total cost adds up to more than $4,675.
Has inflation peaked? Some say so, but we are all still feeling the pain of higher prices and less cash. With interest rates rising to compensate, will it be enough to fix Illinois?
Shop ‘til you drop
The sticker shock at the grocery store is even worse. Illinoisans are paying $522 more for the same grocery items they bought last year. Prices on food for home consumption have risen by 12.2% from June 2021 to June 2022, the most since April 1979.
Meats, poultry fish and eggs make up the largest chunk of the increase in grocery bills for Illinoisans, with the amount the typical Illinoisan spends on these items rising by $115 annually. Cereals and bakery products – such as bread and rolls – will cost Illinoisans $75 more this year than last. They’ll also spend $59 more on fruits and vegetables; $58 more on nonalcoholic beverages; and $54 more on dairy products. When you include all the other odds and ends you pick up at the grocery store, such as spices, condiments, cooking oils and other packaged goods, these items will tack on an additional $163 to average grocery bills for Illinoisans.
The $522 rise in grocery bills for Illinoisans this year dwarfs the savings from Pritzker’s push to suspend the state’s 1% sales tax on groceries. The temporary suspension of the grocery tax, which Pritzker has forced grocers to advertise during his reelection campaign, will only save the typical Illinoisan less than $50 based on today’s prices.
Things cost more … and they’re also taxed more
But it’s not just inflation here in Illinois – it’s also Gov. J.B. Pritzker’s tax and fee hikes. There have been 24 tax and fee hikes since Pritzker took office. Illinoisans have watched as state taxes and fees on gas, vehicle registration, parking, marijuana, gambling, online shopping and businesses have risen rapidly under the Pritzker administration.
Residents paid more than neighboring states when gas taxes were 19 cents per gallon, but then Pritzker doubled the state gas tax to 38 cents per gallon. The rate is now 39.2 cents thanks to automatic increases state leaders built into the tax hike so they never again need to take an unpopular vote to raise the gas tax. Before the hike, Illinois was No. 10 in the U.S. for gas taxes, but now it is No. 2.
It is hard to believe Pritzker would repeat that mistake, but state leaders again raised taxes on Illinoisans still recovering from the COVID-19 pandemic. Twenty-four tax hikes in less than three years: Is Illinois any better off with $5.24 billion in new taxes?
... now what?
Temporary tax relief on gas ends Dec. 31, 2022 – after the election. Grocery tax relief ends June 30, 2023 – right before the new budget takes effect and just in time to provide more revenue.
The most important thing Illinois politicians need to do is stop deficit spending. Translation: balance the budget and stop increasing today’s spending through debt such as bonds.
The Federal Reserve announced last week they’re raising interest rates another 75 basis points to fight inflation. Higher interest rates traditionally are associated with greater instances of unemployment. That, coupled with data showing GDP has been declining for two consecutive quarters, make it likely the U.S. is entering a recession.
The downturn and recovery will be particularly painful in Illinois, especially if Amendment 1 passes this November. That’s because Amendment 1 makes spending reforms less likely and increases the degree to which government pensions and perks will continue to crowd out spending on vital programs such as education and public safety, and lead to higher taxes as the state tries to recover.