Vermont Economic Outlook: A Tale of Two Perspectives

Key Economic Indicators

Economists for the Vermont Legislature and the Scott administration presented an optimistic outlook for the state’s economy, suggesting that a recession is not imminent. This assessment is buttressed by several positive economic indicators:

• Low Unemployment: Vermont’s unemployment rate remains low, hovering around 2.8%, indicating a robust labor market.
• Strong GDP Growth: The state’s gross domestic product (GDP) has shown consistent growth, averaging 2.5% annually over the past five years, signaling overall economic expansion.
• Wage Growth Exceeding Inflation: Wages are increasing at a rate higher than inflation, suggesting that workers’ purchasing power is improving.

Prospects of a Soft Landing

The economists expressed cautious optimism about the possibility of a “soft landing” for the Vermont economy, meaning a gradual slowdown without a severe downturn. However, they cautioned that the economy would experience a slowdown in growth and state revenues.

Warnings and Cautions

Despite the positive indicators, the economists issued warnings about potential challenges:

• Slowing Economy: The economy is expected to slow considerably, with growth and state revenues declining. The consensus among economists is that Vermont’s GDP growth will decelerate to 1.5% in 2023, a marked slowdown from the 3.2% growth rate recorded in 2022.
• Lagging Effects of Monetary Policy: The Federal Reserve’s monetary policy actions, such as interest rate hikes, may have delayed negative impacts on the economy. As the full effects of higher interest rates ripple through the economy, they could potentially lead to a sharper slowdown or even a recession.
• Inflationary Pressures: While inflation has begun to moderate, it remains a concern that could erode consumer and business spending power. The Consumer Price Index (CPI) in Vermont increased by 7.2% year-over-year in December 2022, although this represented a slight deceleration from the peak of 8.9% in June 2022.

Governor’s Approach to Budget

Governor Phil Scott’s approach to the budget reflects his cautious outlook on the economy. He intends to propose a budget increase below the inflation rate, prioritizing fiscal restraint. This approach aligns with his belief that Vermont’s economy is driven by consumer and business spending, not primarily by government spending.

Democratic Lawmakers’ Perspective

Democratic lawmakers in the Vermont House hold a contrasting view. They see the positive economic outlook as a justification for continued government spending, arguing that it stimulates economic growth. They point to successful initiatives like the $170 million child care bill, which has resulted in increased childcare slots, higher wages for providers, and economic benefits. These lawmakers are inclined to pursue more significant spending packages in areas such as flood relief, climate resiliency, health care, and affordable housing.

Divergent Views on Government Spending

The fundamental difference in perspective between Governor Scott and Democratic lawmakers lies in their views on government spending. The governor sees it as a potential drain on the economy, while Democrats view it as a catalyst for growth. This philosophical divide could lead to tensions during the budget process, potentially resulting in a repeat of last year’s veto and override scenario.

Conclusion

The Vermont economy is projected to experience a slowdown, but a recession is not anticipated in the near future. Governor Scott’s cautious approach to budgeting contrasts with Democratic lawmakers’ preference for increased government spending. These divergent perspectives may lead to challenges in reaching a consensus on the state budget.

Call to Action:

As the Vermont economy navigates uncertain times, it’s crucial for policymakers and stakeholders to engage in thoughtful discussions, seeking common ground and exploring innovative solutions to address the challenges ahead. The future of Vermont’s economy depends on collaboration, prudent decision-making, and a shared commitment to the well-being of its citizens.