Legislative leaders weigh impact of inflation, odds of recession
State Economist Corey Miller told legislative leaders that nationally there is a 35% chance of “a modest recession” during the upcoming calendar year.
Lt. Gov. Delbert Hosemann said he believes odds of a recession are much higher.
“I believe we will have a recession…,” Hosemann told reporters during a break in the hearing attended by him, House Speaker Philip Gunn and other key lawmakers who make up the Legislative Budget Committee.
Hosemann pointed out that Miller and other economists projected inflation of about 2.5% for the year and thus far it has been more than 8%.
“I think we need to be preparing for all the issues we face that come from a recession,” Hosemann added.
Overall, Miller said the state economy has slowed considerably during the current fiscal year but that both the state and national economies remain “resilient.”
“In summary, the U.S. and Mississippi economies have slowed and the risk of recession is elevated, but not the base case. Inflation remains historically high but may have peaked,” Miller said. “The Federal Reserve will continue to raise interest rates to reduce demand, which should bring down inflation.”
Miller pointed out that nationally the number of people working had surpassed the pre-pandemic levels of February 2020. Mississippi remains 10,900 jobs below the number employed in February 2020.
Members of the Legislative Budget Committee normally receive a report from the state economist as they begin work on a budget recommendation that generally serves as a guideline for the full Legislature when it convenes in January to begin work on crafting a budget for the new fiscal year that begins on July 1.
Legislators said they budgeted conservatively in the 2022 session despite unprecedented revenue collections and should do so again in 2023.
Hosemann said lawmakers held back about $350 million in federal pandemic money last session and it could be spent in the coming year to help stave off an economic downturn in Mississippi.
“If people are out working on public projects we fund with that, it will lessen the chance of a significant impact here,” the lieutenant governor said.
Getting more people working in Mississippi remains an issue, Miller said. The state’s labor force participation rate, which accounts for all eligible to enter the workforce, remains one of the lowest in the nation, Miller said, at 55.2%. The pre-pandemic level was 56.2%.
The national labor force participation rate is 62.4% – a percentage point lower than the pre-pandemic rate.
Several factors could impact the lower numbers, including people retiring early and long-term symptoms of COVID-19.
The bottom line, Miller said, is that multiple factors are driving the high inflation, including higher wages driven by a lack of workers, Russia’s invasion of Ukraine and supply shortages affected in part by China’s refusal to fully ramp up because of COVID-19 fears. Even the issue of fewer immigrant workers is contributing to the lack of workers.
While there might be disagreement on the extent of a economic downturn in Mississippi, it is a certainty that inflation has impacted all Mississippians. During the 2023 session, legislators will have to consider whether a salary increase for state workers is needed to deal with inflationary factor.
Kelly Hardwick, executive director of the State Personnel Board, told Budget Committee members he wanted more time to consider the size of any pay increase to recommend to the Legislature. But he said he expects it would be about 1.5% a year over several years, or a one-time increase of about 5%.
Both Wendy Bailey, executive director of Mental Health, and Burl Cain, corrections commissioner, said increasing pay for their employees is a key goal.
Bailey asked the Budget Committee members for a $26.6 million increase in general fund revenue to $247.7 million. A large part of the raise would go for salary increases.
She said the agency is having a difficult time competing with fast food workers for primary care workers. And salary increases are needed for nurses and other advanced health care employees.
Bailey also asked for funds to continue to adhere to demands from a U.S. Department of Justice lawsuit to provide treatment when possible on the community level instead in state institutions.
The Department of Corrections is trying to avoid a Department of Justice lawsuit based on poor conditions in Mississippi prisons. The lack of adequate staff continues to be an area of concern for DOJ.
“We do not have adequate staffing to manage our population,” Cain said.
Cain is asking lawmakers for a $32-million increase to his budget. Most of that, about $20 million, would be to cover rising medical costs for inmates. About $7.5 million would be increased per diem paid to private prisons for state inmates.
Child Protection Services, the agency that runs the state’s long-troubled foster care system, is asking lawmakers for a $15 million increase, mostly to provide increased subsidies for people who adopt children in state custody.
Andrea Sanders, CPS commissioner, said Mississippi pays less – by about half — to families who adopt children from custody than it does to foster parents. Sanders says this incentivizes people to stay in the foster program rather than adopt children.
Sanders said that the federal government will match, at nearly one-to-one, the state funded subsidies for adoption.
“State agencies will always be a poor substitute for a family,” Sanders said.