How will the Sooner State economy fare in 2023?
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Editor's note: This is an excerpt from the recently released 2023 Greater Oklahoma City Economic Outlook.
READ THE FULL 2023 GREATER OKLAHOMA CITY OUTLOOK
READ the 2023 Greater Oklahoma City Outlook Overview
Look back at 2022's biggest relocations and expansions
Oklahoma Economic Outlook
Much of Oklahoma has enjoyed robust economic strength emerging from the pandemic. Fueled by successive rounds of policy stimulus, strong in-migration, and an energy sector recovery, household balance sheets showed unprecedented strength. In response, consumers relieved pent-up demand for goods and services with a business response that led to historically low unemployment rates and high tax revenue. The recovery, however, has been geographically uneven. The state is estimated to have yet to recover to pre-pandemic levels of economic activity as measured by real gross state product and nonfarm payroll employment.
Real GDP peaked pre-pandemic in 2019 at more than $200 billion. A sharp contraction at the onset of pandemic restrictions in the second quarter of 2020 followed a sharp rebound as restrictions eased in the third quarter. From there, however, the recovery has moved laterally, with real GDP ending 2022 closer to $192 billion, or 94.6% of its pre-pandemic peak. Oklahoma’s labor market tells a similar story. As pandemic restrictions took hold, nonfarm payrolls dropped by more than 132,000 jobs as restrictions eased payrolls increased by 46,900 in the next quarter. While unemployment rates are historically low, the state’s labor market has yet to regain all jobs lost in the 2020 pandemic and reach pre-pandemic peak employment.
The Oklahoma economy is still recovering as it strives to recover the economic activity and employment lost in the pandemic recession. Unfortunately, activity appears to be weakening heading into 2023, just as the economy approaches full recovery. The Philadelphia Fed publishes an index of coincident economic indicators for each state. The index is comprised of four variables: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and inflation-adjusted wage and salary disbursements. Moving into and through 2022, growth in Oklahoma’s economic activity slowed considerably, with the index expanding by just 0.1% in the second quarter and contracting by 0.3% in the third quarter. Notably, Oklahoma’s economic slowdown is more pronounced than that of regional states and the U.S. economy.
As we turn to the outlook for the coming years, it is worth noting explicitly that we do not force into the model a recession that seems all too likely for 2023.
Instead, we follow the same strategy of previous years and let the information currently in the data guide the models. We encourage readers to adjust this baseline forecast as needed throughout the year as additional observations and information become clear.
Over the last decade, Oklahoma’s population growth rate consistently averaged 0.6% to 0.8% per year except for periods constrained by energy cycle busts.
During the 2016 downturn, population growth stalled before slowly regaining momentum in the years leading into the pandemic. One effect of the pandemic was to invite hybrid and remote work, which further emphasized the mobility of labor. The result was an increase in the state’s population growth rate through the pandemic recovery. The outlook anticipates population growth to the lower end of the normal range, with 0.7% growth in 2023, followed by 0.6% growth in 2024.
Oklahoma’s real GDP had just recovered from the 2016 energy cycle bust when the pandemic contraction set in. Real GDP promptly contracted and has slowly recovered from the pre-pandemic
high of $202.9 billion. In contrast to falling real GDP, Oklahoma’s per capita personal income surged during the pandemic due to successive rounds of trillion-dollar federal stimulus policies. We anticipate slow to lateral movements in 2023 before gaining some strength in 2024 and again moving the state to a $200 billion economy.
We expect income gains to slow in 2023, with modest gains in 2024, moving statewide per capita income to $58,651 by the end of the forecast period. The outlook for further income gains is particularly sensitive to the ability of policymakers to thread the needle between constraining demand enough to tame inflation without imposing a serious disruption to labor markets. In other words, the 2024 outlook for per capita personal income is unlikely. Instead, we would expect either a pronounced income recession followed by recovery or modest gains in 2023 to be followed by a stronger economic environment in 2024.
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