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Further Slowing in Delaware’s Economy

 

 WHAT’S HAPPENIING?

 The December employment numbers for Delaware (CES) are discouraging. From November through December total employment in Delaware dropped, and the growth rate in total employment on a year over year basis was less than 1%.

 This slowdown is reflected in the Delaware leading index published by the Federal Reserve Bank of Philadelphia. After starting the year 2016 around 2.5, for the past 7 months the Delaware leading index has hovered around zero. The December value of 0.2 was due to the sag in job growth together with a drop off in building permits and in decreased delivery times for manufacturing.

 Although the Delaware unemployment rate remained steady at a low 4.3%, this was due in large measure to over 11,500 residents dropping out of the labor force since May, 2016. This was accompanied by a drop of almost 12,000 in the number of Delaware residents employed.

 Due to the types of jobs being added in the state (e.g., restaurants, temporary help) total wages in Delaware continued to increase far more slowly than across the nation, resulting in slower growth in Delaware personal income.

WHY IS IT HAPPENING?

The American Legislative Exchange Council track 15 state policy variables to generate an Economic Outlook Rank for all 50 states. The latest ALEC publication (2016) ranks Delaware as 44th in Economic Outlook.

Variables that especially contribute to Delaware’s poor Economic Outlook ranking include: the absence of a state Right To Work law, the state’s inheritance tax, the high marginal corporate income tax rate in Delaware, and the progressivity of the Delaware personal income tax.

Extensive econometric research has shown that the lower a state’s ALEC Economic Outlook Rank, the slower that state’s growth in output and population.

While not addressed by ALEC, certainly Delaware’s high industrial electric rates and low quality public schools play a role in retarding employment growth as well.

THE IMPLICATIONS FOR BUSINESS?

A slow Delaware economy reduces business start-ups and expansion. By simply enacting a state Right To Work law and eliminating the estate tax, Delaware could move its ALEC Economic Outlook ranking toward the states median.

The 27 states that currently have a Right To Work law are home to 74% of the nation’s manufacturing jobs.

The Delaware estate tax, at best, boosts state government tax revenues by 0.1%.

Neither of these changes are recommended in Governor Carney’s transition team’s action plan.

Dr. John E. Stapleford

ECON First uses economics to strengthen business. This is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. The detailed analysis for the Indicators above is found in the DCON First quarterly Delaware Economic Review (www.econfirst.com). Direct questions to info@rawenews.com