We're in good shape and may be getting better - New Mexico's total personal income

First, the Bad News: New Mexico's 1996 total personal income and employment growth rates were essentially cut in half from the expansion pace recorded in the prior three years. The Good News, however, is that 1997 and 1998 growth rates apparently have stabilized at that lower level and arc not expected to experience further erosion.

Significant gains in New Mexico's high-tech industry, along with the accompanying construction boom, were primary elements producing the rapid economic increases from 1992 to 1995. In addition to providing the engine for accelerated economic growth, expansion of the high-tech sector achieved important diversification from New Mexico's traditionally heavy dependence upon government jobs. For example, New Mexico's high-tech and governmental industries currently account for nearly 30 percent of the Gross State Product

Moderate high-tech job growth in Albuquerque will help maintain the current economic expansion pace into 1998. An additional 2,000 jobs at Intel - along with those at America On-line, Citicorp Credit Services and others - are providing favorable employment opportunities. Total government employment should record modest gains, even with ongoing reductions of military employment.

The national economy is expected to provide a positive impact on business conditions throughout the next year. While the current U.S. strong-growth/low-inflation combination may not be sustained indefinitely, the prospect of either a recession or a high-interest-rate environment appears quite improbable. Mortgage interest rates should remain at levels that will be supportive of residential construction and real-estate sales. Through the first half of 1997, the construction and sales of new homes in the Albuquerque area seemed to be in reasonable equilibrium.

Inflation, nationally, is currently below 2.5 percent. In the first half of 1997, the First Security Bank Cost of Living Index for the Albuquerque area was 3.5 percent above the prior year. Since November 1993, cumulative local inflation has increased 9.6 percent, almost identical to the 10-percent national gain. In the housing category, cumulative costs in Albuquerque have risen 11.5 percent compared with a 10.9 percent U.S. average.

In contemplating a five-year outlook for the state's economy, a paramount question is: When and under what circumstances could New Mexico's economic growth rates return to the exemplary pace achieved in the 1992-1995 period? The answer, reduced to its simplest denominator, centers upon the creation of new jobs - especially the relatively high-paying jobs as previously occurred in the high-tech industry and the accompanying construction boom. Perhaps New Mexico's traditional economic dichotomy - a high-tech economy combined with very high poverty and low income rates - can become the catalyst which leads to those new employment opportunities.

New Mexico's availability of labor and its relatively low cost of doing business are very attractive to local or national businesses planning expansion. A cost of doing business index, produced by Regional Financial Associates, ranks New Mexico 42nd lowest among the 50 states. This index is based on unit labor costs, energy costs and state/local taxes. Unit labor costs, in which New Mexico was 45th lowest, combine both wage levels and productivity rates. Both are important. New Mexico's economy needs the new jobs to help solve the existing poverty and low-income problems.

Prospective companies looking to expand in New Mexico need to see not only a source of low-wage labor, but also a labor force with individual employee productivity that can improve continuously. Among the many factors influencing worker productivity, quality education and training are essential. Additional dollars for education and training initially come from taxpayer pocketbooks, and certainly, overall tax policy must remain balanced. Nevertheless, this may be an opportune time for New Mexico to increase its educational investment. If such a policy can enhance the potential productivity of the state's "poverty" economy, the prospect of rapid job growth, rising wages and expanded tax revenues would be augmented significantly.

Kelly Matthews is the chief economist of First Security Bank, the Utah-based company with major operations in New Mexico.

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