Current Trends & Issues Facing the Maine Economy An Economist s Musings

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Current Trends & Issues Facing the Maine Economy An Economist s Musings Prepared for the 114 th Annual Meeting of the Maine Association of Community Banks Sebasco Harbor Resort June

1 Current Trends & Issues Facing the Maine Economy An Economist s Musings Prepared for the 114 th Annual Meeting of the Maine Association of Community Banks Sebasco Harbor Resort June 28, 2007 Michael Donihue Colby College Reflections on Maine s Economy Demographic Trends Snapshots of the Maine Economy Short-term Outlook Three Puzzles of Interest to Community Bankers 1

2 Why are demographic trends important? Spending and saving decisions differ across demographic groups. Infrastructure needs differ across age groups (telecommunications, roads & bridges, public structures). Demographic implications for the type of housing structures needed in the future. Important trends in demand for services (e.g., education versus health care). Population growth is an important determinant of economic growth. Demographic Trends Maine s Population in 2005: 1,283,673 Historical growth rate of 0.4%/yr Compared with 1.2%/yr growth for the US More recently: 0.1%/yr in Maine Compared with 0.5%/yr for the US And 0.2%/yr for New England US Census Bureau Projection for Maine: 0.3%/yr through 2030 (0.9%/yr for the US) 2

Birth Rates Year 1990 1995 2000 2004 2005 Maine 14.1 11.2 10.7 10.6 * 10.7 U.S. 16.7 14.6 14.4 14 14 Live births per thousand. Source: National Center for Health Statistics.

3 Birth Rates Year Maine * 10.7 U.S Live births per thousand. Source: National Center for Health Statistics. Net Migration Total Net Migration International Domestic Maine New England 3, ,828 3, ,411 7, , Total Net Migration International Domestic Maine New England 41,808 83,643 5, ,100 36, ,457 3

4 Population Pyramids for Maine Thousands of Persons Male 2004* PreWWII WWII Boomers Gen X Gen Y Female Male Predicted Cumulative Population Growth PreWWII WWII Boomers Gen X Post 1980 Female Total 3.03% Female 2.68% Male 3.36% *2004 data are US Census Bureau estimates. All other data are US Census Bureau projections consistent with the 2000 Census. Population Pyramids for Maine Thousands of Persons Male WWII Boomers Gen X Post 1980 Female Male WWII Boomers Gen X Post 1980 Female Population Growth: 2010 to 2020 Population Growth 2020 to 2030 Total Female Male Total Female Male 3.80% 3.45% 4.12% 0.17% -0.55% 0.86% 4

High School Graduates 10% Projected Change in Public High School Graduates 5% 0% -5% -10% -15% -20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Northeast New England Maine Midwest South West

5 High School Graduates 10% Projected Change in Public High School Graduates 5% 0% -5% -10% -15% -20% Northeast New England Maine Midwest South West Snapshots of the Maine Economy C iv ili a n L a b o r F o r c e G ro w t h L a st L a s t 5 yrs 1 0 yrs U S 1.0 % 1.2 % N E 0.5 % 0.7 % M E 1.0 % 0.9 % U nite d S ta te s M a ine O the r N e w E ngla nd S ta te s Annualized Rates of Growth 5

6 Snapshots of the Maine Economy T o tal N o n ag ric u ltu ral E m p lo ym e n t G ro w th L a s t L a s t 5 Y rs 10 Y rs U S 0.7% 1.3% N E -0.2% 0.8% M E 0.2% 1.3% U nite d S ta te s M a ine O the r N e w E ngla nd S ta te s Snapshots of the Maine Economy G r o w t h in H e a lt h C a re E m p lo y m e n t M a in e L a s t 5 Y rs U S 2.6 % N E 1.5 % M E 2.4 % U n ite d S ta te s O th e r N e w E n gla nd S ta te s

7 Snapshots of the Maine Economy G ro w t h in N o n - H e a lt h C a re E m p lo y m e n t M a ine U nite d S ta te s L a s t 5 Y rs U S 0.4 % N E % M E % O the r N e w E ngla nd S ta te s Snapshots of the Maine Economy M a n u f a c t u r i n g J o b L o s s e s L a s t L a s t 5 Y r s 1 0 Y rs U S 1 6 % 1 7 % N E 2 3 % 3 0 % M E 2 2 % 3 1 % M a in e O th e r N e w E n g la n d S ta t e s U n it e d S ta t e s J a n th ro u g h M a y

8 9 Snapshots of the Maine Economy U n e m p lo y m e n t R a t e s ( % ) U n ite d S t a te s N e w E n g la n d M a in e Snapshots of the Maine Economy I n f la t io n - A d j u s t e d P e rs o n a l I n c o m e G r o w t h L a s t L a s t 5 Y rs 1 0 Y rs U S 2.1 % 3.1 % N E 1.3 % 2.9 % M E 1.6 % 2.8 % U n ite d S t a te s M a in e O t h e r N e w E n g la n d S ta te s

9 Snapshots of the Maine Economy 1,800 R etail Sales in M aine Billions of D ollar s 1,800 1,600 1,600 1,400 1,400 1,200 1,200 1,000 1, Snapshots of the Maine Economy 1,800 1,600 Seas onal Means Retail Sales in Maine by Season Billions of Dollars 1,400 1,200 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 9

10 Snapshots of the Maine Economy R estaurant & Lo dg ing Sales in M aine B illions of D ollars Snapshots of the Maine Economy 360 Restaurant & Lodging Sales in Maine by Season Billions of Dollars Seasonal Means Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 10

11 Outlook for Maine? More of the same Lackluster employment growth Income growth below national average Some bright spots BIW Cianbro s modular construction facility in Brewer Some concerns Brunswick Naval Air Station Preconditions for Growth The engines of economic growth include: Healthy, well educated labor force Infrastructure improvements Capital deepening Technological advances 11

Prospects for Growth The work ethic of Maine s labor force is legendary, but with just 1% annual growth the prospects are limited Capital deepening depends on a

12 Prospects for Growth The work ethic of Maine s labor force is legendary, but with just 1% annual growth the prospects are limited Capital deepening depends on a favorable business climate. Here policy makers can play a role via tax reform. Technical change will come from outside the state. Three Puzzles of Interest to Community Bankers 12

13 Puzzle #1: The Yield Curve 6 "Normal" Yield Curves: US T-Bills & Bonds 5 Percent Yield 4 3 Jan-04 Jan-05 Jan Term to Maturity (Months) Is there a recession on the way? 5.5 Inverted Yield Curves: US T-Bills & Bonds Percent Yield Jan-07 May Term to Maturity (Months) 13

Comparison with an MACB yield curve 5.5 Inverted Yield Curves: US T-Bills & Bonds Percent Yield. 5 4.

(Months) Puzzle #2: Impact of MSFWs on the Maine Economy Civic Engagement course at Colby Statistical Abstract

14 Comparison with an MACB yield curve 5.5 Inverted Yield Curves: US T-Bills & Bonds Percent Yield Jan-07 May Jun-07 4 Interest rates on CDs of $500-$ Term to Maturity (Months) Puzzle #2: Impact of MSFWs on the Maine Economy Civic Engagement course at Colby Statistical Abstract designed with community service providers in mind This year s analytical focus: MSFW Available online at: 14

MSFWs in Maine August: Ranking blueberries in Maine is the most lucrative of all seasonal farm work. Piecework: $2.

15 The Eastern Stream Early spring: oranges and strawberries in Florida. Next to Georgia for peaches and pecans. Up the coast to the Carolinas and Virginia for tobacco. Mid summer: High-bush blueberries in NJ. Apples in NY and New England. MSFWs in Maine August: Ranking blueberries in Maine is the most lucrative of all seasonal farm work. Piecework: $2.25 per box which averages about $370 per day. Wyman s Blueberries is the largest employer. Focus on community building. Employers provide housing and transportation. 15

Other crops Broccoli in Aroostook County at an equivalent wage of $15/hour

MSFWs Clear that Maine s agricultural industry could not thrive without MSFWs.

Alice Larson did an informal study in 2005 estimating the total number of worker

16 Other crops Broccoli in Aroostook County at an equivalent wage of $15/hour Cranberries Apples Timber Eels Sea urchins Holiday wreaths Economic Impact of MSFWs Clear that Maine s agricultural industry could not thrive without MSFWs. No reliable estimates of numbers of workers or their economic impact. Dr. Alice Larson did an informal study in 2005 estimating the total number of worker hours for a subset of harvested crops in Maine at around 2 million. Undocumented multiplier effects. 16

Foreign-born workers in other industries Canadian timber workers Eastern European students in the hospitality industry Brazilian construction workers in Southern Maine Somali immigrants in Portland

17 Foreign-born workers in other industries Canadian timber workers Eastern European students in the hospitality industry Brazilian construction workers in Southern Maine Somali immigrants in Portland and Lewiston Australian students in the ski resorts during the winter Remittances Transfer of money by foreign born workers to their home countries. 2006: $22 million transferred from Maine to Latin America. * One challenge facing community banks today is how to keep the branch relevant in an age of ATMs, PayPal, electronic bill paying, and online banking. Remittances may represent an opportunity for community banks in rural areas like Maine. * Inter-American Development Bank estimate. 17

18 Puzzle #3: Real Estate Wealth Effects The subprime meltdown Will there be real effects on the macroeconomy? Puzzle #3: Real Estate Wealth Effects 27,000 Wealth Cycle: 1990q q3 Real Per Capita Consumption & Wealth 170,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19, q1 Consumption (left axis) Wealth (right axis) 160, , , , , , ,000 90,000 18, Chained 2000 $s. FRB & BEA data 80,000 18

19 The Wealth Cycle 1991q3 to 2000q1 2000q1 to 2002q3 2002q3 to 2005q4 Household Wealth 6% -18% 23% Liquid Stock Market Assets 369% -55% 34% Liquid Non-Stock Market Wealth -9% 11% 7% Illiquid Stock Market Assets 237% 44% 54% Real Estate Wealth 18% 17% 32% Other Assets 18% 11% 4% Estimating Wealth Effects Life Cycle Model of Consumption Consumption depends on lifetime income and wealth Stock-market wealth effect: 4 per dollar Real estate wealth effect: 6 per dollar 19

20 Home Prices G ro w th in H o m e P ric e s L a s t L a s t 5 yrs Y e a r U S 9.2% 9.3 % N E 10.1% 5% M E 10. 4% 6. 8% U n ite d S tate s N e w E n g la n d M ain e Home Sales G ro w th in Ex istin g H o m e S ales M aine U nite d Stat e s C T, M A & R I

Department of Public Welfare (DPW)

Department of Public Welfare (DPW) Office of Income Maintenance Electronic Benefits Transfer Card Risk Management Report Out-of-State Residency Review FISCAL YEAR 2014-2015 September 2014 (June, July and