Economic and Revenue Review for the Vermont State Legislature

Transcription

1 Economic and Revenue Review for the Vermont State Legislature Montpelier, Vermont November 10, 2011 Thomas E. Kavet, President Dr. Nicolas O. Rockler, CEO State Economist and Principal Economic Advisor to the Vermont State Legislature Since 1996 Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting 985 Grandview Road Williamstown, Vermont USA Telephone: Facsimile: Cellular: Website:

2 Despite Multiple Headwinds, Vermont Revenues Remain Close to Target Through October Total Revenues (General, Transportation and derived Education Funds) are just over $1M above target on a base of about $520M - a variance of less than half of one percent (with an expected corporate income adjustment) Personal Income is up $0.7M with $196M collected through October Meals and Rooms revenues were up $1.7M vs. targets (+4%), despite severe flooding damage and related business disruptions, although full Hurricane Irene impacts will not be known for another 2-3 months Slight weakness was evident in Motor Vehicle Purchase and Use (-$1.1M), Property Transfer (-$0.2M), Sales & Use (-$0.6M) and Lottery (-$0.4M) consumption taxes bear close watching

3 2011Q1 2010Q1 Total Vermont Revenues Finally Approach Prior 2008 Peak Levels* 2009Q1 2008Q1 2007Q1 2006Q1 2005Q1 2004Q1 2003Q1 2002Q1 2001Q1 2000Q1 1999Q1 1998Q1 1997Q1 1996Q1 1995Q1 1994Q1 1993Q1 1992Q1 1991Q1 1990Q1 1989Q1 1988Q1 1987Q1 1986Q1 1985Q1 1984Q1 1983Q1 1982Q1 1981Q1 1980Q *Includes all Funds Except Education Fund Property Tax Revenues, Quarterly Seasonally Adjusted Annual Rates (red) and Trend-Cycle (blue) Data, With Official U.S. Recessionary Periods Shaded, Source: Vemont Joint Fiscal Office Millions of Dollars

4 External Economic Conditions, However, Continue to be Daunting Double Dip Recession risks are now close to 40% due to: Political and policy paralysis surrounding the European debt crisis Political and policy paralysis surrounding critical U.S. budget and fiscal issues Oil price hikes associated with the Arab Spring that have resulted in about $125 billion in additional 2011 U.S. fuel costs (about the same as the entire payroll tax holiday) Receding federal fiscal stimulus and state and local spending cuts that have resulted in a net contractionary public sector fiscal policy The Japanese earthquake and tsunami in the spring of 2011 that negatively impacted domestic U.S. and global manufacturing activity Continued weakness in housing markets, as delayed foreclosures come to market and further depress prices

5 Jan-07 Jan-47 Jan-49 Jan-51 Jan-53 Jan-55 Jan-57 Jan-59 Jan-61 Jan-63 Jan-65 Jan-67 Jan-69 Jan-71 Jan-73 Jan-75 Jan-77 Jan-79 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-09 Jan-11 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Real Oil Price Surge Tempers Economic Growth (West Texas Intermediate Crude Oil, PPB in September 2011 Constant Dollars) (June $140 per Barrel) (April $111 per Barrel) (February $42 per Barrel) Sources: Wall Street Journal, Economy.com Price Per Barrel - June 2011 Constant U.S. Dollars

6 Real Estate Markets Have Their Own Cycle and Will Not Fully Recover for Several Years Real estate markets are characterized by pronounced cyclicality and regional variation Housing price declines are slowing throughout the country and will probably end within 6-9 months in most states Renewed price appreciation, however, will be very slow for several years depressing new construction and related industries Second-home prices have been and will be most vulnerable to decline The Vermont Property Tax base (Grand List) will not reach 2009 peak levels before 2016 (and not reach 2010 levels before 2015)

7 The Real Estate Market Crash: Wide Regional Variation Percent Change, Second Quarter of 2011 vs. Second Quarter of 2007, Source: FHFA Home Price Index -52.0% -41.2% -44.2% -34.8% 0.0% -0.2% -0.7% -1.0% -1.3% -1.8% -3.2% -3.4% -4.1% -4.1% -4.9% -5.2% -5.5% -6.2% -6.3% -6.4% -7.1% -7.8% -8.1% -8.3% -8.8% -8.9% -9.0% -9.8% -9.9% -10.9% -11.6% -11.8% -14.8% -15.1% -16.2% -16.5% -16.5% -17.0% -17.0% -18.7% -19.0% -19.1% -21.0% -21.7% -23.4% -23.5% -23.6% -25.1% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 2.8% 2.7% 10.3% North Dakota South Dakota Oklahoma Texas Iowa Alaska Louisiana Kentucky Nebraska Kansas Vermont West Virginia Wyoming Arkansas Indiana Mississippi Tennessee Pennsylvania Alabama Montana North Carolina District of Columbia Colorado South Carolina Missouri Wisconsin Ohio Maine New York Massachusetts New Mexico Connecticut Virginia Delaware Hawaii New Hampshire Illinois New Jersey Georgia Minnesota Utah Washington Rhode Island Maryland Michigan Oregon Idaho California Florida Arizona Nevada

8 Residential Construction in Vermont Struggles as Declining Prices Weigh on Markets (Value of New Residential Construction Starts - 12 month moving total basis) Dec-09 Dec-07 Dec-05 Dec-03 Dec-01 Dec-99 Dec-97 Dec-95 Dec-93 Dec-91 Dec-89 Dec-87 Dec-85 Dec-83 Dec-81 Dec-79 Dec-77 Dec-75 Dec-73 Dec-71 Source: F.W. Dodge/McGraw-Hill Dec Millions of Dollars

9 1984Q3 1985Q1 1985Q3 1986Q1 1986Q3 1987Q1 1987Q3 1988Q1 1988Q3 1989Q1 1989Q3 1990Q1 1990Q3 1991Q1 1991Q3 1992Q1 1992Q3 1993Q1 1993Q3 1994Q1 1994Q3 1995Q1 1995Q3 1996Q1 1996Q3 1997Q1 1997Q3 1998Q1 1998Q3 1999Q1 1999Q3 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Vermont Housing Price Declines Will End Soon, but E-Fund Tax Base Impacts will be Pronounced (FHFA Vermont Housing Price Index Percent Change Vs. Year Ago) FORECAST

10 Vermont Adjusted Equalized Education Grand List (thick red line, left scale) Vs. FHFA Vermont Home Price Index, (Index 1980Q1 = 100) Lagged Five Quarters (thin green line, right scale) FORECAST Home Price Index, 1980Q1= Sources: Vermont PVR; U.S. FHFA; Prepared for the Joint Fiscal Office by Kavet, Rockler & Associates, October 2011 Equalized Education Grand List - Billions of Dollars

11 Vermont Public School Enrollment Declines Not Likely to be Reversed Soon... 20% Enrollment Decline Expected Between 1997 and 2019, With Little Prospect of Any Significant Reversal Before , ,000 95,000 Number of Pupils 90,000 85,000 15% Decline In Enrollments Between 1997 and 2011 Sources: Vermont DOE and Consensus Administration and Joint Fiscal Office Projections - October 2011

12 Labor Markets Remain Exceptionally Weak Employment is still nearly 6.5M jobs below its prior peak, after losing 8.8M jobs between January 2008 and February 2010, regaining 2.3M Of the five most recent recessions, this downturn represents the most severe employment decline and slowest recovery of any More comprehensive unemployment measures (such as U6) that include underemployed and discouraged workers is 16.2% (October 2011) in U.S. vs. more commonly cited 9.0% (October 2011, U3) measure The average unemployment tenure reached all-time record level in September at 40.5 weeks High unemployment has depressed real wages and household income, which has limited consumer spending and associated demand

13 U.S. Job Growth Stalls in the Face of Higher Oil Prices and Receding Stimulus (Monthly Change in Total Payroll Employment, Seasonally-Adjusted, Source: U.S. Bureau of Labor Statistics) Oct-11 Sep-11 Aug-11 Jul-11 Jun-11 May-11 Apr-11 Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10 Aug-10 Jul-10 Jun-10 May-10 Apr-10 Mar-10 Feb-10 Jan-10 Dec-09 Nov-09 Oct-09 Sep-09 Aug-09 Jul-09 Jun-09 May-09 Apr-09 Mar-09 Feb-09 Jan-09 Dec-08 Nov-08 Oct-08 Sep-08 Aug-08 Jul-08 Jun-08 May-08 Apr-08 Mar-08 Feb-08 Jan-08 Dec-07 Nov-07 Oct-07 Sep-07 Aug-07 Jul-07 Jun-07 May-07 Apr-07 Mar-07 Feb-07 Jan Month to Month Change in Total Employment (Thousands, SAAR)

14 A Tale of Five U.S. Employment Cycles - Revisited (Total U.S. Nonagricultural Employment Relative to Prior Cyclical Peak, Source: US Bureau of Labor Statistics) Jul-74 Jul-81 Jun Months 33 Months 29 Months 20 Months Feb-01 Dec-07 Month of Cyclical Peak Months After Prior Cyclical Peak Employment Level Indexed to Prior Cyclical Peak (Prior Peak = 1.00)

15 A Tale of Five Employment Cycles in Vermont - Revisited (Total Vermont Nonagricultural Employment Relative to Prior Cyclical Peak, Source: US Bureau of Labor Statistics) Aug-74 Jul Months 34 Months 25 Months 15 Months Month of Cyclical Peak May-90 Jul-01 Jun-07 Months After Prior Cyclical Peak Employment Level Indexed to Prior Cyclical Peak (Prior Peak = 1.00)

16 Nevada California Michigan District of Columbia South Carolina Mississippi Florida Rhode Island North Carolina Georgia Illinois Tennessee Alabama Kentucky Oregon New Jersey Washington Ohio Arizona Idaho Indiana Connecticut Missouri Texas Pennsylvania Colorado Arkansas West Virginia Delaware New York Wisconsin Montana Alaska Maine Utah Maryland Massachusetts Minnesota Louisiana Kansas New Mexico Virginia Hawaii Iowa Oklahoma Wyoming Vermont New Hampshire South Dakota Nebraska North Dakota Unemployment Rate by State - September 2011 Seasonally Adjusted Data, Source: U.S. Bureau of Labor Statistics 3.5% 4.6% 4.2% 11.1% 11.1% 11.0% 10.6% 10.6% 10.5% 10.5% 10.3% 10.0% 9.8% 9.8% 9.7% 9.6% 9.2% 9.1% 9.1% 9.1% 9.0% 8.9% 8.9% 8.7% 8.5% 8.3% 8.3% 8.3% 8.2% 8.1% 8.0% 7.8% 7.7% 7.6% 7.5% 7.4% 7.4% 7.3% 6.9% 6.9% 6.7% 6.6% 6.5% 6.4% 6.0% 5.9% 5.8% 5.8% 5.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 11.9% 13.4%

17 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan Hurricane Irene Floods Vermont UI Claims, As Labor Market Stress Persists (Average Weekly Initial Claims for Unemployment in Vermont, Seasonally Adjusted, Source: BLS and Boston Fed) September 2011 Average Weekly Number of Claims

18 Jan-48 May-49 Sep-50 Jan-52 May-53 Sep-54 Jan-56 May-57 Sep-58 Jan-60 May-61 Sep-62 Jan-64 May-65 Sep-66 Jan-68 May-69 Sep-70 Jan-72 May-73 Sep-74 Jan-76 May-77 Sep-78 Jan-80 May-81 Sep-82 Jan-84 May-85 Sep-86 Jan-88 May-89 Sep-90 Jan-92 May-93 Sep-94 Jan-96 May-97 Sep-98 Jan-00 May-01 Sep-02 Jan-04 May-05 Sep-06 Jan-08 May-09 Sep Bleak Prospects for the Unemployed as Time Off Work Reaches New Record Highs Source: U.S. Bureau of Labor Statistics Average Unemployment Duration Reached a Record 40.5 Weeks in September of 2011 Average Number of Weeks Unemployed

19 More Inclusive U.S. Unemployment Measure Depicts Severe Labor Market Stress Source: U.S. Bureau of Labor Statistics More Broadly Defined Unemployment Measure, Including Underemployed and Discouraged Workers: U6 Most Commonly Cited "Official" Unemployment Measure: U3 0 Percent Unemployed Apr-10 Sep-10 Feb-11 Jul-11 Jan-94 Jun-94 Nov-94 Apr-95 Sep-95 Feb-96 Jul-96 Dec-96 May-97 Oct-97 Mar-98 Aug-98 Jan-99 Jun-99 Nov-99 Apr-00 Sep-00 Feb-01 Jul-01 Dec-01 May-02 Oct-02 Mar-03 Aug-03 Jan-04 Jun-04 Nov-04 Apr-05 Sep-05 Feb-06 Jul-06 Dec-06 May-07 Oct-07 Mar-08 Aug-08 Jan-09 Jun-09 Nov-09

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21 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-68 Jan-69 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Safe Haven or Next Bubble? Global Financial Fears Send Gold Prices Soaring (Monthly London PM Fix, U.S. Dollars Price Per Troy Ounce, Source: U.S. Dollars Per Troy Ounce

22 The Halting Economic Recovery Has Been Painfully Slow

23 Are There Any Reasons for Optimism? Households have drastically reduced debt, with the portion of income devoted to debt servicing likely to reach a record low by early The delinquency rate for all debt besides first mortgages is lower than at the start of the recession and is still declining Corporate balance sheets are exceptionally strong, with record profits, productivity growth and margins. Corporate capital, especially for larger firms is plentiful and cheap. Debt refinancing has lowered costs and firms have ample capacity to hire if and when demand increases The U.S. banking sector is now generally well-capitalized and lending is picking up (albeit from very low levels), though standards remain stringent The weak U.S. dollar has pushed exports to record levels in virtually every region of the country. If/when foreign demand accelerates, the U.S. will benefit Public policy blunders aside, the U.S. is capable of near-term federal borrowing at very low interest rates and managing long term debt reduction without draconian spending cuts or massive tax increases if both are used The economy is cyclical, real estate is cyclical, equity markets are cyclical

24 4.00 Contributions to Percent Change in Real GDP by Component Over Past 3 Quarters Government Spending Net Exports of Goods and services 2011 Q3 GDP = 2.5% Private Nonres Structures Change in Private Inventories 3.00 Equipment and Software Personal Consumption Expenditures 2011 Q1 GDP = 0.4% Residential Investment Q2 GDP = 1.3%

25 May-11 Jul-10 Sep-09 Nov-08 Jan-08 Mar-07 May-06 Jul-05 Sep-04 Nov-03 Jan-03 Mar-02 May-01 Jul-00 Sep-99 Nov-98 Jan-98 Mar-97 May-96 Jul-95 Sep-94 Nov-93 Jan-93 Mar-92 May-91 Jul-90 Sep-89 Nov-88 Jan-88 Mar-87 May-86 Jul-85 Sep-84 Nov-83 Jan-83 Mar-82 May-81 Jul-80 Sep-79 Nov-78 Jan Consumer Sentiment Plunges, Underscoring Recession Risks... (University of Michigan Consumer Sentiment Survey) October 2011

26 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 Jan-94 Jan-93 Jan-92 Jan-91 Jan-90 Jan-89 Jan-88 Jan-87 Jan-86 Jan-85 Jan-84 Jan-83 Jan-82 Jan-81 Jan-80 Jan-79 Jan-78 Jan-77 Jan-76 Jan-75 Jan-74 Jan-73 Jan-72 Jan-71 Jan-70 Jan-69 Jan-68 Jan-67 Jan % 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% Consumer Spending Growth Slows, But Still Supports Economic Recovery Total Constant Dollar U.S. Retail Sales - Percent Change from Year Ago, Source: U.S. Census Bureau Series1 6 Month Moving Average (Real U.S. Retail Sales) Recession Recession Recession Recession Recession RECESSION Percent Change vs. Year Ago

27 Jan-86 Jul-86 Jan-87 Jul-87 Jan-88 Jul-88 Jan-89 Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92 Jul-92 Jan-93 Jul-93 Jan-94 Jul-94 Jan-95 Jul-95 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 $360,000 $340,000 $320,000 $300,000 $280,000 $260,000 $240,000 $220,000 $200,000 $180,000 $160,000 $140,000 $120,000 $100,000 Consumers Spending Finally Surpasses November 2007 Peak Levels... Total U.S. Retail Sales - Millions of Nominal Dollars, Seasonally Adjusted - Source: U.S. Census Bureau, with Trend Line Millions of Dollars

28 Corporate Profits Surge, With Commensurate Growth in Tax Revenues (U.S. corporate profits with inventory valuation and capital consumption adjustment; Source: US BEA) 7Q +100% 12 Q 2011Q1 2009Q3 2008Q1 2006Q3 2005Q1 2003Q3 2002Q1 2000Q3 1999Q1 1997Q3 1996Q1 1994Q3 1993Q1 1991Q3 1990Q1 1988Q3 1987Q1 1985Q3 1984Q1 1982Q3 1981Q1 1979Q3 1978Q1 1976Q3 1975Q1 1973Q3 1972Q1 1970Q3 1969Q1 1967Q3 1966Q1 1964Q3 1963Q1 1961Q3 1960Q1 50.0% 40.0% 30.0% +68% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% 20 Q +140% 18 Q 10 Q 12 Q % +57% 29 Q +113% 22 Q +89% Percent Change Vs. Year Ago (Peak to Trough Percent Change in Bubbles)

29 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan U.S. Stocks Recover, But Remain 20% Below Prior Peak Valuations (S&P 500 Monthly Average, Source: Standard & Poor's, The McGraw-Hill Companies, Inc.) Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

30 Weighted Average Exchange Value of U.S. Dollar - Major Currencies Index The U.S. Dollar Remains Near Historic Lows Against Most Major Currencies (Source: U.S. Federal Reserve Board) U.S. Dollar vs. Canadian Dollar, Left Scale - Red Line U.S. Dollar vs. Major Currencies, Right Scale - Blue Line Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 Jan-94 Jan-93 Jan-92 Jan-91 Jan-90 Jan-89 Jan-88 Jan-87 Jan-86 Jan-85 Jan-84 Jan-83 Jan-82 Jan-81 Jan-80 Jan-79 Jan-78 Jan-77 Jan-76 Jan-75 Jan-74 Jan-73 Canadian Dollars Per U.S. Dollar

31 % 69.0% 66.0% 63.0% 60.0% 57.0% 54.0% 51.0% 48.0% 45.0% 42.0% 39.0% 36.0% 33.0% 30.0% 27.0% 24.0% 21.0% 18.0% 15.0% 12.0% 9.0% 6.0% 3.0% 0.0% Total VT Exports - Millions of Dollars - 4 Quarter Moving Totals 1997Q4 1998Q1 1998Q2 1998Q3 1998Q4 1999Q1 1999Q2 1999Q3 1999Q4 2000Q1 2000Q2 2000Q3 2000Q4 2001Q1 2001Q2 2001Q3 2001Q4 2002Q1 2002Q2 2002Q3 2002Q4 2003Q1 2003Q2 2003Q3 2003Q4 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Share of Vermont Exports to Canada and China - 4 Quarter Moving Totals Vermont Exports Rally Amidst Persistently Weak Dollar (Source: World Institute of Strategic Economic Research, Federal Reseve Bank of Boston) Total Vermont Exports - Left Scale Canadian Share of VT Exports - Right Scale China Share of Vermont Exports - Right Scale

32 30.0% 20.0% Temp Employment Percent Change Vs. Year Ago 10.0% 0.0% -10.0% -20.0% -30.0% Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 Jan-94 Jan-93 Jan-92 Jan % 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Disconnect? Cautious Employers Avoid Full-Time Hiring Year Ago Percent Change, Seasonally Adjusted Data, Source: U.S. Bureau of Labor Statistics Total Non-Ag Employment - Blue Line, Left Scale Temporary Help Employment - Red Line, Right Scale Total Employment Percent Change Vs. Year Ago

33 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 Jan-94 Jan-93 Jan-92 Jan-91 Jan-90 Jan-89 Jan-88 Jan % 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% Vermont Labor Markets Outperform U.S., But Recent Data are Erratic (Total Nonagricultural Employment, Percent Change vs. Year Ago, Seasonally Adjusted Data) Vermont U.S. Source: Bureau of Labor Statistics, U.S. Department of Labor

34 Public Policy Continues to be Critical to a Sustained Recovery Net government fiscal policy (federal, state and local) has been contractionary, as early federal stimulus fades. Recent job-related proposals, in part or whole, would renew and extend federal fiscal support to the economy at a critical time Reasonable political compromise is in the U.S. national interest With fewer political constraints, the Fed has engaged in broader public policy support, with an unprecedented 2 year commitment to the current 0% federal funds rate, plentiful liquidity, aggressive quantitative easing and other twists, however treasonous European policy-makers must act decisively to stabilize their financial sector and evolve political institutions commensurate with euro-zone economic realities

35 Uncertainty in External Economic Environment Will Require Heightened Attention To Changing Conditions Close scrutiny of emerging trends in Vermont tax receipts, especially consumption and income taxes Analysis and model simulations of potential contagion effects of European debt/default scenarios Hope, despite an election year, for political sanity in near term federal fiscal support and longer term fiscal realignment, with a reasonable mix of spending cuts and revenue enhancements Prayer for positive externalities, instead of negative ones

36 For Further Information, Contact The Vermont Joint Fiscal Office or: Thomas E. Kavet, President Dr. Nicolas O. Rockler, CEO State Economist and Principal Economic Advisor to the Vermont State Legislature Since 1996 Kavet, Rockler & Associates, LLC Economic and Public Policy Consulting 985 Grandview Road Williamstown, Vermont USA Telephone: Facsimile: Cellular: Website: