National Economic Conditions. Cheyenne AIA Meeting February 25th, 2011 Rob Godby

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1 National Economic Conditions Cheyenne AIA Meeting February 25th, 2011 Rob Godby

2 Percent Change Recovery is Technically Underway 8 Quarter-Quarter Growth in Real GDP I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV GDP percent change based on chained 2005 dollars (seasonally adjusted annual rates) Source: US Bureau of Economic Analysis

3 Not out of the Woods yet Employment and Output Loss from Peak 0.50% 0.00% -0.50% -1.00% -1.50% -2.00% -2.50% -3.00% -3.50% -4.00% -4.50% -5.00% -5.50% -6.00% -6.50% -7.00% Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 % change Employment Level from Peak (seasonally adjusted) % change Real GDP (Output) from peak % change Employment Level from Peak net of Census hiring (seasonally adjusted) Source: US Bureau of Economic Analysis

4 % Change in Employment Relative to Peak How Bad is Employment? % Total Job Loss in Recent Recessions 1.00% % -1.00% -2.00% -3.00% -4.00% -5.00% -6.00% -7.00% Months from Peak Dec-07 Feb-01 Jun-90 Jul-81 Mar-80 Jul-74 Source: US Bureau of Labor Statistics

5 Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 % Unemployed or Underemployed Employment Growth Stalled in Unemployment Rate and U-6 Rate Unemployment Rate U-6 Unemployment Rate U-6 Unemployment Rate U-6 Source: US Bureau of Labor Statistics

6 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 9/1/2015 1/1/2016 5/1/2016 9/1/2016 1/1/2017 Millions of Jobs How Long will Employment Recovery Take? 16 Time Required to Restore 6% Unemployment Rate To restore 6% employment today would require an additional 5.0 million jobs in the economy Every month an additional 125,000 people enter the workforce, increasing the number of jobs needed to restore full employment. Jobs Shortfall

7 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 9/1/2015 1/1/2016 5/1/2016 9/1/2016 1/1/2017 Millions of Jobs How Long will Employment Recovery Take? 16 Time Required to Restore 6% Unemployment Rate At a very robust job growth rate of 300,000 per month (level consistent with 4-5% growth in the economy), 30 months needed to restore unemployment rate to 6%. Jobs Shortfall jobs added per month

8 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 1/1/2013 5/1/2013 9/1/2013 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 9/1/2015 1/1/2016 5/1/2016 9/1/2016 1/1/2017 Millions of Jobs How Long will Employment Recovery Take? 16 Time Required to Restore 6% Unemployment Rate At job growth rate of 250,000 per month (level consistent with rates in mid-1990s boom), 42 months needed to restore unemployment rate to 6%. Jobs Shortfall jobs added per month jobs added per month

9 1/1/2011 4/1/2011 7/1/ /1/2011 1/1/2012 4/1/2012 7/1/ /1/2012 1/1/2013 4/1/2013 7/1/ /1/2013 1/1/2014 4/1/2014 7/1/ /1/2014 1/1/2015 4/1/2015 7/1/ /1/2015 1/1/2016 4/1/2016 7/1/ /1/2016 1/1/2017 Millions of Jobs How Long will Employment Recovery Take? Time Required to Restore 6% Unemployment Rate At job growth rate of 200,000 per month (double the rate in Dec. 2010), over six years needed to restore unemployment rate to 6%. Jobs Shortfall jobs added per month jobs added per month jobs added per month

10 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 Percent Who is Impacted Most? National Unemployment Rate and Education Unemployment rate - less than high school diploma (25 years of age and older) Unemployment rate - High school, no college (25 years of age and older) Unemployment rate - some college or Associates degree (25 years of age and older) Unemployment rate - Bachelor's and higher (25 years of age and older) Unemployment rate Source: US Bureau of Labor Statistics

11 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 Percent of Unemployed Who is Impacted Most? 60.0% Duration of Unemployment 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Percent Unemployed 27 weeks or more Percent Unemployed less than 5 weeks Source: US Bureau of Labor Statistics

12 Challenges to Employment Recovery Lack of consumer demand (initial recession impact) The severity of the housing crisis. The financial crisis smashed savings and nest-eggs. The very high unemployment created quickly (shock and fear). Long-term effects now feeding off the recession impact Labor mobility is gone cannot sell homes to move and no savings to finance fresh-starts which increases unemployment spells. Being unemployed for an extended period reduces human capital and employability. Skills mismatch between the sectors that contracted and those now expanding.

13 Thousands Glimmers of Hope 700,000 Initial Claims 8/4/2007-Present 650, , , , , , , , ,000 Seasonally Adjusted 4-wk Moving Avg Source: US Department of Labor

14 Thousands Glimmers of Hope 700, , , ,000 Initial Claims 8/4/2007-Present A steady slowdown in layoffs now appears to be occurring. 500, , , , , ,000 Seasonally Adjusted 4-wk Moving Avg Source: US Department of Labor

15 Savings Rates have Stabilized 16.0 Personal Saving Rate Personal Saving Rate Source: Federal Reserve

16 Consumer Credit Contraction has Ended

17 Confidence and Sales Stronger

18 Auto Sales, Luxury Goods Sales Up

19 Jan 1990 Nov 1990 Sep 1991 Jul 1992 May 1993 Mar 1994 Jan 1995 Nov 1995 Sep 1996 Jul 1997 May 1998 Mar 1999 Jan 2000 Nov 2000 Sep 2001 Jul 2002 May 2003 Mar 2004 Jan 2005 Nov 2005 Sep 2006 Jul 2007 May 2008 Mar 2009 Jan 2010 Nov 2010 Housing Market Still Hurting $300,000 Median New Home Prices $250,000 $200,000 $150,000 $100,000 $50,000 $0 Median Source: US Census Bureau

20 Jan 1990 Oct 1990 Jul 1991 Apr 1992 Jan 1993 Oct 1993 Jul 1994 Apr 1995 Jan 1996 Oct 1996 Jul 1997 Apr 1998 Jan 1999 Oct 1999 Jul 2000 Apr 2001 Jan 2002 Oct 2002 Jul 2003 Apr 2004 Jan 2005 Oct 2005 Jul 2006 Apr 2007 Jan 2008 Oct 2008 Jul 2009 Apr 2010 Homes Sold, thousands Months Supply Housing Market Still Hurting 1,600 1,400 New One-Family Homes for Sale ,200 1, Houses Sold (National - monthly, seasonally adjusted annual rate) Seasonally Adjusted Months of Supply Source: US Census Bureau

21 Overview, and hope for 2011 The recovery is well underway. Summer 2010 hangover has subsided. We had a long way to go to climb out of the hole we were in. Output levels have recovered to pre-recession levels. Unemployment will not recover for a LOOOOONG time. Consumers may be tentatively coming back, or at least beginning to come out of hiding. Firms are beginning to rehire and still reinvesting. Inflation shows no signs of emerging.

22 Headwinds will slow recovery Expect economic growth to be slower than needed in % growth in GDP at annual rates Employment challenges are going to transform our economy socially and economically Jobs recovery will continue to be very slow. Economic cost to those out of work/entering will be permanent Income inequality will become much worse -a nation of haves and have nots. Consumption growth will begin to recover, but to a new normal. Old consumption-focused economy will be challenged. Fiscal austerity concerns will limit government influence. Balancing long-term debt concerns with recovery will be difficult.

23 States One of the biggest drags on the economy will be state deficits and fiscal adjustments. The drastic decline in revenues during the recession has left many states in serious fiscal situations. Federal stimulus support in 2009 and 2010 protected states but that support has ended. 2011/12 will likely be the worst years on record for state budgets nationally Signs that stabilization will occur in late 2012/13 as national recovery stabilizes revenues. States face a long road to recovery.

24 Note that state budget shortfalls are largest two years after recessions end. Despite recovery underway, revenues will lag as consumption, housing markets recover.

25 State budgets for fiscal year 2012 already anticipate end of Federal aid. Cuts have been made accordingly

27 State Challenges Faster than expected recovery could reduce anticipated shortfalls but High unemployment will depress consumption and sales taxes. Housing market crash and very slow recovery will depress property values and property taxes. States have slashed budgets and reduced planned expenditures in construction and infrastructure.

28 Wyoming Wyoming anticipates that state budgets will again return to surplus, but only after reductions in previous levels of expenditure. State construction expenditures will be reduced (highway, infrastructure). Education including capital construction will be cut back. State agency projects will be delayed, cancelled or scaled back.

29 $1,400 $1,300 $1,200 General Fund Revenue: FY FY 2010 (in millions of dollars) Other PWMTF Income Sales & Use Tax Severance Tax $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $ PWMTF = Permanent Wyoming Mineral Trust Fund Wyoming Economic Analysis Division

30 $1,200 $1,100 $1,000 Mineral Severance Taxes: FY FY2010 (in millions of current dollars) Other Coal Natural Gas Crude Oil $900 $800 $700 $600 $500 $400 $300 $200 $100 $ Source: Wyoming CREG Prepared by Wyoming Economic Analysis Division

31 $1,200 Federal Mineral Royalties: FY FY 2010 (in millions of current dollars) $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $ Source: Wyoming CREG Wyoming Economic Analysis Division

32 $30,000 $28,000 $26,000 Total Locally and State Assessed Valuation (in millions of current dollars) Coal Natural Gas Oil Other $24,000 $22,000 $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ * Other includes other minerals, real and personal property Wyoming Economic Analysis Division

-50.0-40.0-30.0-20.0-10.0 0.0 10.0 20.0 30.0 40.0 50.

33 Jan 08 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 09 Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan 10 Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan 11

34 CY 2010 $3.94 ave.

35 Overview National recovery should begin in earnest in Unemployment and housing are the biggest challenges. These conditions have put state budgets serious deficit. This will reduce state-funded activity nationally for several years. Federal aid has ended, compounding conditions. Wyoming s budget is projected to be in surplus, but expenditures have been curtailed. Activity here will also be reduced from recent high levels. Private sector activity outlook is optimistic but uncertain.

36 Thank you! Rob Godby Department of Economics and Finance College of Business University of Wyoming

Revised October 17, 2016

Revised October 17, 2016 60 ISM Manufacturing Purchasing Managers Index (September 2015 September 2016) 58 56 54 52 50 48 46 44 42 Sept-15 Oct Nov Dec Jan-16 Feb Mar Apr May Jun Jul Aug Sept Purchasing