Quarterly Economic Update January 2009

Transcription

1 Quarterly Economic Update January 2009 This report is prepared for the Virginia Economic Development Partnership s allies, and monitors economic issues relevant to Virginia's investment and export activities. Any opinions expressed are those of the authors, and not those of VEDP or the Commonwealth of Virginia. Short-term Trends United States Overview 2009 will be a rough year. According to Consensus Forecasts, the recession is expected to bottom out in the second quarter, but improvement will not be noticeable until the fourth quarter and growth will not return until the first quarter of Despite the economy, growing companies will expand. Gross Domestic Product The initial fourth quarter 2008 GDP data showed a year-on-year decline of 0.2%, below the 0.7% growth in the second quarter of 2008 and the 2.3% growth in the fourth quarter of The decline in GDP was less severe than expected. Inventories rose slightly, suggesting companies did not sell as much as they expected to in the fourth quarter and setting the stage for GDP to decline further in the first quarter of (BEA, Economy.com) Recession In December 2008, the National Bureau of Economic Research officially declared the recession started in December At 13 months and counting, this recession will be longer than the or recessions, which each lasted 16 months. Recovery Watch Retail purchases of goods and services account for about 70% of economic activity in the U.S. Retail sales have been trending down for over a year, and by some measures have begun to decline. Improvement in the retail sales data will be a leading indicator of the recovery. (BEA, Economy.com) Corporate Bonds Higher default rates on junk and unrated bonds combined with the fear of risk in credit markets are driving up the yield rates on corporate bonds. Yield rates of 9% were typical in 2008, but rates 17% are expected for Companies will pay more to raise money with bonds. (The Kiplinger Letter) International Iceland The government of Iceland fell in January following a series of financial calamities. In October 2008, the country s financial system collapsed under the weight of debt, leading to a currency crisis, rising unemployment, a record high inflation rate, and daily protests against the government. The economy is forecast to shrink by almost 10% in An interim government will run the country until elections in May. (BBC) Canada Canada has joined the line of countries forced to spend government funds on a stimulus plan in an effort to mitigate the effects of the global financial crisis. The proposed budget allocates $9.8 billion toward new bridges, roads, and other construction projects, and $16.3 billion in tax cuts. The $33 billion stimulus package is expected to boost the Canadian economy and create 190,000 jobs by (AFP, BBC, Wall Street Journal) Argentina Facing its worst drought since 1971, Argentina has declared an agricultural emergency. Financial losses have totaled at least $4 billion, some 800,000 head of cattle have been lost, and in one region, about 90% of the wheat crop has been ruined. The sharp reduction in Argentine crops has boosted prices, raised supply concerns, and created import opportunities. Argentina is one of the world's biggest producers of soy, grains, and beef. (BBC, Reuters) World North 2009 Regional GDP Forecasts Western Asia - Pacific Latin Eastern Symbols: +/-: projection of growth or contraction; / : estimate is higher or lower than previous year Source: Consensus Forecasts, 1/ U.S. Economic Forecasts GDP: will be the first annual decline in U.S. GDP since 1991 s rate of -0.2%. In 1982, GDP shrank by 1.9%. Personal Consumption: - Since 1939, consumer spending has fallen only three other times: 1942 (-2.3%), 1974 (-0.8%), and 1980 (-0.3%). Business Investment: - Corporate capital investment will total almost $1.3 trillion in 2009, almost as much as was spent in Pre-Tax Profits: - Even with a third year of smaller profits, corporate profits will total almost $1.4 trillion. Industrial Production: - The manufacturing sector will weaken for the second year in a row, with output down to 2004 s level. Consumer Prices: - Retail prices will fall for the first time since 1955 due to reduced consumer spending. Producer Prices: - Wholesale prices fell 1.3% in 2002 and 0.9% in 1998, but 2009 ties 1949 for the largest decline. Employment Costs: + The weak labor market helps companies minimize wage and salary increases. Unemployment Rate: Joblessness will approach the 1975 peak of 8.5% but should stay below the 1982 peak of 9.7%. Auto Sales: Sales of new vehicles will be on par with the levels of the early 1980s. Housing Starts: New house construction is down for a second year due to weak demand and excess supply. Symbols: +/-: projection of growth or contraction / : estimate is higher or lower than previous year Data Source: Consensus Forecasts, 1/09 1

2 Long term Trends United States Overview Profitable companies will use the recession as a time to position themselves for the recovery. Strategies include acquisitions, increased R&D, and improving efficiency. For economic developers, it is an opportunity to improve relations with existing businesses and reach out to target companies. Interest Rates In an unprecedented move, the Federal Reserve cut interest rates to a target range of 0% to 0.25% from 1%. While this drastic move signaled the Fed s willingness to use all possible means to stimulate the economy, it also left virtually no more options to reduce interest rates. The Fed will have to rely on non-traditional measures to provide more stimulus. Stimulus There are increasing concerns about the stimulus plan to fund infrastructure projects like roads and bridges. A report by the Congressional Budget Office suggests construction projects take too long to create an impact on the economy. The Obama administration may try to incent quick action by providing more money to states which can complete projects quickly. Due to recent state-budget cutbacks, some states will use most of their infrastructure stimulus on maintenance rather than new construction. (Wall Street Journal) Office Space The recession and its job losses are freeing up office space just as new space comes onto the market. Rents are expected to decline in 2010 and landlords will offer incentives to close deals. (The Kiplinger Letter) Bankruptcies The combination of tight credit markets and weak demand will force many companies into bankruptcy during this recession. Corporate bankruptcies may reach levels not seen since the early 1990s. Private equity firms will acquire salvageable companies before they are insolvent. (Reuters.com) International Hungary Daimler AG chose Kecskemét, Hungary as the location of its new $1.4 billion automotive plant to make the next generation of the Mercedes A- and B-class models. With production commencing in 2012, the plant will manufacture over 100,000 compact cars and will create 2,500 jobs. In Hungary, Daimler will join other prominent automotive companies such as Volkswagen s plant in Gyor, which manufactures the Audi TT, Audi A3, and engines, and Bridgestone s tire plant in Tatabanya. (Site Selection) Japan Faced with a increasingly high percentage of elderly people Japan, some Japanese companies have taken clever measures to boost population while coping with the recession. Canon has adopted a 5:30 pm lights-out program that helps cut overtime expenses while allowing employees to go home early to spend time with families and hopefully improve the birth rate. Japan s population is projected to decline to 95.1 million in 2050 from its peak of million in (Business Spectator, CNA, CNN) Australia An investigation by Melbourne s The Age newspaper determined Australia is losing out on investment and job creation by not providing incentives to solar companies. Australia s government also is moving too slowly to create a process by which owners of grid-connected solar power systems can sell the excess electricity they produce. The government has set a target of making 20% of their energy from renewable sources by 2020, but does not seem to be aggressively pursuing it. An estimated $23 billion will need to be spent over the next 10 years to meet that target. (Energy Matters, The Age) World North 2010 Regional GDP Forecasts Western Asia - Pacific Latin Eastern n/a n/a Symbols: +/-: projection of growth or contraction; / : estimate is higher or lower than previous year Source: Consensus Forecasts, 1/ U.S. Economic Forecasts GDP: + After a decline of 1.8%, growth of 2.3% looks robust, but the change is more on the lines of the milder recession than the deeper or recessions. Personal Consumption: + Retail activity accounts for about 70% of GDP, so it is unusual for consumption growth to be below GDP growth exiting a recession. Business Investment: - Another year of slightly lower capital investment, but companies will spend almost $1.3 trillion. Pre-Tax Profits: + Corporate profits will increase after three down years to reach almost $1.5 trillion. Industrial Production: + The value of industrial output will increase over 2009 but will be closer to 2005 s level than the 2007 peak. Consumer Prices: + Price pressures will begin to mount as a result of the programs designed to stimulate economic growth. Producer Prices: + Wholesale prices also feel the effects of increased demand for goods and services. Employment Costs: + The labor market tends to trail the economy, so wage and salary growth remain mild. Unemployment Rate: If the recession ends in 2009, then unemployment may not peak until 2011, making unemployment higher than the recession but lower than the recession. Auto Sales: Sales of new vehicles will return to 2008 s level, but remain 3 million units below 2007 s level. Housing Starts: New house construction will increase for the first time in 5 years. Symbols: +/-: projection of growth or contraction / : estimate is higher or lower than previous year Data Source: Consensus Forecasts, 1/09 2

3 Global Economic Indicators GDP % Change * Industrial Production % Change * Consumer Prices % Change * U.S Japan = Germany China France U.K Italy Canada = India n/a n/a n/a Spain World n/a * 2008 are estimates; 2009 and 2010 data are projections; historical data are subject to revision. Sources: Consensus Forecasts, 1/09, Asia Pacific Consensus Forecasts, 1/09. Symbols: +/-: projection of growth or contraction; / : estimate is higher or lower than last year. Industry Trends Aerospace The outlook for business jets worsened as the financial crisis became a global issue not just a U.S. problem. Additionally, in the wake of the U.S. automakers request for financial assistance from Congress, the U.S. public now views business jets as an extravagance. Many companies are trying to sell their planes at a time weak demand is driving down prices. Oddly, analysis by JPMorgan shows the asking price of business jets is rising. One explanation is companies are putting planes up for sale to please stockholders but continuing to use them until they sell while using an inflated price to reduce the chances of a sale. (Aviation Week, The Economist, Wall Street Journal) Distribution Centers The Chain Store Age Builders Survey revealed new store construction declined 17% in Even with the decline, 3,733 new stores were built. Construction is expected to slow further in 2009, but even another decline of 17% still would result in about 3,000 new stores being built. As retailers add new stores, distribution centers will be needed to support them. (Chain Store Age) Stimulus Winners Sectors expected to benefit from the stimulus packages are heavy construction companies and their suppliers, alternative energy, broadband providers in rural areas, health care providers, and software developers for medical records systems. (The Kiplinger Letter) Alternative Energy Many old or dormant hydroelectric dams will be refurbished with improved equipment because the costs can be less than building new wind farms. Ocean-wave systems show increasing promise as the technology improves and they are less controversial than windmills. Roof-top solar systems are becoming more popular in the western U.S. and can provide revenue to commercial and industrial building owners who lease the space to the power company. (The Kiplinger Letter) Flat-Panel TVs Demand for flat-panel televisions is expected to drop in 2009 and remain weak. In addition to the weak economy, sales in the U.S. may have been boosted by the transition to digital TV. Prices are expected to drop for flat-panel TVs. Companies plan to reduce the use of contract manufacturers and rely on their own facilities to produce units. (New York Times) Growth Industries The consulting group McKinsey & Company identified the following industries as being able to expand during the recession: steel, supported by infrastructure projects; information technology, supported by companies reliance on IT to improve productivity; and consumer goods, supported by population growth driving demand for basic necessities. Virginia and Metropolitan Area Economic Statistics VIRGINIA Blacksburg- Christiansburg- Radford Kingsport- Bristol* Hampton Roads 3 Charlottesville Harrisonburg Lynchburg Northern Virginia* Richmond Roanoke Winchester* Total Employment % Change from year ago Manufacturing -2.0 n.a n.a n.a. Prof & Bus Svcs n.a n.a. n.a n.a. Unemployment Rate Sources: BLS nonagricultural employment (December 2008), BLS unemployment rates (December 2008), not seasonally adjusted. *Unemployment rate is only Virginia portion. Shaded box indicates best performance. The data are preliminary.

4 Virginia and Its Regions According to the employer survey, seasonally adjusted nonagricultural employment in Virginia declined by 0.8% or 30,800 net jobs for the twelve months through December For the nation, nonagricultural employment declined by 1.9% or 2.6 million net jobs during the same time frame. Virginia s rate of employment decline was only half the national rate, but Virginia experienced a long period of year-over-year employment gains, dating back to June US Nonagricultural Employment Growth Virginia and the Nation Recession Virginia Jan1997 Jan1999 Jan2001 Jan2003 Jan2005 Jan2007 Jan1998 Jan2000 Jan2002 Jan2004 Jan2006 Percentage Change from Previous Year Source: Bureau of Labor Statistics - CES Monthly Data (Jan Dec ) For the month of December, the government sector had the largest absolute change in employment, adding 11,700 net new jobs over the last twelve months, while educational and health services had the largest percentage change in employment, with growth of 2.0%. The education and health sector had the second largest absolute change in employment with an additional 8,500 net new jobs over the same time frame. Employment declined over the past year in every other major sector of the Virginia economy. Most notably, professional and business services experienced the first year-overyear decline since July Educ. & Health Services Government Nat. Res. & Mining Information Prof. & Bus. Services Financial Activities Manufacturing Trade, Trans. & Util. Leisure & Hospitality Construction Total Nonagriculture -8.5 Percentage Change from Previous Year Nonagricultural Employment Growth By Major Sector Source: Bureau of Labor Statistics, CES, Monthly Data (Dec. 2008) U.S VA In terms of growth in employment, four metropolitan areas 1 in the state experienced positive growth, while six metropolitan areas experienced a decline in employment. Harrisonburg experienced the largest percentage change in employment with growth of 1.4%, for a total of 900 net new jobs. Lynchburg had the largest absolute change in employment over the last twelve months by adding 1,300 net new jobs. Winchester experienced the largest percentage decline in employment in the twelve months through December 2008, with a 1.9% decline and net loss of 1,100 jobs. Statewide Harrisonburg Lynchburg Hampton Roads Bristol TN-VA Northern Virginia Blacksburg Roanoke Richmond Charlottesville Winchester Nonagricultural Employment Growth By MSA Percentage Change from Previous Year Source: Bureau of Labor Statistics, CES Data-Monthly Data (Dec. 2008), not seaseonally adjusted Virginia s December 2008 unemployment rate was 5.2 % compared to a national rate of 7.1 % for the same month. Four of Virginia s MSA s, Northern Virginia, Charlottesville, Harrisonburg, and Roanoke had unemployment rates less than the seasonally unadjusted statewide rate of 5.2% for the month of December Northern Virginia had the lowest monthly unemployment rate of 3.9% and Danville had the highest unemployment rate, 11.5%. Statewide Northern Virginia Charlottesville Harrisonburg Roanoke Lynchburg Hampton Roads Richmond Blacksburg Winchester Bristol Danville Unemployment Rate By MSA Source: Bureau of Labor Statistics, LAUS Data - Dec (Seasonally Unadjusted) The Bureau of Labor Statistics no longer provides monthly employment data (CES Survey) for the Danville metropolitan area.

5 Virginia Export Summary January November 2008 Total Exports Total cumulative merchandise* exports via Virginia for January November 2008 amounted to $17.57 billion, a 14.12% increase as compared to January November of Total exports from the U.S. for January November 2008 were valued at $1.21 trillion, an increase of 14.07% over the same period in Virginia ranked as the 23 rd largest exporting state in the U.S. for the fourth quarter of *Merchandise exports include manufactured goods, agricultural goods, coal, and tobacco. Country Top 20 Export Destinations Total Value of All Export Shipments Change from YTD 2007 Canada $2,497,838, % United Kingdom $1,103,295, % China $1,096,803, % Germany $893,725, % Portugal $725,382, % Taiwan $690,058, % Belgium $664,140, % Japan $646,980, % Mexico $623,162, % Singapore $617,325, % Brazil $615,803, % Netherlands $515,217, % Italy $416,408, % France $375,514, % Egypt $346,306, % South Korea $273,247, % Australia $253,102, % Saudi Arabia $227,992, % Turkey $218,459, % Spain $202,447, % Source: World Trade Atlas Major Export Sectors Manufactured Exports** For January November 2008, exports via Virginia of manufactured goods were valued at $13.89 billion, a 12.12% increase from the same time period in Manufactured goods represented 79.06% of Virginia's exports. ** Manufactured exports do not include agricultural goods, coal, or tobacco. Agricultural Exports*** Agricultural exports via Virginia increased by 52.96% for the January November 2008 as compared to the same time period in 2007, amounting to $1.42 billion. Top 10 export destinations of agricultural products via Virginia for January November 2008 were Egypt, Canada Morocco, Venezuela, Indonesia, China, Dominican Republic, Turkey, Jamaica, and Japan. *** Agricultural exports do not include tobacco. Coal and Tobacco Exports of coal and tobacco for January November 2008 amounted to $2.18 billion. Coal exports (mostly bituminous coal) amounted to $1.58 billion, an increase of 52.66% as compared to the same time period in Tobacco exports totaled $ million, a decrease of 30.32% from the same time period in Products Top 10 Manufactured Exports Value of Shipments % Change from YTD 2007 Integrated Circuits $1,968,415, % Gas $740,915, % Paperboard Coated with Kaolin Parts & Accessories $444,963, % $377,532, % Medications $328,921, % Hand Tools, Pneumatic, etc. $320,208, % Artificial Filament $286,827, % Engines $263,654, % Aircraft/Spacecraft Parts $260,713, % Nonwovens (manmade filaments) $241,865, % Source: World Trade Atlas Top Destinations Portugal, Taiwan, Singapore, China, South Korea U.K., Germany, Belguim, France, Spain Mexico, China, Germany, Japan, Hong Kong Canada, Sweden, Mexico, Venezuela, Saudi Arabia Netherlands, Australia, France, Mexico, Brazil Russia, Germany, France, Canada, U.K. Belgium, China, Indonesia, Hong Kong, Canada U.A.E., Canada, Saudi Arabia, Germany, Lithuania Germany, France, U.K., Canada, Denmark Belgium, China, Canada, Japan, Mexico Note: The World Trade Atlas data come from the U.S. Department of Commerce s Origin of Movement set of state exports. The Origin of Movement of a product is not always the same as its place of production, since products from one state can be consolidated for export in another state. 5

6 International Investment Summary January December 2008 United States Announced New Jobs by Country New Jobs Total: 30,429 New Jobs Total: 112,152 Germany 19% Germany 19% U.K. 14% Japan 16% Japan 7% U.K. 13% Denmark 7% Canada 10% South Korea 7% South Korea 8% France 6% France 6% U.A.E. 5% Italy 3% Netherlands 4% Switzerland 3% India 4% Sweden 2% Switzerland 3% Denmark 2% Other Countries 24% Other Countries 17% Announcements of foreign direct investment jobs from Japan and Canada were below their recent market shares. Italy s share remained the same but was eclipsed by other countries. India s 4% share of announced FDI jobs compares to its historical 2% share. The United Arab Emirates share has risen from less than 1% to 5%. Announced New Jobs by Industry New Jobs Total: 30,429 New Jobs Total: 112,152 Industrial Machinery 15% OEM 12% 9% 12% OEM 8% Electronic 6% Space & Defense 8% Metals 6% Industrial 7% Machinery 5% Consumer Products 6% Business Services 5% Semiconductors 5% Communications 4% Alternative/ Renewable energy 4% Aerospace 4% Software & IT services 4% Pharmaceuticals 4% Metals 3% 3% Other Industries 31% Other Industries 38% Industrial Machinery,, and OEM accounted for 32% of all announced new jobs in the U.S. by foreign firms during New industry sectors in the 2008 top ten as compared to were Space & Defense, Consumer Products, Software & IT Services, Semiconductors, and Alternative/ Renewable Energy. Virginia Announced New Jobs by Country New Jobs Total: 2,432 New Jobs Total: 3,551 Poland 33% U.K. 23% Japan 30% Germany 23% France 21% Sweden 22% U.K. 5% Canada 8% Canada 4% Switzerland 6% Brazil 2% Japan 6% Germany 2% France 5% Finland 1% India 4% Israel 1% Austria 2% Israel 1% Other Countries 0.4% Poland and Japan accounted for 63% of all announced new jobs in Virginia by foreign firms during Com.40 (Poland), Canon (Japan), and AREVA (France) were the three largest announcements for The small number of projects for Virginia identified by fdi Markets makes historical comparisons difficult. Announced New Jobs by Industry New Jobs Total: 2,432 New Jobs Total: 3,551 Consumer 33% Wood Products 21% Products Business Machines & Equipment Alternative/ Renewable energy Non- Transport OEM 29% Building Materials 13% 21% OEM 12% 7% Beverages 3% Electronic Industrial Machinery Software & IT services 10% 9% 3% Plastics 9% 2% Ceramics & Glass 1% 7% 6% 1% Food & Tobacco 4% Alternative/ Renewable energy 4% Other Industries 7% Virginia s Com.40 announcement represented 42% of the U.S. total for Consumer Products, while Virginia s AREVA announcement represented 41% of the U.S. total for Alternative/Renewable Energy. Alternative/Renewable Energy,, and were top ten industries for both 2008 and the period. 6