Virginia Government Finance Officers Association

Transcription

1 Virginia Government Finance Officers Association Economic Update With Application Toward Local Revenues The National and Regional Economies National growth has slowed but remains strong Productivity growth very important to long-term growth Fed is at the end of the tightening cycle Risks: housing, oil prices, dollar State growth has slowed but remains positive Varies around the state Housing activity is slowing Slower price appreciation impacts revenues from assessments Slower housing sales impacts recordation taxes Slower retail sales impacts growth of local 1% Counties and cities see revenue growth but not as much as last year Education is important for regional growth 1

2 Real GDP Slows in Second Quarter Quarterly Annualized Percent Change Data through 2nd Quarter 26. Recessions are shaded. The Fed s Goal: 3.% - 3.5% Real GDP Growth? Inflation Pressures 3.% - 3.5% Noninflationary Economic Growth Disinflation Unemployment Falls Capacity Utilization Rises Slower Deliveries 2

3 How Fast Can the Economy Grow? Annual Growth Rate Forecast 4.5 Labor Force Source: CBO, January How Fast Can the Economy Grow? Annual Growth Rate Productivity + Labor Force = Potential GDP Forecast Source: CBO, January 26. 3

4 Bernanke, April 27, 26 Comments Joint Economic Committee, US Congress ``Even if in the committee's judgment the risks to its objectives are not entirely balanced, at some point in the future the committee may decide to take no action at one or more meetings in the interest of allowing more time to receive information relevant to the outlook,'' ``A decision to take no action at a particular meeting does not preclude actions at subsequent meetings.. Future policy actions will be increasingly dependent on the evolution of the economic outlook, as reflected in the incoming data. Specifically, policy will respond to arriving information that affects the Committee's assessment of the medium-term risks to its objectives of price stability and maximum sustainable employment. Focusing on the medium-term forecast horizon is necessary because of the lags with which monetary policy affects the economy. St. Louis Fed President William Poole, Week of September 25, 26 If inflation pressures are easing, even if only gradually, and there is a genuine prospect that inflation will return to the comfort zone, then I see no reason to accelerate the decline in inflation by maintaining a restrictive policy in the face of declining employment, If it appears that the economy is falling below the baseline forecast path, then my bias will be in the direction of wanting to be sure that the data paint a consistent picture before I advocate a policy easing. But if the picture is consistent, and inflation risk is receding, then I will not hesitate to advocate policy easing. Poole will become a voting member of the Federal Open Market Committee (FOMC) next year and could take a voting slot at the next meeting if the Atlanta Federal Reserve does not have a new president in place. 4

5 Pace of Consumer Spending is Still Strong 12 1 Retail Sales Retail Sales and Inventory Growth % Change From Year Ago Inventories Retail data through August 26. Recessions are shaded. -4 Businesses are Confident But Hiring is Off (Payroll Average Monthly Gain of 145, Over 12 Months) Employment Growth Monthly Change in Thousands Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Recessions are shaded. 5

6 Factory Usage is Rising Capacity Utilization Rate Total Computers, Communication Equipment, and Semiconductors 6 55 Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Recessions are shaded. Factory Usage is Rising Capacity Utilization Rate Total Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Recessions are shaded. 6

7 Factory Usage is Rising Capacity Utilization Rate Total Computers, Communication Equipment, and Semiconductors 6 55 Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Recessions are shaded. Consumer Price Index (CPI) Consumer Price Index % Change From Year Ago Total Excluding Food & Energy 1.. Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Data through August 26. Recessions are shaded. 7

8 Looking Ahead: Real Gross Domestic Product Real GDP Annual Percentage Growth Rate alt. 26 mst alt mst U.S. Forecast 8

9 U.S. Forecast What is the neutral fed funds rate? Risk to the Forecast: Foreign Investment Net Foreign Flow of Dollars into US Treasuries and Agencies, Millions of Dollars 6, 5, Treasuries 4, 3, 2, 1, -1, Agencies -2, Data through 4 th Quarter 25. 9

10 Risk to the Forecast: Foreign Investment Net Foreign Flow of Dollars into US Treasuries and Agencies, Millions of Dollars 6, 5, Treasuries 4, 3, 2, 1, -1, Agencies -2, Data through 4 th Quarter 25. Risk to the Forecast: Foreign Investment Net Foreign Flow of Dollars into US Treasuries and Agencies, Millions of Dollars 6, 5, Treasuries 4, 3, 2, 1, -1, Agencies -2, Data through 4 th Quarter 25. 1

11 Summary: National Economy Housing will slow further (Risk fasterthan-expected) Consumer spending continues at a slower but moderate pace Employment gains Wage increases Businesses continue to invest Short-term rate hikes end Risk: Oil price rises again Employment Growth By State, July 26 Percentage Change From a Year Ago 6.% 4.% #26 Virginia, 1.4% 2.%.% -2.% -4.% #12 SC, 2.5% #16 NC, 2.1% #27 DE, 1.3% #3 TN, 1.2% #36 MD, 1.% -6.% -8.% -1.% Nevada 5.3% Utah 4.7% Michigan -.1% Louisiana -9.% 11

12 Virginia Continues to Grow Faster than the National Average Employment Growth Percentage Change From a Year Ago United States Benchmark Virginia -3. Apr-91 Apr-93 Apr-95 Apr-97 Apr-99 Apr-1 Apr-3 Apr-5 Data through August 26. Source: Chmura Economics & Analytics and Virginia Employment Commission. Employment Growth By Sector Percentage Change From a Year Ago Virginia 4.4 US Total Const Mfg TWU Wholesale Data through August 26. Source: Chmura Economics & Analytics and Virginia Employment Commission. Retail Info FIRE PBS Educ/Health Leisure Other Services Govt 12

13 Employment Growth By Sector Percentage Change From a Year Ago Virginia 4.4 US Total Const Mfg TWU Wholesale Data through August 26. Source: Chmura Economics & Analytics and Virginia Employment Commission. Retail Info FIRE PBS Educ/Health Leisure Other Services Govt Claims Rising Slightly Point Toward Slower Job Growth Virginia: Initial Unemployment Claims 6-Month Moving Average 4, 35, 3, 25, 2, 15, 1, 5, Jun-92 Jun-94 Jun-96 Jun-98 Jun- Jun-2 Jun-4 Jun-6 Data through July 26. Source: Chmura Economics & Analytics and Virginia Employment Commission. 13

14 Slower Retail Sales Point to Slower Growth in Sales Tax Receipts Virginia: Retail Sales Percentage Change From a Year Ago, 6-Month Moving Average Jan-93 Jan-95 Jan-97 Jan-99 Jan-1 Jan-3 Jan-5 Data through July 26. Source: Chmura Economics & Analytics and Virginia Department of Taxation. Auto Registrations Back Near Record Levels Virginia: Auto Registrations Percentage Change From a Year Ago, 6-Month Moving Average 45, 4, 35, 3, 25, 2, 15, Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Source: Chmura Economics & Analytics and Virginia Department of Taxation. 14

15 The Housing Market is Slowing Virginia: Single-Family Building Permits 6-Month Moving Average 4,5 4, 3,5 3, 2,5 2, 1,5 1, Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Source: Chmura Economics & Analytics and U.S. Census. The Housing Market is Slowing Virginia: Single-Family Building Permits 6-Month Moving Average 4,5 4, 3,5 3, 2,5 2, 1,5 1, Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Source: Chmura Economics & Analytics and U.S. Census. 15

16 Housing Permit Drop Varies Greatly By Region Richmond: Single-Family Building Permits 6-Month Moving Average Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August 26. Source: Chmura Economics & Analytics and U.S. Census Housing Permits in NVA are Back to 1996 Levels Northern Virginia: Single-Family Permits 6-Month Moving Average 1,8 1,6 1,4 1,2 1, Jan-9 Jan-92 Jan-94 Jan-96 Jan-98 Jan- Jan-2 Jan-4 Jan-6 Data through August

17 A Sign that Investors are Pulling out of the Market in the Washington MSA Washington Metro Area Home Sales vs. Inventory 5, 4, 3, Active Inventory 2, 1, Homes Sales Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Appreciation 4% Why? Home Price Appreciation GWR Home Price Index and Affordability 3% 2% Recession 1% Appreciation GWR U.S. %

18 Impacts Affordability GWR Home Price Index and Affordability Appreciation 4% Affordability Affordability 5% 3% U.S. GWR 4% 3% 2% 1% Appreciation Recession GWR U.S. 2% 1% % % Affordability - % of households that can afford a median-priced home. Home Price Appreciation Has Reached Double Digit Levels Richmond Home Price Index Appreciation 4% 6% 5% 3% 4% 2% Recession 3% 2% 1% U.S. Appreciation Richmond % % % 18

19 Affordability is Still High Richmond Home Price Index and Affordability Appreciation 4% Affordability Richmond Affordability 6% 3% U.S. 5% 4% 2% Recession 3% 1% U.S. Appreciation Richmond % % 1% % Home Affordability in Virginia s Metropolitan Areas, 26 Qtr 2 Source: Chmura Economics & Analytics 19

20 Housing Bubbles 4 House Price Appreciation Percent Change From A Year Ago San Francisco/Oakland MSA Washington DC MSA Los Angeles/Long Beach MSA Source: Office of Federal Housing Enterprise Oversight (OFHEO) Home Price Index Yuma Prescott Jackson Danville Ranking Virginia s Metropolitan Areas in the Nation, Employment Growth Rate St. George Morgantown McAllen-Edinburg-Mission Charlottesville Blacksburg-Christiansburg-Radford Lynchburg Washington-Arlington-Alexandria Winchester Hampton Roads Richmond Roanoke Harrisonburg Cedar Rapids Gulfport-Biloxi New Orleans-Metairie-Kenner Jul , Jul , Number of Jobs in Thousands Number Percent Rank

21 Significant Variation in Employment By County/City Data through 1 st Quarter 26. Nonfarm Employment: Northern Virginia vs. the State 2 15 Change From a Year Ago, In Thousands Rest of State Since ,4 Net Gain in VA 451,3 Net Gain in NVA Northern Virginia -1 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-1 Jan-3 Jan-5 Data through August

22 15 1 Nonfarm Employment: Nonmetropolitan Areas vs. the State Since ,4 Net Gain in Metro VA Metropolitan Areas 13,7 Net LOSS in Rural Areas 5-5 Rural -1 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-1 Jan-3 Jan-5 Data through August Employment Growth in the Manufacturing Sector Employment Growth - Manufacturing Sector Percentage Change From a Year Ago United States Virginia -1. Apr-91 Apr-93 Apr-95 Apr-97 Apr-99 Apr-1 Apr-3 Apr-5 Data through August

23 West Piedmont Workforce Area (Danville, Henry, Martinsville, Patrick, and Pittsylvania) Skewed Toward Mfg 23

24 Reasons for Longer-Term Shifts in Growth Infrastructure Highways Internet Quality of life Education Overview: The Knowledge Economy Broad trends muscles vs. knowledge Individuals clearly benefit from more education Does a more educated population contribute to faster economic growth with Virginia? 24

25 Cheap Labor in Foreign Countries Drove Trends Percentage of Employment in Goods vs. Service, United States 9% 8% 7% Service Producing 6% 5% 4% 3% 2% Goods Producing 1% % Source: Department of Labor. Cheap Labor in Foreign Countries is Driving Trends Hourly Compensation for Production Workers in US Dollars, UNITED STATES JAPAN KOREA SINGAPORE HONG KONG TAIWAN BRAZIL MEXICO Source: U.S. Department of Labor. 25

26 Cheap Labor in Foreign Countries and Better Education in US Drove Trends Average Years of Schooling of Adults, Selected Countries Brazil China Hong Kong, India Mexico Singapore South China Africa United States Source: World Bank Database. 26

27 Broad Relationships Between Education and Economic Well-Being Are Well Established More education is associated with higher wages Unemployment rate in 23 (Percent) Education attained Median weekly earnings in 23 (Dollars) More education is associated with a lower unemployment rate Doctoral degree Professional degree Master's degree Bachelor's degree Associate degree $1,349 1,37 1, Some college, no degree High-school graduate Some high-school, no diploma

28 Broad Relationships Between Education and Economic Well-Being Are Clear Mean Real Earnings of Workers 18 Years and Over by Education Attainment $45, $4, Advanced Degree $35, $3, $25, $2, $15, $1, $5, Some College/Associate's Degree Bachelor's Degree Less than High School High School Graduate $ Source: U.S. Census Bureau, Current Population Survey Recessions are shaded. Broad Relationships Between Education and Economic Well-Being Are Clear Mean Real Earnings of Workers 18 Years and Over by Education Attainment $45, $4, Advanced Degree $35, $3, $25, $2, $15, $1, $5, Some College/Associate's Degree Bachelor's Degree Less than High School High School Graduate $ Source: U.S. Census Bureau, Current Population Survey Recessions are shaded. 28

29 Our International Competitive Advantage is Education Average Years of Schooling of Adults, Selected Countries Brazil China Hong Kong, India Mexico Singapore South China Africa United States Source: World Bank Database. U.S. 8 th Grade Math Scores Falling Behind Some Less Developed Countries th Grade Math Scores, Are We About to Lose the Edge that Underpinned Our Growth? Singapore Chinese Hong Japan United Intern l Thailand Chile South Taipei Kong States Aver. (38 Africa Countries) Source: International Association for the Evaluation of Education Attainment

30 Distribution of Combined Mathematics Scores of 15-Year Old Students, by Country 23 OECD Average OECD Countries Finland Korea Netherlands Japan Canada Belgium Switzerland Australia New Zealand Czech Republic Iceland Denmark France Sweden Austria Germany Ireland Slovak Republic Norway Luxembourg Poland Hungary Spain United States Portugal Italy Greece Turkey Mexico Partner Countries Hong Kong-China Liechtenstein Macao-China Latvia Russian Federation Serbia Uruguay Thailand Indonesia Tunisia Brazil Percentiles of Performance Mean Mean +/- standard error Mean OECD Average OECD Countries Finland Korea Netherlands Japan Canada Belgium Switzerland Australia New Zealand Czech Republic Iceland Denmark France Sweden Austria Germany Ireland Slovak Republic Norway Luxembourg Poland Hungary Spain United States Portugal Italy Greece Turkey Mexico Partner Countries Hong Kong-China Liechtenstein Macao-China Latvia Russian Federation Serbia Uruguay Thailand Indonesia Tunisia Brazil Distribution of Combined Mathematics Scores of 15-Year Old Students, by Country Percentiles of Performance Mean Mean +/- standard error Mean

31 International Competition Students Enrolled in Postsecondary (in millions) Change U.S % China % India % UNESCO, 23 New Participants in the World Economy (Supply Side) China, India and Russia = 3 billion people 1% highly educated = 3 million people USA = 3 million people 25% highly educated = 75 million Competition for jobs = 375 million people USA students/adults will face greater competition in the future than anytime in history Craig Barrett, INTEL CEO 24 31

32 Portion of Workforce Needing High- Skilled Jobs Has Increased Unskilled 6% Skilled 2% Professional 2% Unskilled 15% Professional 2% Skilled 65% National Summit on 21 st Century Skills for 21 st Century Jobs 1% 9% 8% 7% 6% At the Same Time, Educational Attainment in the U.S. is Rising U.S. Full Time Workers 2% College Degree or More 3% 2% 3% 5% 4% High School or Some College 3% 2% 1% Less Than High School 1% % Source: Katharine Bradbury, Education and Wages in the 198s and 199s: Are All the Groups Moving Together? Boston Fed. 32

33 Importance of Education Regions Grow Faster and Income is Higher Education Attainment and HH Income Relationship Between Education Attainment and COLA Houshold Income (Correlation Coefficient.47) 6 Loudon Fairfax Median Household Income (Cost of Living Adjusted) Covington Dickenson Albemarle Falls Church Trend Line Arlington Alexandra % 1% 2% 3% 4% 5% 6% 7% Source: 2 Census and CEA % Adults With Bachelor Degree 33

34 These Students Will Be Underpinning Growth in 4 to 8 Years... % of Students Passing 8th Grade Mathematics by School Division, 24 1 Top HIGHLAND CHESTERFIELD ROCKINGHAM FAUQUIER POWHATAN SMYTH WISE KING GEORGE Source: Virginia Dept. of Education. CHARLES CITY These Students Will Be Underpinning Growth in 4 to 8 Years... % of Students Passing 8th Grade Mathematics by School Division, Bottom 1 PORTSMOUTH CITY TAZEWELL SUSSEX LEE BUCKINGHAM SCOTT CHARLOTTESVILLE COVINGTON CITY BUCHANAN PETERSBURG CITY HIGHLAND CHESTERFIELD ROCKINGHAM FAUQUIER POWHATAN SMYTH WISE KING GEORGE Source: Virginia Dept. of Education. CHARLES CITY 34

35 Higher Skills Needed for Fast Growing Services than Declining Mfg Industries Occupational Skill of Fastest Growing and Declining Industries, Virginia, Average Mfg Skill 2.7 Average Serv. Skill 2.9 Source: JobsEQ Skill Measure of Occupations in Industries Higher Skills Needed for Fast Growing Services than Declining Mfg Industries Occupational Skill of Fastest Growing and Declining Industries, Virginia, Average Mfg Skill Computer/Electronic Prod. Mfg. Chemical Mfg. Petro./Coal Prod. Mfg. Paper Mfg. Leather/Allied Prod. Mfg. Apparel Mfg. Textile Prod. Mills Textile Mills Beverage/Tobacco Prod. Mfg. Mining Biggest Job Loss Job Loss Average Serv. Skill 2.9 Source: JobsEQ Skill Measure of Occupations in Industries 35

36 Higher Skills Needed for Fast Growing Services than Declining Mfg Industries Occupational Skill of Fastest Growing and Declining Industries, Virginia, Average Mfg Skill Computer/Electronic Prod. Mfg. Chemical Mfg. Petro./Coal Prod. Mfg. Paper Mfg. Leather/Allied Prod. Mfg. Apparel Mfg. Textile Prod. Mills Textile Mills Beverage/Tobacco Prod. Mfg. Mining Average Serv. Skill Food Serv./Drinking Places Amusement, Gambling/Recreation Ind. Social Assist. Nursing/Res. Care Facilities Hospitals Ambulatory Health Care Serv. Ed. Serv. Admin./Support Serv. Profess., Scientific, and Tech. Serv. Internet Serv. /Data Process. Serv. Source: JobsEQ Skill Measure of Occupations in Industries Job Loss Job Gain Higher Skills Needed for Fast Growing Services than Declining Mfg Industries Occupational Skill of Fastest Growing and Declining Industries, Virginia, Average Mfg Skill Computer/Electronic Prod. Mfg. Chemical Mfg. Petro./Coal Prod. Mfg. Paper Mfg. Leather/Allied Prod. Mfg. Apparel Mfg. Textile Prod. Mills Textile Mills Beverage/Tobacco Prod. Mfg. Mining Average Serv. Skill Food Serv./Drinking Places Amusement, Gambling/Recreation Ind. Social Assist. Nursing/Res. Care Facilities Hospitals Ambulatory Health Care Serv. Ed. Serv. Admin./Support Serv. Profess., Scientific, and Tech. Serv. Internet Serv. /Data Process. Serv. Source: JobsEQ Skill Measure of Occupations in Industries Biggest Job Loss Biggest Job Gain 36

37 Take Aways National growth is shifting gears Fed is at the end of interest rate increases The economy s potential is about 3-3.5% real GDP Faster productivity growth leads to higher wages and the potential for the economy to grow faster Weaker dollar giving manufacturers some relief from low foreign wages Productivity and ingenuity need to offset low labor costs abroad People not industries are a region s and firm s most valuable resource...education is important 37