Economic Overview First Quarter 2012

Transcription

1 Economic Overview First Quarter 2012 Prepared by: Research Division State Tax Department

2 US and West Virginia Economic Trends 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q US Data Gross Domestic Product (billions) 12, , , , , , , , , , ,315.1 % change Employment - Total Nonfarm (millions) % change Unemployment Rate (%) Personal Income (billions) 11, , , , , , , , , , ,005.3 % change Coal Production (millions of tons) , ,094.3 % change Consumer Price Index % change Industrial Production % change Federal Funds Rate West Virginia Data Gross Domestic Product (billions) % change Employment - Average Nonfarm (ths) % change Unemployment Rate (%) Personal Income (billions) % change Coal Production (millions of tons) % change Note: Percent changes are year-over-year Sources: IHS Global Insight - U.S. data & WV GSP Bureau of Economic Analysis (BEA) - WV personal income data Energy Information Administration (EIA) - coal data, U.S. & W.V. WORKFORCE WV - WV employment data

3 ECONOMIC OVERVIEW TABLE OF CONTENTS UNITED STATES OVERVIEW Page INTRODUCTION...1 CONSUMER ACTIVITY UNEMPLOYMENT...1 RETAIL SALES AND BUSINESS INVENTORY & SALES PERSONAL INCOME, SPENDING, SAVINGS & CONSUMER DEBT BUSINESS ACTIVITY INDUSTRIAL PRODUCTION & CAPACITY...5 HOUSING & CONSTRUCTION....5 CORPORATE PROFITS... 7 INTERNATIONAL TRADE... 7 PUBLIC POLICY... 8 OUTLOOK GRAPHIC & STATISTICAL APPENDIX UNEMPLOYMENT RATE CONSUMER PRICE INDEX PRODUCER PRICE INDEX GROSS DOMESTIC PRODUCT INDUSTRIAL PRODUCTION INDEX HOUSING STARTS CORPORATE PROFITS SELECTED U.S. INTEREST RATES TRADE-WEIGHTED EXCHANGE RATE OF THE DOLLAR

4 WEST VIRGINIA OVERVIEW Page INTRODUCTION LABOR MARKET INDICATORS UNEMPLOYMENT COUNTY UNEMPLOYMENT EMPLOYMENT EARNINGS SELECTED INDUSTRY ACTIVITIES COAL ELECTRIC UTILITIES MANUFACTURING FINANCIAL INSTITUTIONS EARNINGS INTEREST RATES CONSUMER ACTIVITY PERSONAL INCOME POPULATION PUBLIC SECTOR OUTLOOK GRAPHIC & STATISTICAL APPENDIX EMPLOYMENT W.V., REGIONAL & U.S. UNEMPLOYMENT RATES TOTAL EMPLOYMENT EMPLOYMENT BY INDUSTRY - CHART EMPLOYMENT BY INDUSTRY - GRAPH COUNTY UNEMPLOYMENT RATES UNEMPLOYMENT COMPENSATION DATA CONSUMER ACTIVITY W.V. PERSONAL INCOME QUARTERLY PERSONAL INCOME BY STATE (PERCENT CHANGE) QUARTERLY PERSONAL INCOME BY STATE (PERCENT CHANGE Y-O-Y) PER CAPITA PERSONAL INCOME PER CAPITA PERSONAL INCOME (PERCENT CHANGE) SELECTED W.V. INTEREST RATES COAL W.V. COAL PRODUCTION PRODUCTION - U.S. vs. W.V W.V. PRODUCTION , 2012, 5-YEAR AVERAGE AVERAGE COST OF COAL ELECTRICITY PRODUCTION REVENUE FY2012 Y-T-D REVENUE GENERAL REVENUE FUND - ACTUAL vs. ESTIMATED GENERAL REVENUE FUND - COMPONENTS CORP. NET INCOME & BUSINESS FRANCHISE TAX - ACTUAL vs. ESTIMATED SEVERANCE TAX - ACTUAL vs. ESTIMATED BUSINESS & OCCUPATION - ACTUAL vs. ESTIMATED CONSUMERS SALES TAX - ACTUAL vs. ESTIMATED PERSONAL INCOME TAX - ACTUAL vs. ESTIMATED STATE ROAD FUND - ACTUAL vs. ESTIMATED STATE ROAD FUND - COMPONENTS...5 9

5 United States Economic Overview First Quarter 2012 Introduction During the fourth quarter of 2011, the U.S. economy grew at an annual rate of 3.0 percent, compared with the increase of 1.8 percent in the third quarter. According to the Commerce Department, the acceleration in fourth quarter Gross Domestic Product (GDP) reflected an acceleration in consumer spending, residential fixed investment and in private inventory investment that were partly offset by a deceleration in nonresidential fixed investment, a downturn in federal government spending, an acceleration in imports, and a deceleration in exports. Consumer spending rose by 2.1 percent in the fourth quarter, compared with a 1.7 percent increase in the previous quarter. The acceleration in spending was mostly attributable to goods, which rose by 5.4 percent, after a 1.4 percent increase in the previous quarter. Spending on durable goods (i.e., big-ticket items meant to last three or more years) increased by 16.1 percent, following a 5.7 percent increase in the third quarter. Spending on nondurable goods rose 0.8 percent, following a slight decrease in the July-September period. Spending on services rose slightly during the fourth quarter. According to preliminary data, the U.S. economy grew at a slower rate of 2.1 percent in the first quarter of Consumer spending continued to grow at the same rate as in the fourth quarter (i.e., 2.1 percent). Residential construction was a plus to growth in the first quarter (aided by warmer than usual weather) and business capital spending continued to show growth. However, foreign trade was a drag on GDP growth as imports rose faster than exports. Consumer Activity Unemployment. The nation s unemployment rate fell slightly from 8.3 percent to 8.2 percent in March, according to the Bureau of Labor Statistics (BLS). March payrolls rose by 120,000, well below economists expectations. Job gains were nearly 100,000 below estimates, as the workweek shrank. The decline in the unemployment rate reflected fewer people looking for work during the month. Private payrolls added 121,000 jobs while government employment fell by 1,000. In the payroll details, manufacturing added 37,000 jobs, up from 31,000 in February. The gains were mostly in durable goods, especially fabricated metals, machinery, and motor vehicles and parts. Overall manufacturing production-worker hours fell 0.1 percent, suggesting that March was a soft month for manufacturing output growth (after three strong months in a row). Construction was a negative, losing 7,000 jobs. The "warm winter" boost helped December and January, but faded in February and March. Private services employment growth was 90,000, down from 204,000 in January, and the slowest month since August. Leisure and hospitality (up 39,000), professional and business services (up 31,000), and healthcare (up 26,000) continued to show strength. Within the leisure sector there were 37,000 jobs added in food services and drinking places. However, there were declines in retail trade (down 34,000), information services (down

6 9,000), and temporary help (down 8,000). The decline in retail follows a 29,000 job decline in February. General merchandise stores have shed 83,000 jobs over the last two months. The drop in temp jobs maybe a correction after a large 55,000 jump in February. The government sector shed 1,000 jobs. Federal employment was flat, with the postal service down slightly but other jobs up. State and local government fell, but only by 1,000, and revisions to February now show state and local employment up in that month by 12,000 instead of just 1,000. These are encouraging signs that we may be nearing the end of the prolonged decline that has removed 641,000 jobs in state and local government since August The private workweek edged down to 34.5 hours from an upwardly-revised 34.6 hours in February. A shorter workweek combined with only a small increase in private employment generated a 0.2 percent drop in hours worked. However, February hours worked were revised up, and the quarter overall showed a 3.7 percent annualized gain, the strongest quarter yet in the recovery. Average hourly earnings rose 0.2 month over month and were up 2.1 percent over the year, which was well below the CPI inflation rate, which stood at 2.9 percent. Overall payrolls (wages multiplied by hours) rose slightly, suggesting only a small increase in private wages and salaries in March. However, since February payrolls were revised upward, the two months combined show an average 0.4 percent increase, which is a better indicator of the trend. The lower unemployment rate at 8.2 percent reflected a 31,000 drop in household employment, combined with an even bigger 164,000 drop in the labor force, which lowered the participation rate to 63.8 percent from 63.9 percent. The drop in the labor force in March follows two big increases in January and February. The most comprehensive measure of underemployment, which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time, fell to 14.5 percent from 14.9 percent. Additionally, there was a 447,000 drop in the numbers working part-time for economic reasons. According to IHS Global Insight, the picture remains very bleak for the long-term unemployed. The proportion of long-term unemployed (27 weeks or longer) was little changed at 42.5 percent (February was 42.6 percent). The longer that potential workers remain either unemployed or on the sidelines outside the labor force entirely, the less likely that they will ever get back into employment. The March employment report is the first disappointing employment report in several months. Early winter employment gains were most likely exaggerated by very mild winter weather, and the unwinding of that effect may stretch into April. Other labor market indicators, such as initial unemployment insurance claims, ISM employment indexes, and the ADP employment survey, show a better picture than the March employment report. The weakest sector in March (i.e., retail) seems unlikely to continue on a downward track. Retail Sales and Business Inventory and Sales. According to the Commerce Department, retail sales rose 0.8 percent in March. Excluding autos, sales were also up 0.8 percent. Sales gains were across-the-board, as warmer weather, stronger job prospects, a strong stock market, and the new Apple ipad led to strong spending despite higher gasoline prices. 2

7 Among retail segments, clothing, sporting goods, furniture, motor vehicles and parts, electronics, building materials, gasoline stations, general merchandise, and nonstore retailers showed strong results in March. The release of the new Apple ipad in the middle of March and the lower price on the ipad 2 resulted in the strongest gains in electronic store sales since October, when Apple released the latest version of the iphone. In looking ahead, IHS Global Insight does not expect clothing and building material stores to benefit further from the unseasonable warm weather effect, and electronic stores will not continue to benefit from the Apple ipad bump. For all of 2012, consumer spending adjusted for inflation is estimated at slightly above 2 percent. Business inventories rose 0.6 percent in February, according to the Census Bureau. Compared with February 2011, inventories were up 7.6 percent. Retail inventories increased 0.6 percent, with most of the increase at automotive dealers. Wholesale inventories were up by nearly 1 percent and manufacturing inventories rose 0.4 percent. Total business sales (i.e., the sum of manufacturing, wholesale trade, and retail trade) grew 0.7 percent in February, following a gain of 0.4 percent in January. Compared with February 2011, total sales were up 7.6 percent. The inventory-to-sales ratio, which measures how long in months a company could sell all current inventory, remained at 1.28 months in February, the same as January and a year earlier. Retail e-commerce sales totaled $51.4 billion during the fourth quarter of 2011, an increase of 5.8 percent from the previous quarter and up 15.5 percent from the same period a year earlier. Of total retail sales, e-commerce accounted for 4.8 percent, compared with 4.4 percent in the fourth quarter of For all of 2011, e-commerce sales totaled $194.3 billion, an increase of 16.1 percent from E-commerce sales in 2011 accounted for 4.6 percent of total retail sales, up from 4.3 percent in According to comscore.com, which measures sales in the digital world, the increase in fourth quarter e-commerce sales was a continuation of the year s strength in online spending. Price and convenience continue to be the critical drivers for e-commerce. During the fourth quarter, the top-performing online product categories were: digital content & subscriptions; jewelry & watches; consumer electronics; computer software; and toys & hobbies. Each of the aforementioned categories grew at least 18 percent in the fourth quarter of 2011 compared with a year ago. Ten individual days during the quarter surpassed $1 billion in th th online spending, led by Cyber Monday (November 28 ). Monday, December 5, ranked th second, followed by Green Monday (December 12 ). Fifty-two percent of e-commerce transactions included free shipping, which was an all-time high. The previous peak was in the fourth quarter of 2010 at 49 percent. Smartphones and tablets played a growing role in online shopping in 2011, as consumers increasingly used smartphones to check prices and product features while physically in retail stores. According to emarketer, e-commerce sales are expected to reach $224 billion in 2012, with apparel and accessories the fastest growing segment. This segment is forecast to 3

8 increase 20 percent over Consumers are using product code searches more often in their online searches, allowing more confidence is purchasing apparel over the Internet. Although apparel and accessories are expected to be the fastest growing segment, computer and consumer electronics are forecast to account for 22 percent of e-commerce sales in Personal Income, Spending, Saving and Consumer Debt. Consumer spending accelerated in the fourth quarter of 2011 with growth of 2.1 percent, compared with 1.7 percent growth in the third quarter. The acceleration in spending was attributable to spending on goods, which rose 5.4 percent, following an increase of 1.4 percent in the third quarter. Specifically, fourth quarter sales of durable goods increased sharply at a rate of 16.1 percent, following the 5.7 percent increase in the previous three months. Spending on nondurable goods (e.g., food and clothing) rose by 0.8 percent, after a slight decline in the previous quarter. Spending on services grew at a 0.4 percent pace in the fourth quarter, decelerating from the 1.9 percent growth rate of the previous two quarters. Total consumer spending accounts for about two-thirds of total U.S. economic activity. According to the Commerce Department, consumer spending was exceptionally strong in February, despite higher gasoline prices. Spending was up 0.8 percent, the strongest increase since the previous February. Real consumer spending (i.e., adjusted for inflation) was also strong, rising 0.5 percent during the month. Unseasonably warm weather earlier this year contributed to higher spending levels in February. According to IHS Global Insight, real consumer spending is expected to increase 2.3 percent in the first quarter of Personal income rose by 0.2 percent in February, the same increase as in January. However, real disposable income fell by 0.1 percent in February, after 0.2 percent decline the previous month. Total private wage and salary disbursements were up 0.3 percent during the month. Most of the increase was due to the service-providing sector, although payrolls in the goods-producing sector rose during the month, as well. Government wage and salary disbursements decreased $0.2 billion, following an increase of $2 billion in January. Pay raises for military personnel contributed to most of the January increase. As disposable income fell and spending increased, the savings rate (i.e., personal saving as a percent of disposable personal income) fell from 4.3 percent in January to 3.7 percent in February. The February rate was significantly below its year-earlier reading of 5.0 percent. According to IHS Global Insight, the savings rate averaged 4.7 percent for all of 2011, down from the 5.3 percent rate in The rate is forecast to fall even further in 2012 and the next several years, below 4 percent. Consumer borrowing increased sharply in the fourth quarter of 2011, rising at a 6.9 percent rate. Previously, outstanding consumer credit rose by 1.4 percent in the third quarter, following an increase of 3.6 percent in the second quarter and 2.2 percent in the first quarter of The acceleration during the October-December period was attributable to both a 7.4 percent rise in nonrevolving credit and a 6 percent increase in revolving credit. Consumer credit continued rising into 2012, but decelerated somewhat in February. Credit card usage fell for the second month in a row, down 3.3 percent. Nonrevolving credit (i.e., installment-auto and educational) grew by 7.7 percent during the month, due to an increase in auto purchases and an even larger increase in student loans. According to the newly created Consumer Financial Protection Bureau, student loan balances surpassed the $1 trillion mark in the fourth quarter of last year, and "students borrowed $117 billion in federal student loans in Student loan balances have surpassed all other forms of 4

9 consumer debt other than mortgage debt. In addition, since the first quarter of 2008, all other types of consumer debt have declined significantly, with the sole exception of student loans. The overall increase in borrowing pushed the ratio of total outstanding consumer debt to disposable income up to 21.4 percent from a recent low of 21.0 percent in October. According to IHS Global Insight, student loan balances are expected to continue growing, auto loans will continue to climb, and consumer credit will starting rising at a more even pace as consumer confidence improves. Business Activity Industrial Production and Capacity. For the first quarter of 2012 as a whole, industrial production accelerated to a growth rate of 5.4 percent (annual rate), compared with the 5.0 percent growth in the fourth quarter of Within the manufacturing sector, output rose to a growth rate of 10.4 percent, after 5.6 percent growth in the previous quarter. Mining output declined by 5.4 percent, following growth of 15.4 percent in the fourth quarter. Also, utilities production declined by 13.8 percent, after falling 12.1 percent in the fourth quarter, as both electricity and natural gas production fell for the second consecutive quarter. Overall industrial production stagnated in February and March, after rising 0.7 percent in January. However, in the March details, mining output rose by 0.2 percent and utilities s output increased 1.5 percent. Manufacturing production fell in March, after a strong increase in February. Core manufacturing (i.e., excluding high-tech and autos) also fell by 0.4 percent in March, following three months of strong growth. Total industrial capacity utilization fell slightly to 78.6 percent in March, from 78.7 percent in February. The operating rate at mines rose to 87.5 percent and to 73.1 percent at utilities while manufacturing capacity decreased to 77.8 percent. Overall industrial capacity was still down compared with the average of the period. Housing and Construction. According to the Commerce Department, housing starts fell 5.8 percent to a seasonally adjusted annual rate of 654,000 units in March. Specifically, single-family starts fell 0.2 percent in March while multiple-unit starts plunged by 16.9 percent. By region, starts were down in the South, up in the Midwest and Northeast, and unchanged in the West. The key numbers in the March housing report were the housing permits, not the starts. The permits are better measured than starts, are less influenced by weather, and give an indication of future activity. March s housing permit numbers were the highest since September 2008, and have been trending upward in recent months. Although single-family permits were down 3.5 percent, multifamily permits jumped 20.8 percent to the highest level since August By region, the increase in multifamily construction is taking place in the South and West. The reason for growth in these areas is because 46 of the 50 fastest-growing metro-area populations from 2010 to 2011 were in the South and West, according to the Census Bureau According to IHS Global Insight, 2012 should be a better year for housing than Pent-up demand for housing is building as young adults stay at home, and at some point this will spark a revival in housing activity. Initially, the revival will take place in the multifamily segment. In the latest forecast, housing starts are projected to rise from 610,000 in 2011 to 740,000 in The housing market is expected to make further improvements in 2013, but 5

10 conditions are not projected to return to normal until 2015, when housing starts climb above the 1.5-million threshold. According to the Census Bureau, construction spending fell 1.1 percent in February, the second straight monthly decline. Private construction decreased 0.8 percent, with residential spending unchanged and nonresidential spending down by 1.6 percent. Public construction spending fell 1.7 percent, mostly due to infrastructure spending. Infrastructure spending (i.e., highway and street, power, transportation, sewage and waste disposal, and water supply) declined by 1.6 percent in February, and revisions to recent spending levels indicate a leveling out on infrastructure spending, not rebounding. Given the budgetary problems confronting state and local governments, real spending on infrastructure is expected to decline in 2012 and Private residential construction was flat in February. Excluding improvements, residential spending fell 1.0 percent. New single-family construction declined by 1.5 percent, in part because of the drop in single-family housing starts in February. Spending on multifamily homes rose 2 percent in February. The recent strong gains in multifamily housing starts point to solid increases in multifamily construction throughout 2012 and into Private nonresidential spending declined 1.6 percent in February and 2.3 percent in January. The declines in this sector were generally across-the-board. Private nonresidential spending made strong broad-based gains in the first half of 2011, but those gains slowly fell off in the second half of the year. The evidence showed that much of the first-half growth was from companies improving and retrofitting existing facilities, not new projects. The projection for 2012 is that nonresidential construction will not show much growth because of difficulties funding new projects. Existing home sales decreased 0.9 percent in February, to a seasonally adjusted annual rate of 4.59-million units. Regionally, sales were up in the Midwest and South, but decreased in the Northeast and West. Condo/co-op sales were unchanged in February while single-family home sales fell by 1 percent. Median existing home sale prices were up slightly from January, which had fallen to 10-year lows. The months' supply of existing homes was 6.4 months, up from 6.0 in January. The cancellation rate reported by realtors remained high at 31 percent, up from 9 percent a year earlier. Distressed homes accounted for 34 percent of sales in February, down slightly from the month before. The market for single-family homes picked up in the second half of 2011, after being stuck near the bottom for nearly three years. According to IHS Global Insight projections, existing home sales will be 10 percent higher in 2012 than in New home sales fell 1.6 percent in February, to a 313,000-unit annual rate. Sales were up in the Northeast and West, but down in the South and Midwest. Inventory levels (i.e., the number of new homes for sale) remained at 150,000, a record low (data began in 1963). A second measure of inventory, the number of completed homes for sale, fell by 3,000 to 54,000, the lowest reading since The months' supply inched up one-tenth, to 5.8 months (in a normal market, the months supply should be 4 to 5 months). According to IHS Global Insight, new home sales should fare better in 2012 than they did in 2011, when they set a record low. The latest forecast is for sales to rise to 357,000 units in 2012, from 305,000 units in Sales are not expected to exceed 800,000 units until

11 Corporate Profits. According to the Quarterly Financial Report, manufacturing companies posted a 6 percent increase in profits from the fourth quarter of 2010 to the fourth quarter of Gains were generally across-the-board in both the durable and nondurable goods categories. Some of the largest gains in the nondurable goods industries were in plastic and rubber products, apparel, petroleum and coal products, and chemicals. Within the durable goods industries, large profit gains were posted in computer equipment, fabricated metal products, machinery, furniture and related products, and wood products. However, mining industry profits fell by 20 percent and wholesale trade industry profits posted a 9 percent year-over-year decline in the fourth quarter of In other industries, profits were down in information services and in professional and technical services (excluding legal services). According to IHS Global Insight, fourth quarter 2011 profits nationwide increased by 7 percent from the year-earlier period. After posting increases in the first half of 2012, profits are expected to decline in the last half of 2012 and into 2013, before rebounding in late International Trade According to the Commerce Department, the U.S. trade deficit in goods and services narrowed from $52.5 billion in January to $46 billion in February, as a decline in imports offset a slight gain in exports. Petroleum imports played a major role in the overall decline, as the oil import bill fell by a sharp $6 billion on higher prices and lower volumes. The overall decline in imports was almost entirely supply related. The Chinese lunar New Year, which spilled into early February this year, idled Chinese factories that produce goods for U.S. markets. Because the Chinese holiday does not typically fall in February, the seasonal factor does not adjust for it. Exports were lower for food, industrial supplies and automotive goods. Exports of consumer goods increased 2.1 percent while exports of capital goods were flat. The sharp drop in automotive exports may partly reflect the Eurozone recession and slowdown in emerging market demand. It is also reflects a correction after two strong months in January and December. The narrower-than-expected trade deficit in February was mainly the result of importsupply constraints due to the Chinese New Year, along with a correction in auto exports after two strong months. Imports are therefore expected to rebound in March as Chinese production resumes. Meanwhile, strengthening domestic demand should continue to lift imports. Exports of autos should also rebound in March, lifting the total, but the upside for exports could be limited by waning external growth. According to IHS Global Insight, the trade deficit should widen going forward as U.S. growth diverges from several major trading partners. The narrower-than-forecasted deficit (along with recently stronger wholesale inventory and defense spending numbers) raises IHS Global Insight s first-quarter real GDP growth estimates to percent, from the previous estimate of 2.0 percent. Among major U.S. trading partners, the deficit with Japan expanded to $7.0 billion in February and the deficit with China rose to $26.0 billion. Meanwhile, the deficit with the OPEC nations decreased to $6.4 billion, from $10 billion the month before. The deficit with Canada, the largest U.S. trading partner, fell to $2.8 billion in February. The trade deficit 7

12 with Mexico rose to $5.8 billion during the month while the deficit with Europe decreased to $5.9 billion. Surpluses were recorded with Australia, Hong Kong, Singapore and Egypt. The deficit in the current account balance, which is the widest measure of U.S. trade, including goods and services, income, and net unilateral current transfers, widened to $124.1 billion in the fourth quarter of 2011 from $107.6 billion in the third quarter. A decrease in the income surplus, along with a rise in the trade deficit, resulted in the larger current account balance. Specifically, the trade deficit widened by $5.5 billion, as exports slowed and imports increased. The slowdown in exports resulted from lower industrial supplies and automotive exports, as capital and consumer goods remained strong in the face of a global slowdown. The rebound in imports resulted from increases in capital and consumer goods while industrial supplies imports fell. Overall, resilient domestic activity, higher oil prices, and weaker world growth will generate a wider trade deficit over the course of The balance on income surplus plunged $10.3 billion in the fourth quarter. Payments of interest, dividends, and profits on US-owned assets abroad increased while corresponding receipts on foreign-owned assets in the United States fell. However, despite its net debtor status, the U.S. continues to enjoy a balance of income surplus. This surplus will erode over time as financing needs for the trade and federal deficit increase. But, as long as U.S. yields remain lower than foreign yields, the U.S. should continue to earn more from its holdings of foreign assets than it pays on foreign-owned assets in the country. This should slow the speed of erosion. For all of 2011, the current-account deficit widened slightly to $473.4 billion from $470.9 billion in However, relative to GDP, the gap fell from 3.2 percent to 3.1 percent. Looking forward, IHS Global Insight expects the current-account deficit to widen moderately. Domestic activity is expected to gradually accelerate and pull in more imports from abroad while higher oil prices raise the oil import bill. Correspondingly, a depressed European economy and weaker emerging markets growth will weigh down exports. The current-account deficit should reach 3.4 percent of GDP in 2012, up from 3.1 percent in Public Policy The U.S. Federal Reserve Board voted to leave interest rates unchanged at its March th 13, 2012 FOMC meeting. The Fed kept interest rates at the current range of 0 percent to 0.25 percent, consistent with its desire to keep excess liquidity in the banking system, and to communicate that rates will remain exceptionally low for some period of time. Also, the discount rate remained unchanged at 0.75 percent. The discount rate is charged on the Federal Reserve Bank s short-term, overnight loans to banks in sound financial condition. th Previously, the Fed raised the discount rate by 25 basis points at its February 18, 2010 meeting. The FOMC indicated that economic growth has been expanding moderately. Labor market conditions continued to improve and the unemployment rate declined further, although it remained elevated. Overall consumer price inflation was relatively subdued in recent months. More recently, prices of crude oil and gasoline increased substantially. However, measures of long-run inflation expectations remained stable. 8

13 The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its mandate (i.e., maximum employment and price stability). The Committee noted a number of factors likely to restrain the pace of economic expansion. These included slower growth in some foreign economies, prospective fiscal tightening in the United States, the weak housing market, further household deleveraging, and high levels of uncertainty among households and businesses. Participants continued to expect most of the factors restraining economic expansion to ease over time and so anticipated that the recovery would gradually gain strength. Overall, the consumer price index (CPI) rose 0.3 percent in March, mostly due to gasoline prices. Core prices (i.e., excluding food and energy) were up 0.2 percent, close to the average monthly rate of the past 12 months. The CPI for all items rose 2.7 percent above the prior year. Overall, energy prices rose 0.9 percent in March, with gasoline up 1.7 percent and natural gas up 0.9 percent, after falling for five consecutive months. Food prices were up 0.3 percent from February and were up 3.3 percent over the year. In other areas, used cars and trucks were up 1.3 percent in March, after falling for six consecutive months. Medical care, apparel, and personal care rose at a faster pace than recent months, but not by much. Core CPI prices stood 2.3 percent above a year earlier in March, the same as the year-over-year increase the previous month. According to the Congressional Budget Office (CBO), estimates show that the federal government recorded a budget deficit of $780 billion in the first half of fiscal year 2012, $53 billion less than the deficit recorded in the same period in Receipts were up by 4.5 percent, compared with those in the same period a year before. Outlays were slightly lower than in the first six months of fiscal year Receipts in the first half of fiscal year 2012 were about $46 billion higher than the amounts collected in the same period last year. Almost two-thirds of the gain stemmed from a $29 billion (or 53 percent) increase in net receipts from corporate income taxes. This increase was the result of higher payments, which were up by $11 billion (i.e., 11 percent), and lower refunds, which were down by $18 billion, or 42 percent. Withheld and nonwithheld individual income taxes rose by $15 billion and $7 billion, respectively, in the first half of fiscal year 2012, reflecting the strengthening of both wage and nonwage incomes. But total receipts from individual income taxes were up by only $10 billion (or about 2 percent), mainly because refunds increased by $11 billion, as a result of accelerated processing and reporting procedures. Social insurance receipts for the first six months grew by $5 billion, mostly because collections of unemployment taxes rose by $4 billion (as states replenished their trust funds, which were depleted in the recent recession). Withheld payroll taxes grew by only $1 billion because of the 2 percentage-point reduction in the Social Security payroll tax, which took effect on January 1, 2011, was not in effect during the first three months of fiscal year 2011 (October to December 2010). By itself, that difference would have caused withheld collections this year to be $25 billion less than receipts for the comparable months last year. But growth in wage and nonwage incomes offset much of that difference. For example, during the most recent three months, when the tax rates were the same in both years, withheld payroll taxes grew by $14 billion (or 8 percent). 9

14 Outlays in the first half of the fiscal year were slightly lower than they were in the first half of last year. Spending for some major programs declined. Outlays for Medicaid fell by $24 billion (or 16 percent) because legislated increases in the federal government s share of the program s costs expired in July Spending for unemployment benefits dropped by $15 billion (or almost 22 percent) because fewer claims were filed in recent months. Defense spending declined by about $9 billion (or 3 percent). In contrast, outlays recorded for the Troubled Asset Relief Program rose by $19 billion, mostly because of a change in the estimated cost of earlier transactions. Net payments to the government-sponsored enterprises Fannie Mae and Freddie Mac increased by $12 billion. As compared with spending in the first six months of fiscal year 2011, outlays for Social Security benefits were $18 billion (or 5 percent) higher, and net spending for Medicare was up by $6 billion (or 3 percent). Expenditures for Other Activities were slightly lower than they were in the same period last year. Education spending dropped by $17 billion (or 32 percent), largely because of a decline in spending from funding provided in the American Recovery and Reinvestment Act. However, spending for international assistance increased by $4 billion (or 50 percent), and net outlays to stabilize corporate credit unions rose by $13 billion, mostly because outlays in 2011 were reduced by loan repayments from credit unions. In January 2012, the CBO updated its most recent set of budget projections for fiscal years 2012 through According to those projections, the budget deficit is expected to fall from $1.3 trillion in 2011 to roughly $1.1 trillion in From 2013 to 2015, the deficit continues to show improvement, falling to $269 billion by In 2016, the deficit widens again before narrowing for several years. Much of the projected decline in the deficit occurs because, under current law, revenues are projected to rise by nearly $800 billion, or more than 30 percent, between 2012 and 2014, from 16.3 percent of GDP in 2012 to 20.0 percent in That increase is mostly the result of the recent or scheduled expirations of tax provisions, such as those initially enacted in 2001, 2003, and 2009 that lower income tax rates and those that limit the number of people subject to the alternative minimum tax (AMT). Under current law, CBO projects that revenues will continue to rise relative to GDP after 2014 largely because increases in taxpayers inflation-adjusted income will push more income into higher tax brackets and subject more of it to the AMT. Outlays in CBO s baseline projections decline modestly relative to GDP over the next several years before turning up again later in the decade. The modest declines are the result of an expanding economy and statutory caps on discretionary appropriations. The aging of the population and rising costs for health care drive increases in spending in later years. Projected spending in CBO s baseline averages 21.9 percent of GDP over the period. That figure is less than the 23.2 percent CBO estimates for 2012, but it remains elevated by historical standards. As a share of GDP, discretionary spending is projected to decline to its lowest level in the past 50 years by 2022, but that decline will be partially offset by increases in spending for mandatory programs, which are projected to climb from 13.3 percent of GDP in 2013 to 14.3 percent in Driven by higher interest rates and additional accumulation of debt, net interest costs will grow significantly, from 1.4 percent of GDP this year to 2.5 percent in

15 Outlook According to IHS Global Insight, GDP growth is expected remain at or just above the 2 percent mark. The key factors preventing an acceleration are rising gasoline prices (that will hit most sharply in the second quarter), the absence of a strong rebound in housing activity, and huge uncertainty about the path of fiscal policy in 2013, as key tax and spending deadlines loom on January 1, The latest forecast shows GDP growth rate projections at 2.2 percent for all of 2012 and 2.4 percent for all of

16 UNITED STATES GRAPHIC & STATISTICAL APPENDIX UNEMPLOYMENT RATE CONSUMER PRICE INDEX...14 PRODUCER PRICE INDEX...15 GROSS DOMESTIC PRODUCT...16 INDUSTRIAL PRODUCTION INDEX...17 HOUSING STARTS...18 CORPORATE PROFITS...19 SELECTED U.S. INTEREST RATES...20 TRADE-WEIGHTED EXCHANGE RATE OF THE DOLLAR

17 Rate U.S. CIVILIAN UNEMPLOYMENT RATE (SEASONALLY ADJUSTED QUARTERLY RATES) Rate Forecast January February * March April May * June July August * September October November * December *Global Insight forecasts Source: U.S. Department of Commerce, Bureau of Economic Analysis 13

18 Rate CONSUMER PRICE INDEX GROWTH RATES CPI Forecast (0.5) (9.1) (2.4) * * * * 1.5 *Global Insight forecasts Source: Bureau of Labor Statistics 14

19 Rate PRODUCER PRICE INDEX GROWTH RATES PPI Forecast (19.4) (6.4) * * * * 0.7 *Global Insight forecasts Source: Bureau of Labor Statistics 15

20 Rate GROSS DOMESTIC PRODUCT GROWTH RATES GDP Forecast Current Current Real Dollar Real Dollar Growth Growth Growth Growth Rate Rate Rate Rate (1.8) (3.7) (0.6) (8.9) (8.4) (6.7) (5.2) * (0.7) (1.1) 2* * * *Global Insight forecasts Source: U.S. Department of Commerce, Bureau of Economic Analysis 16

21 % Change INDUSTRIAL PRODUCTION J 2010 M M J S N J 2011 M M J S N J 2012 M January February 0.4 (0.2) 0.0 March April 0.4 (0.5) May June July August September October (0.4) 0.6 November December Source: Federal Reserve Board 17

22 % Change HOUSING STARTS ANNUAL PERCENT CHANGE Actual Forecast (31.1) (21.8) (24.3) (25.7) 4 (4.6) (27.5) (5.7) 2 (29.9) 2 (5.0) 3 (32.7) (43.6) (50.1) * (46.9) 2* (32.4) 3* (14.1) 4* 19.1 *Global Insight forecasts Source: U.S. Census Bureau 18

23 % Change CORPORATE PROFITS ANNUAL PERCENT CHANGE Actual Forecast (4.7) (2.0) (9.3) (8.1) (10.3) (14.8) (11.5) (33.5) (13.6) * (5.4) 2* * (0.8) * (1.8) *Global Insight forecasts Source: U.S. Department of Commerce, Bureau of Economic Analysis 19

24 Rate SELECTED U.S. INTEREST RATES Oct Nov De Jan Feb Mar Apr Discount Prime 90-Day T-Bills 20-Year Bonds April 23, 2012 Prime Rate 3.25% 90-Day Treasury Bills 0.08% Federal Discount Rate 0.75% 20-Year Treasury Bonds (4/16/12) 2.76% 20

25 Rate U.S. DOLLAR REAL TRADE-WEIGHTED EXCHANGE RATE AVERAGE * 3 4 1* 2* 3* 4* * * * * *Global Insight forecasts Source: U.S. Department of Commerce, Bureau of Economic Analysis 21

26 West Virginia Economic Overview First Quarter 2012 Introduction The West Virginia economy, as measured by the coincident index published by the Federal Reserve Bank of Philadelphia, grew by roughly 7.4 percent in the first quarter of 2012 compared to the corresponding period of The coincident index is a measure of current economic activity that combines indicators for non-farm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements. The increase in the index for West Virginia was the eighth consecutive quarter of year-over-year growth. West Virginia s growth in the first quarter of 2012 was second among the 50 states, lagging only North Dakota with growth of 10.5 percent. The growth in West Virginia s economy easily outpaced the 2.9 percent for the national economy. West Virginia s first quarter 2012 growth increased the coincident index to 98.5 percent of the maximum value before the Great Recession. Through the first quarter of 2012, only eight states have a coincident index that is greater than their respective maximum for periods prior to the economic downturn in 2008 and Labor Market Indicators Unemployment. West Virginia s seasonally adjusted unemployment rate fell three-tenths of a percentage point to 6.9 percent in March, according to WorkForce West Virginia. The total number of unemployed workers in West Virginia declined by 2,100 to 55,400 in March. Total unemployment was down 8,200 over a year ago. County Unemployment. Thirty-seven counties had unadjusted unemployment rates above the State unadjusted rate of 7.4 percent in March. Five of these counties had unemployment rates of over 11.5 percent. Hancock County had the highest unemployment rate, 12.9 percent, followed by Brooke County with a jobless rate of 12.3 percent. Other counties with unemployment rates over 11.5 percent were Mason, Roane and Webster. Three counties had unemployment rates of 5.5 percent of less. Monongalia County had the lowest rate, 4.4 percent. Jefferson County had a jobless rate of 5.1 percent while Putnam County had an unemployment rate of 5.5 percent. Employment. Total non-farm payroll employment fell by 800 as gains of 500 in the goods-producing sectors were more than offset by losses of 1,300 in the serviceproviding sectors. Employment rose by 300 in the construction sector while mining and logging employment was unchanged from February to March. Manufacturing employment rose by 200 as a gain in nondurable goods industries more than offset a loss in durable goods industries. The largest decline was in the trade, transportation and utilities sector, 1,200. Government employment declined by 1,000 while employment in the leisure and hospitality sector fell by 600. Employment rose by 1,000 in professional and business services while financial activities and educational and health services experienced gains of 400 and 300, respectively. 22

27 Over the past year, total non-farm payroll employment in West Virginia rose by 9,800 with gains of 2,800 in the goods-producing sector and 7,000 in the serviceproviding sector. The largest gain was in educational and health services, 3,300, followed by construction with an increase of 2,500. Other sectors with gains over the year were professional and business services, 2,300; government, 2,200; leisure and hospitality, 1,600; and mining and logging, 900. The largest decline was in trade, transportation and utilities, 1,700. Employment fell by 600 in both the financial activities and manufacturing sectors. Earnings. Hourly earnings for private sector production and nonsupervisory employees in West Virginia fell slightly from $19.41 in January to $19.40 in February, the last month for which data is available. The February 2012 average was above the February 2011 average of $ The national average hourly earnings for private sector employees were $19.70 in February. Average weekly earnings were $ in February, down from $ in January but above the February 2011 average of $ This compares with the national average weekly earnings figure of $ for February. The average number of hours worked per week in West Virginia in February 2012 was 34.0, unchanged from January but below February 2011's average of 34.5 hours. Nationally, the average number of hours worked in February 2012 was Selected Industry Activities Coal. According to the Energy Information Administration (EIA), West Virginia coal production in the first quarter of 2012 totaled million tons. This is down from million tons in the same quarter of This equates to a 6.5 percent loss yearover-year. Production in northern West Virginia came in at an 8 percent loss for the first quarter, and the southern portion of the state sustained a loss of 5.8 percent year-overyear. Total first quarter coal production in the U.S. decreased by 6.0 percent from the same period a year earlier. In February, Alpha Natural resources announced 152 layoffs at two of its West Virginia mines. The mines include the Mammoth No.2 Gas Mine in Eastern Kanawha County and the Randolph Mine in Boone County. The company cites the mild winter and a poor coal market as the reasons for the layoffs. Alpha estimates that this will reduce its coal production by approximately 4 million tons. Patriot Coal announced the idling of its Big Mountain Mining Complex. In February, they notified 250 workers of the layoffs. The Big Mountain Mine produces thermal coal used in making electricity. The company says that the increased use of natural gas in power plants and the mild winter contributed to the decision. Closure of the mine will reduce Patriots thermal output by approximately 1.8 million tons. Big Mountain Mine was one of Patriots higher-cost thermal coal operations. Consol announced a reduction in its mining schedule, as well as the idling of one of its mines. The announcement states that continuous mining operations will be reduced to four days a week and the Blacksville No.2 Mine will be idled. In 2011, the Blacksville Mine produced close to 4.3 million tons. The company estimates that these moves will reduce production by about 400,000 tons per month. The company says that no layoffs will be associated with the changes, but over time non-essential work may be postponed until full operations resume. 23