Vermont Tax Seminar. Comments on the 2017 Economic Outlook Presentation to the. December 8, 2016

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1 Comments on the 2017 Economic Outlook Presentation to the Vermont Tax Seminar December 8, 2016 Jeffrey B. Carr President and Senior Economist Economic & Policy Resources, Inc.

2 Now the 4 th Longest Up-Cycle since WWII... The Current Economic Upturn is "On Track" to be Among the Longest "On Record"... (Source: National Bureau of Economic Research) As of December 2016 (90 Months) As of Dec (114 Months) Months of Economic Contraction and Periods of Recovery/Expansion 120 Months Months from Trough to Peak Months from Peak to Trough Dec 2017? Dec 2018? December 2007 March 2001 July 1990 July 1981 January 1980 November 1973 December 1969 April 1960 August 1957 July 1953 November 1948 February 1945 May 1937 August 1929 Final Month of Expansion

1-Dec-2015 1-Jan-2016 1-Feb-2016 1-Mar-2016 1-Apr-2016 1-May-2016 1-Jun-2016 1-Jul-2016 1-Aug-2016 1-Sep-2016 1-Oct-2016 1-Nov-2016 % of Economists Odds of a Recession Remain Low US Economists Who

3 1-Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov-2016 % of Economists Odds of a Recession Remain Low US Economists Who Believe US Will Have a Recession Within Next 12 Months Dec Nov Source: WSJ Survey of Economists. 24% 22% 20% 18% 17% 21% 20% 19% 20% 21% 22% 22% 20% 20% 19% 16% 15% 14%

4 2016 Election The 2016 election was a watershed election in support of change which likely means some uncertainty going forward. Reflected voter distrust and rejection of the status quo and existing political institutions, The electorate decided that the risks associated with change were lower than continuing the current federal policy trajectory, Vermonters continued the well worn tradition of splitting the ticket change at the top following multiple 2-year cycles of incumbent party re-election.

5 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 US Uncertainty Index U.S. Uncertainty indeed looks High After the Election...3rd Highest in 30 Years US News Based Policy Uncertainty Index. Jan Nov = Baseline Average for Jan Dec Source: Economic Policy Uncertainty Sept Terror Attacks Oct Housing Crisis Aug Debt Crisis Nov Election

2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1

6 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 Percent Change (SAAR) 6% 4% 2% 0% -2% -4% 7 Years of Output Gains Has Had Its 3.1% 2.7% 1.5% -2.7% 2.0% -2.0% -0.4% 1.3% 3.9% 1.6% 3.9% Benefits... Change in Gross Domestic Product (GDP), Adjusted for Inflation. 2007(Q2) (Q3) Source: Bureau of Economic Analysis 2.7% 2.5% -1.5% 2.9% 0.8% 4.6% 2.7% 1.9% 0.5% 0.1% 1.9% 1.1% 3.8% 3.0% -0.9% 4.6% 4.3% 2.1% 0.6% 3.9% 2.0% 0.9%0.8% 1.4% 3.2% -6% -5.4% -8% -10% -8.3%

Nearly 15 million jobs added, and The lowest U.R. since the Recession, 4.6% as of Nov. 2016 600 300 Monthly Job Change (1000's) U.S.

7 Nearly 15 million jobs added, and The lowest U.R. since the Recession, 4.6% as of Nov Monthly Job Change (1000's) U.S. Employment Situation: Jobs and Unemployment June 2007 to November Source: BLS Unemployment Rate Nov k jobs added Aug % Unemployment Rate Nov % Unemployment Rate Oct-16 Jun-16 Feb-16 Oct-15 Jun-15 Feb-15 Oct-14 Jun-14 Feb-14 Oct-13 Jun-13 Feb-13 Oct-12 Jun-12 Feb-12 Oct-11 Jun-11 Feb-11 Oct-10 Jun-10 Feb-10 Oct-09 Jun-09 Feb-09 Oct-08 Jun-08 Feb-08 Oct-07 Jun-07

2006-07-18 2006-11-18 2007-03-18 2007-07-18 2007-11-18 2008-03-18 2008-07-18 2008-11-18 2009-03-18 2009-07-18 2009-11-18 2010-03-18 2010-07-18 2010-11-18 2011-03-18 2011-07-18 2011-11-18 2012-03-18

8 S&P 500 Index Value Volatile Equities...Now Mostly Up... Volatility has increased in the U.S. stock market...stocks last year had a bad year (Worst since calendar year 2008) but are now back up Standard & Poor's 500 Index, (Source: Federal Reserve Bank of St. Louis) October 9, ,565 peak August 8, ,190 peak March 9, trough December 7, ,241 All time high 500

0 20.0 10.0 - Jun-05 Oct-05 Feb-06 July 2007 (112.

9 Index (100 = 1985) Consumer Confidence has also regained its stride... Consumer Confidence Index, through November 2016 (Source: The Conference Board) Jun-05 Oct-05 Feb-06 July 2007 (112.6) Peak Lehman Brothers Failure Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun Debt Ceiling Debate Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Federal Shutdown Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Nov (107.1) New Peak Oct-15 Feb-16 Jun-16 Oct-16

10 Billions of Dollars Supported by Unprecedented Stimulus...with More to Come?!? $450 $400 Estimated Budgetary Effects of the ARRA* (2009) (Source: Congressional Budget Office and the Department of the Treasury) $401 $350 $300 $250 $200 $150 $100 $50 $- $114 $179 $235 $147 $145 $59 $47 $41 $37 $26 $19 $14 $28 $5 $4 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY FY 2019 Total Outlays Total Effect on the Deficit

1986-11-01 1988-11-01 1990-11-01 1992-11-01 1994-11-01 1996-11-01 1998-11-01 2000-11-01 2002-11-01 2004-11-01 2006-11-01 2008-11-01 2010-11-01 2012-11-01 2014-11-01 2016-11-01 Effective Federal Fund

11 Effective Federal Fund Rate (%) And an Unprecedented Period of Low I-Rates Dec Nov 2015: A period of roughly zero percent Federal Funds Rate Dec Fed Raises ST-Rates; Dec. 2016: Another increase? Effective Federal Funds Rate, Nov Nov (Source:Federal Reserve Bank of St. Louis) RECESSION

A Revolution in Energy Production Resulting in large NRG price declines which have continued through the Summer... Price Per Barrel. West Texas Intermediate (WTI) Crude Oil Nov 1986- Nov 2016.

12 A Revolution in Energy Production Resulting in large NRG price declines which have continued through the Summer... Price Per Barrel. West Texas Intermediate (WTI) Crude Oil Nov Nov Source: U.S. Energy Information Administration. Price Per Barrel - October 2016 Constant U.S. Dollars $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $- (June $148 per Barrel) (February $44 per Barrel) (April $118 per Barrel) (February $31 per Barrel) (November $46 per Barrel) Nov-1986 Nov-1990 Nov-1994 Nov-1998 Nov-2002 Nov-2006 Nov-2010 Nov-2014

13 But, it has Been One of Slowest U.S. Recoveries Ever...

But Growth Overall has Disappointed... Percent Change in GDP Growth from Previous Year GDP Growth by Country and World, 1975-2016 (Proj.

14 But Growth Overall has Disappointed... Percent Change in GDP Growth from Previous Year GDP Growth by Country and World, (Proj.) Source: OECD and World Bank China United States World 3% Growth Linear (United States)

15 All Debt, Trillions of Dollars And Student Loan Debt Has Exploded Student Debt (Trillions) Total Debt Balance and its Composition Source: FRBNY Consumer Credit Panel/Equifax Mortgage HE Revolving Auto Loan Credit Card Other Student Loan

16 A Record Number of Year Olds Are Now Living With Their Parents!

17 But HH Debt Service is lower than the early 1980 s...

18 % Price Increase from Previous Year 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% Inflation is Well Under-Control % 1.6% 2.3% 2.3% 1.8% 1.5% Consumer Price Index All Urban Consumers, Year-over-Year Change Source: BLS CPI - U CPI - U less Food & Energy 3.4% 3.2% 2.8% 3.8% 2.2% 2.5% 2.3% 2.3% 1.7% -0.4% 1.6% 1.0% 3.2% 1.7% 2.1% 2.1% 1.5% 1.6% 1.8% 1.7% 1.8% %

Vermont Job Change The Vermont s Labor Market Has Made Progress

Source: VT Department of Labor 25,000 20,000 + 20,500 15,000

0) + 5,800 0-5,000-10,000-15,000-20,000 "Great Recession"

19 Vermont Job Change The Vermont s Labor Market Has Made Progress Since the Great Recession Tracking Vermont Payroll Job History Source: VT Department of Labor 25,000 20, ,500 15,000 10,000 5,000 - (14,700.0) + 5, ,000-10,000-15,000-20,000 "Great Recession" Payroll Job Loss Recovered-Added from the "Great Recession" Net Job Gain Since Recovery From "Great Recession"

20 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Vermont s Labor Market Has Been Up and Down...and This Will Continue... Vermont Jobs - Unemployment (S.A.) June October 2016 Source: U.S. Bureau of Labor Statistics; Boston Federal Reserve Bank Change In Jobs ( Thousands) Job Gains Job Losses Unemployment Rate Unemployment Rate

21 Vermont s Labor Market Has Been Up and Down...and This Will Continue... Payroll Job Performance By NAICS Supersector October 2015 vs. October 2016 % Change VT Rank in VT Rank in Highest Ranked # of States Reporting Industry Supersector in VT New England U.S. New England State Job Losses Total Nonfarm 0.2% 5 40 NH (13) 7 Total Private 0.3% 4 38 NH (5) 8 Construction 2.4% 2 24 MA (7) 15 Manufacturing -0.7% 6 29 ME (12) 30 Information -4.4% 6 46 CT (15) 21 Financial Activities -1.6% 5 45 NH (15) 9 Trade, Transportation, Utilities -0.5% 6 44 NH (1) 11 Leisure and Hospitality 1.7% 4 31 RI (5) 7 Education and Health Services 1.2% 3 40 MA (20) 0 Professional and Business Services -0.4% 5 39 RI (7) 12 Government -0.7% 5 46 MA (11) 14 Notes: NAICS means North American Industry Classification System Source: U.S. Department of Labor, BLS

22 VT House Values have Almost Fully Recovered All Lost Price Ground... Change in House Prices "From Peak" and "Last 4 Quarters" FHFA Data--Thru Q3: 2016 [All Transactions] Nevada Florida Arizona California Michigan New York Pennsylvania North Dakota -24.3% -18.4% -17.9% -11.1% -6.4% -3.0% 0.0% 0.0% 6.3% 6.4% 5.3% 3.5% 3.8% 2.7% 9.4% 9.6% Rhode Island New Hampshire Connecticut Massachusetts Maine Vermont -16.9% -16.2% -7.8% -2.2% -0.9% -0.1% 4.9% 4.2% 1.1% 4.8% 5.1% 1.6% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0%

23 Contact Information Jeffrey B. Carr, President and Senior Economist Economic & Policy Resources, Inc. 400 Cornerstone Drive, Suite 310 P.O. Box 1660 Williston, Vermont U.S.A.

U.S. and New England Economic Conditions and Outlook

U.S. and New England Economic Conditions and Outlook Yolanda Kodrzycki Senior Economist and Policy Advisor charts prepared by Ana Patricia Muñoz presented to New England Board of Higher Education conference