The US and New Mexico Economies: Recent Developments and Outlook March 2016 A presentation to New Mexico Bankers Association Presented by Jeffrey Mitchell, Director, UNM-BBER
National Economy: Review o Generally good despite strong global headwinds. o GDP growth driven by consumer spending, offsetting weak exports & government. o For 2015 the economy added 2.735 million jobs, average of 235,000 per month. Unemployment rate to 5.0% by year end. o +172,000 jobs in January and +242,000 jobs in February 2016 ; Unemployment Rate 4.9%. o Wages only slowly responding to high employment growth. o Consumer Confidence Index higher in 2015 than any year since before the Great Recession. o Housing is still weak but slowly improving. o Recovering commodity & equity markets. o DJI now positive for the year & oil (WTI) above $40/barrel, up 50% since January 20 low ($26.50/barrel). 2
National Economy: Outlook o IHS Global Insight projects real GDP growth of 2.4% in 2016, 2.8% in 2017 and 2.6% in 2018. o Growth driven by consumption, residential & nonresidential fixed investment; however, net exports will still be a drag. o Employment growth still robust in 2016 at 1.8% before slowing in 2017-2018 to about 1.0% per year. o Job growth strongest in professional & technical services, construction and healthcare. o Personal income growth only 3.9% in 2016 due largely to slow equity growth. 2017-2018 growth averages 4.9% per year as wages firm and equity growth evens out. o Oil price (WTI) averages $38.50/barrel in 2016, $46.78 in 2017 and $56.54 in 2018. o Housing construction slowly improves: up to 1.4 million starts in 2017. 3
New Mexico Review 4
New Mexico Economic Current Situation o Employment growth, slow since 2009 but stronger in FY2015 (1.4%), has again slowed (0.6% in 2015Q3 & 0.4% in 2015Q4). Weak start to 2016. o In FY2015, 64% (4,400 of 6,900) new jobs were in healthcare; 40% of these in social assistance and 60% outside metro areas. o Mining employment remained resilient for 3 quarters after price fall (June 2014-March 2015) but has begun to fall since. Rig counts continue to decline (102 at end-2014 to 18 last week). 5
New Mexico Economic Current Situation o Gross Receipts and early payroll collections surprisingly weak. Oil impact? o Unemployment rate rising to 6.8% (November, vs. 5.0% US) as with labor force, which declined every quarter from the recession through 2014, grew (>10,000 or 1.1% in 2015Q3). o Home sales improving (up 10% in Q3) and building permits beginning to respond, but values remain flat. A key indicator? o Mixed economic news for rural New Mexico increased water reserves, snow has had terrible and likely long-term impact on diary & cattle. 6
New Mexico Recent Economic Data* o January unemployment rate: 6.5% (US: 4.9%), down from 6.6% in December but up from 6.4% a year ago. o January employment up just 0.2% (vs. January 2015), a gain of just 1,700 jobs. o Mining (including Oil & Gas) lost 7,600 jobs (-26%). o Note: mining at end-2015 was still nearly 7,000 jobs (23%) above 2010. o Education & Health Services (mostly health) gained 8,300 jobs (+6.4%) o Albuquerque MSA gained 6,500 jobs (1.7%) in 2015Q4, rest of the state lost 4,000 jobs. *These numbers are preliminary and subject to revision. 7
Job Creation by Sector, 2015 Mining Construction Manufacturing Retail & Wholesale Trade Transp & Warehousing Information Financial Srvs Prof & Tech Srvs Mgt & Admin Srvs Healthcare & Educ. Srvs Leisure & Hospitality Government Local Government State Government Federal Government -2,000-1,000 0 1,000 2,000 3,000 4,000 5,000 8
Personal Income Growth and Medicaid Transfers $6,000 $5,000 $4,000 Medicaid Transfers (excl Medicaid) Personal Income (Excl Transfers) $3,000 $2,000 $1,000 $0 ($1,000) 2011 2012 2013 2014 2015 2015Q3 ($2,000) 9
New Mexico Unemployment Rate & Labor Force Participation Rate 10
Consumer Debt & Debt Burden (2015) 23.3% 23.7% 23.2% 23.8% 24.3% 22.3% 25.1% 24.2% 23.3% 11
Seriously Delinquent Mortgages (2014) 12
Oil & Gas and the NM Economy 13
Rig Counts in New Mexico vs. WTI Price 120 30 100 27 80 60 24 40 20 Rigs (#) - Left WTI ($) - Left Employment ('000s) - Right 21 0 18 Source: Bloomberg Business, Baker Hughes 14
How the decline in oil prices affects New Mexico s economy West Texas Intermediate (WTI): From $106/barrel in July 2014 to $40.69/barrel a few minutes ago (March 18). 1. Employment impact: lower investment in production, creating fewer jobs in the oil industry and through purchasing by companies and spending by workers. 2. Fiscal impact: reduces state and local government revenues, forcing budget cuts. 3. Consumer impact: lower gasoline prices mean more household spending on local goods & services. 15
Employment Growth by Geography, 2009-2015 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% New Mexico Albuquerque MSA Rest of New Mexico -6.0% 16
New Mexico Economic Outlook 17
New Mexico Economic Outlook: 2016-2020 o Employment growth: below 1.0% this year, improving gradually to 1.2% or 10,250 jobs per year through 2020. o Composition of new jobs: 37% in health care & social assistance; 31% in low-wage service sectors; 13% in mining, utilities, construction, manufacturing, transportation; 12% in P&BS, 5% in government (tied to health) o Employment impact of low oil prices likely wear off by end- 2016 the worst is behind us. o Income growth: 3.3% in 2016, rising to 5.1% in 2018; wages growth to private sector workers key variable. 18
Forecast Comparison: Employment Growth 2.0% 1.5% 1.0% 0.5% 0.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020-0.5% January 2016 October 2015 19
Job Creation by Sector, 2016 Mining Construction Manufacturing Retail & Wholesale Trade Transp & Warehousing Information Financial Srvs Prof & Tech Srvs Mgt & Admin Srvs Healthcare & Educ. Srvs Leisure & Hospitality Government Local Government State Government Federal Government -3,000-2,000-1,000 0 1,000 2,000 3,000 4,000 5,000 20
Job Creation by Sector, 2017-2020 Mining Construction Manufacturing Retail & Wholesale Trade Transp & Warehousing Information Financial Srvs Prof & Tech Srvs Mgt & Admin Srvs Healthcare & Educ. Srvs Leisure & Hospitality Government Local Government State Government Federal Government -500 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 21
Western Blue Chip - 2016 6% 5% 5.4% 5.1% 5.3% 5.1% 4% 3% 4.2% 3.3% 2.7% 3.3% 2.6% 3.6% 2.9% 2% 1.7% 2.0% 1% 0.9% 0% US* New Mexico* Arizona Colorado Nevada Texas Utah Employment Personal Income * Source: US and NM forecasts from IHS Global Insight and BBER. Remaining forecasts are Western Blue Chip consensus forecasts. 22
Forecast Comparison: Income 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% $1.2 billion (2% of all income) due to Medicaid expansion alone 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 January 2016 October 2015 23
US & NM: Housing Starts & Permits Thousands, NM Millions, USA 16.000 2.000 14.000 1.800 12.000 1.600 1.400 10.000 1.200 8.000 1.000 6.000 0.800 4.000 0.600 0.400 2.000 0.200 0.000 0.000 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 NM Housing Permits (Total) US Housing Start (Total) 24
New Mexico Job Gain/Loss by Region 25
Job Gain/Loss by Sector 2015-2018 ( 000s) 26
New Mexico Employment Forecast, Alternative Scenarios 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2014 2015 2016 2017 2018 2019 2020 Baseline Scenario Pessimistic Scenario Optimistic Scenario 27
The US and New Mexico Economies: Recent Developments and Outlook March 2016 A presentation to New Mexico Bankers Association Presented by Jeffrey Mitchell, Director, UNM-BBER