NEW ENGLAND ECONOMIC OUTLOOK 16 th Annual Regional & Community Bankers Conference Federal Reserve Bank of Boston November 16, 2017 Mary A. Burke Senior Economist Federal Reserve Bank of Boston Disclaimer: The views expressed here are those of the speaker and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System.
Economic Activity Indexes: Robust Net Growth From Pre-Recession Peak 1.40 1.30 Indexed to Pre-recession Peaks 1.20 1.10 1.00 0.90 0.80 Recession CT ME MA NH RI VT US 0.70 0.60 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Federal Reserve Bank of Philadelphia, NBER, Haver Analytics
Real GDP Per Capita Below Pre-Recession Peak in CT, ME, RI 1.10 1.05 Indexed to Pre-Recession Peaks 1.00 0.95 0.90 0.85 Recession CT ME MA NH RI Line 0.80 0.75 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Bureau of Economic Analysis / Haver Analytics
Payroll Jobs Still Below Peak in CT; Job Growth Weak in VT Since 2015 1.15 1.10 Indexed to Pre-recession Peaks 1.05 1.00 0.95 0.90 Recession CT ME MA NH RI VT US 0.85 0.80 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Last 12 Months: Employment Growth Below Trend in CT, ME, NH, VT Annual Long-term Trend Last 12 months Since Peak Percent Percent Number Percent Number United States 1.4 1.2 1,777,000 5.9 8,229,000 New England 0.9 1.2 85,900 4.6 326,100 Connecticut 0.5 0.2 3,500-1.7-28,400 Maine 1.2 0.6 3,400 0.0 300 Massachusetts 0.9 1.7 62,300 9.2 306,100 New Hampshire 1.5 1.3 8,900 4.1 27,000 Rhode Island 0.7 0.9 4,500-0.1-600 Vermont 1.3 1.0 3,300 2.6 8,000 Note: Last 12 months refers to year-over-year growth through September 2017. Annual Longterm trend refers to average year-over-year growth for the period 1984-2016. Since Peak refers to employment change from each state s pre-recession peak employment level. Source: Bureau of Labor Statistics, Haver Analytics
Metro Area Job Growth is Mixed; 4 Metros Saw Losses in Last 12 Months V T RI NH MA ME CT Percent Change, September 2016 - September 2017 Bridgeport-Stamford-Norwalk Danbury Hartford-West Hartford-East Hartford New Haven Norwich-New London-Westerly Waterbury Bangor Lewiston-Auburn Portland-South Portland Barnstable Town Boston-Cambridge-Newton Brockton-Bridgewater-Easton Framingham Haverhill-Newburyport-Amesbury Lawrence-Methuen-Salem Leominster-Gardner Lowell-Billerica-Chelmsford Lynn-Saugus-Marblehead New Bedford Peabody-Salem-Beverly Pittsfield Springfield Taunton-Middleborough-Norton Worcester Dover-Durham Manchester Nashua Portsmouth Providence-Warwick Burlington-South Burlington -0.9-0.4-0.1-0.1 0.0 0.3 0.2 0.4 0.4 0.5 0.9 1.0 0.9 0.9 1.0 1.1 1.4 1.5 1.4 1.3 1.5 1.7 1.8 2.2 2.1 2.6 2.8-2 -1 0 1 2 3 4 5 2.5 2.8 4.1 Source: Bureau of Labor Statistics, Haver Analytics
Construction Sector First in Job Growth; Warehousing Up, Retail Down Percent Change, September 2016 - September 2017 Construction 2.6 3.4 Other Services 1.1 2.9 Transportation, Warehousing, and Utilities 1.8 2.2 Education & Health 2.1 1.8 Professional & Business Services 1.8 2.6 Finance Wholesale Trade 1.0 1.0 1.5 1.8 US NE Leisure & Hospitality 0.8 1.2 Manufacturing 0.2 1.0 Retail Trade -0.3-0.2 Government -0.3 0.3 Information -2.3-1.8-3.0-2.0-1.0 0.0 1.0 2.0 3.0 4.0 Source: Bureau of Labor Statistics, Haver Analytics
Unemployment Flat in Region; Up in MA, Down Sharply in RI 12 Unemployment Rate, Percent 10 8 6 4 2 Recession US NE 0 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Bureau of Labor Statistics, NBER, Haver Analytics Sep-16 Sep-17 United States 4.9 4.2 New England 3.8 3.9 Connecticut 4.8 4.6 Maine 4.0 3.7 Massachusetts 3.3 3.9 New Hampshire 2.8 2.7 Rhode Island 5.3 4.2 Vermont 3.2 2.9
Unemployment Rate Movements Mixed Across Metros VT RI NH MA ME CT Bridgeport-Stamford-Norwalk Danbury Hartford-West Hartford-East Hartford New Haven Norwich-New London-Westerly Waterbury Bangor Lewiston-Auburn Portland-South Portland Barnstable Town Boston-Cambridge-Nashua Leominster-Gardner New Bedford Pittsfield Springfield Worcester Dover-Durham Manchester Portsmouth Providence-Warwick Burlington-South Burlington 3.4 3.7 3.1 3.5 2.7 3.0 3.8 3.9 3.1 3.2 4.0 4.0 2.5 2.5 2.6 2.7 2.5 2.6 2.4 2.7 3.4 3.7 4.1 3.9 3.8 4.3 4.2 4.1 4.0 4.2 4.2 4.2 4.8 4.8 4.9 5.1 5.0 5.2 0 1 2 3 4 5 6 7 4.7 4.9 6.0 Sep-16 Sep-17 Source: Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Boston
Broader Unemployment Measure (U6) 25 Still Elevated in CT 20 U6 Unemployment Rate, Percent 15 10 Recession US CT ME MA NH RI VT 5 0 Q4-03 Q1-05 Q2-06 Q3-07 Q4-08 Q1-10 Q2-11 Q3-12 Q4-13 Q1-15 Q2-16 Q3-17 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Region s Labor Force Participation Rate Up Since Dec. 2016, Despite Recent Decline
Labor Force Participation Rebound Owes to MA, CT, ME 74 72 Labor Force Participation Rate, Percent 70 68 66 64 Recession US CT ME MA NH RI VT 62 60 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics
75 Employment-to-Population Ratios Up Since 2013, Except in VT 73 71 Employment Pop. Ratio, Percent 69 67 65 63 61 Recession US CT ME MA NH RI VT 59 57 55 Jan-00 Feb-02 Mar-04 Apr-06 May-08 Jun-10 Jul-12 Aug-14 Sep-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Without International Migration, New England Population Would be Declining
Single-Family Permits Still Well Below Pre-Recession Highs Source: U.S. Census Bureau / Federal Reserve Bank of Boston Note: Data are seasonally adjusted.
Multifamily Permits Activity At or Above Pre- Recession Levels Since Late 2015 Source: U.S. Census Bureau / Federal Reserve Bank of Boston Note: Data are seasonally adjusted.
Headline CPI Inflation Up Since 2015; Boston Rate 2.7% 8 6 Recession Boston US Percent Change from Year Earlier 4 2 0-2 -4 Sep-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Fuel & Utilities Prices Extend Sharp Increases in Boston (not Gasoline) Percent Change, September 2016 - September 2017 All Items All Items, Less Food and Energy US Boston 2.2 2.7 1.7 1.9 Fuel & Utilities 2.8 7.8 Recreation 1.6 5.4 Transportation Shelter 3.2 2.8 3.6 4.8 Education and Communication Medical Care Food -2.1 2.0 1.6 1.5 1.2 1.4-4 -2 0 2 4 6 8 10 Source: Bureau of Labor Statistics, Haver Analytics
Personal Income Growth Up from 2016Q4, But Still Moderate 10 8 Percent Change from Year Earlier 6 4 2 0-2 -4 Recession NE -6 US Q1-06 Q2-07 Q3-08 Q4-09 Q1-11 Q2-12 Q3-13 Q4-14 Q1-16 Q2-17 Source: Bureau of Economic Analysis, NBER, Haver Analytics
New England Hourly Wages Above U.S. Average; Increased More Since 2005
House Price Growth Accelerating in New England Since Mid-2016 20 15 Percent Change from Year Earlier 10 5 0-5 -10 Recession NE FHFA Purchase-Only US FHFA Purchase-Only US S&P Case-Shiller -15 Q2-03 Q2-05 Q2-07 Q2-09 Q2-11 Q2-13 Q2-15 Q2-17 Source: FHFA, NBER, S&P/Case-Shiller, Haver Analytics
MA (and Boston) Seeing Strongest House Price Gains in Region Percent Change, Q2 2016 - Q2 2017 United States 5.8 6.4 6.6 Boston 6.4 New England 4.8 5.7 Connecticut 1.7 2.2 Maine 4.7 6.5 Massachusetts 6.7 New Hampshire 5.5 5.8 Rhode Island Vermont 3.6 1.8 Case Shiller 0 1 2 3 4 5 6 7 6.6 FHFA Purchase-Only FHFA HPI Source: FHFA, S&P/Case-Shiller, Haver Analytics
Boston Tops Donovan Index* of Major Cities *Source: www.donovanindex.dom City Donovan Index Rating Rank Boston 1.80 1 Los Angeles 1.76 2 San Francisco 1.65 3 New York 1.65 4 Oakland 1.62 5 Pittsburgh 1.55 6 Miami 1.52 7 Baltimore 1.45 8 Dallas 1.19 9 Chicago 1.12 11 Detroit 1.01 12 Houston 0.78 17
*The Donovan Index is a measure of the rate at which a city s professional sports teams win championships.
Most NE States Facing Fiscal Strain, Weak Revenue Growth 2017YTD- 2016YTD Taxes (%) FY17 Shortfall As % of Gen. Fund FY18 Shortfall As % of Gen. Fund CT -0.3% ($467M) 3% ($2.3B) 13% ME 2.1% -- -- -- -- MA -0.5% ($431M) 1% ($749M) 2% NH -11.1% -- -- -- -- RI -1.8% -- -- ($134M) 4% VT 2.1% -- -- ($76M) 5% Sources: Census Bureau/Haver Analytics; Center on Budget and Policy Priorities
Pension Funding Level Below 70 Percent in Most States (Except ME) 110 100 90 80 70 60 Recession CT ME MA NH RI VT 50 40 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Pew Center on States / Haver Analytics
Proposed Federal Policy Changes Could Have Large Impact on States Anticipated tax reductions already having effects Delayed capital gains hurting tax revenues Elimination of State and Local Tax Deduction Changes (mostly cuts) in Medicaid funding to states (Graham-Cassidy bill) Uncertainty makes fiscal planning more difficult
GDP Growth Surged in Q2 and Q3 in MA; Forecast Calls for Solid Growth Source: U.S., Bureau of Economic Analysis (BEA); MassBenchmarks (Massachusetts 2017Q1 and later only).
Consumer Confidence Exceeds Pre- Recession Levels 140 120 Indexed to U.S. Average of 1985 100 80 60 40 20 Recession NE US 0 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13 Oct-15 Oct-17 Source: The Conference Board, NBER, Haver Analytics
Present and Future Confidence Both Increased 160 140 Oct-16 Oct-17 120 100 80 60 40 20 0 US NE US NE US NE Consumer Confidence Present Situation Future Expectations Source: The Conference Board, Haver Analytics
FOMC Projections: GDP Growth Slows to 2% by 2019; at 1.8% in Long-Run Source: Minutes of the Federal Open Market Committee September 20, 2017. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20170920.pdf.
FOMC: Federal Funds Rate Below 4 Percent Through 2020; Long-Run Rate 2.8 Percent (Median) Source: Minutes of the Federal Open Market Committee September 20, 2017. https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20170920.pdf.
Risks to the Outlook Upside risks to growth Strong labor market, bullish sentiment Federal tax reform and/or deregulation Downside risks to growth Can Fed achieve soft landing? Debt-financed tax cuts can be contractionary Stock market correction Risks for the region Proposed federal policy changes Ongoing drags on growth of labor force
Major Stock Indexes Above Pre- Recession Highs by 50% or More Sources: Dow Jones, The Wall Street Journal/Haver Analytics