Presented to IPMA Executive Seminar Steve Lerch Chief Economist & Executive Director Chelan, Washington WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Summary The updated economic forecast is very similar to the June forecast; as a result the revenue forecast is largely unchanged Uncertainty in the baseline remains very high, mostly due to on-going concerns about Europe, China, and the fiscal cliff Within WA, revenue growth has been positive for motor vehicles and most retail sectors but has been declining in the manufacturing sector Revenues since the June forecast are $20.8 million (0.6%) above expectations This forecast increases expected GF S revenues by $29 million in the current biennium and $23 million in the 2013-15 biennium Slide 1
Washington s Economy The state s risk matrix shows most risks from outside state EUROPE Sovereign Debt European Recession EUROPE Banks Asia Slowdown U.S. Banks U.S. Trade Fiscal Cliff Election cycle Iran s effect on oil Housing and construction, Exports State of Washington Pluses Aerospace Software Minuses State & Local Government Source: ERFC Slide 2
Percent European unemployment is heading in the wrong direction Unemployment Rate: 12 Eurozone and U.S. Unemployment Spain: 25.1 Greece: 23.1 Germany: 5.5 10 8 6 4 2 2007 2008 2009 2010 2011 2012 Euro area (17 countries) Source: Eurostat; data through July 2012 United States Slide 3
Billions of USD U.S. banks have reduced their direct exposure to European banks Contingent liabilities continue to increase 2,500 2,000 U.S. Bank Exposure 554 Total value at risk is now over $2 trillion 1,500 640 663 540 554 493 1,000 500 1,232 1,328 1,400 1,449 1,520 1,729 0 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 Contigent Source: Bank of International Settlements, 2012Q1 Direct Slide 4
Percent Asian economic growth is slowing 12 Real GDP Growth 10 8 6 4 2 Slide 5 0 China India South Korea 2010 2011 2012 2013 Source: Blue Chip Economic Indicators August 2012, data through 2011
The U.S. will enter another recession if Congress does not address fiscal cliff FY 2013 Fiscal Cliff 1 Alt Scenario 2 GDP -0.5% +1.7% Unemployment Rate 9.1% 8.0% Budget Deficit $641 Billion $1,037 Billion 1 Current laws remain generally unchanged. Slide 6 2 Maintains majority of current policies (extend most tax cuts and prevent automatic spending cuts) Source: The Congressional Budget Office
Percent Single-family home prices are beginning to stabilize Slide 7 Jun 2012 U.S. is up 0.5% Seattle is up 1.7% 25 20 15 10 5 0-5 -10-15 -20 Case Shiller Home Price Index, SA Year over-year percent Change -25 2001 2003 2005 2007 2009 2011 Seattle Composite 20 Source: S&P/Case-Shiller; data through June 2012
Thousands WA multi-family building permits are increasing 50 45 40 35 30 25 20 15 10 5 Washington Housing Units Authorized by Building Permits, 3MMA, SAAR 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 Multiple Source: U.S. Census Bureau; data through July 2012 Single Slide 8
Percent Washington s foreclosure problem is not improving WA Rank: (1 st = highest) 2011Q1: 23 rd 2012Q1: 16 th 12.0 10.0 Seriously Delinquent Seriously Delinquent = 90+ Days Past Due or in foreclosure 8.0 6.0 4.0 2.0 Slide 9 0.0 2008 2009 2010 2011 2012 Washington U.S. Source: Mortgage Bankers Association National Delinquency Survey, data through 2012 Q1
Millions Contract data signal more weakness in non-residential construction Residential square footage is up 36%, and value up 28% year over year (3mma). Non-Residential square footage is down 5%, and value is down 43% year over year (3mma). 120 100 80 60 40 20 Square Footage of Construction Contracts, SAAR, 3MMA 0 2000 2002 2004 2006 2008 2010 2012 non-residential Source: Dodge, ERFC; data through April 2012 residential Slide 10
WA export growth is slowing Trans. Equip. exports were up 21% year over year in Q2 80 60 Exports Percent Change, year ago 40 20 0-20 Slide 11-40 1998 2000 2002 2004 2006 2008 2010 2012 Total Total excluding Transportation Equipment Source: Wiser Trade Data; through 2012 Q2
Orders & Deliveries Backlog Boeing has over 7 years of commercial orders on its books Excludes the military s new refueling tanker 1600 1200 5000 3750 800 YTD 2500 400 1250 0 03 04 05 06 07 08 09 10 11 12 0 Slide 12 Source: Boeing, data through August 2012 Net Orders Deliveries Backlog
Percent, Y/Y Software publishing employment is expected to slightly outperform overall employment Washington Software Publishing Employment, SA 12 10 Forecast 8 6 4 2 0-2 -4 Slide 13-6 2005 2007 2009 2011 2013 2015 Source: ERFC September 2012 Preliminary forecast; historical data through 2012Q2
Millions of Jobs Billions of Dollars The economy is now producing more than its pre-recession output with fewer jobs Data normalized to recession start, 2007Q4 = 0 4 2 0 U.S. GDP and Employment after Recession Start 400 200 0-2 -4 4.9 Million -200-400 -6-600 -8-800 Slide 14-10 -1000 0 2 4 6 8 10 12 14 16 18 Quarters Employment GDP Source: BEA, BLS, ERFC; data through 2012 Q2
Thousands Job growth remains weak 12.5 million people remained unemployed in August 300 225 Net New Jobs The economy needs to add roughly 125K jobs each month just to keep up with growth in the labor force 150 75 Slide 15 0 Jan Feb Mar Apr May Jun Jul Aug Source: Bureau of Labor Statistics, data through July 2012
Thousands The decline in employment has been severe Washington Employment after Business Cycle Peak 250 200 150 100 50 0-50 -100-150 -200 83K 0 5 10 15 20 25 30 35 40 45 50 55 Source: WA ESD, ERFC; data through August 2012 1990 2001 2007-09 Months Slide 16
Consumer confidence remains weak Index Mich: 1966Q1 = 100, SA Conf Board: 1985 =100, SA 150 125 100 75 50 25 Slide 17 0 1980 1985 1990 1995 2000 2005 2010 U Mich Conf Board Source: University of Michigan; Conference Board, data through August 2012
Percent Consumers continue to deleverage 20 Total U.S. Household Debt Service and Financial Obligations as % of Disposable Personal Income 19 18 17 16 15 Slide 18 14 1980 1985 1990 1995 2000 2005 2010 Source: Board of Governors of the Federal Reserve System, data through 2012Q1
Percent The recovery in consumer debt is stalling 20 Consumer Credit Outstanding 15 10 5 0-5 -10-15 -20 2007 2008 2009 2010 2011 2012 Revolving Debt Source: Federal Reserve; data through June 2012 6-Month Moving Avg Slide 19
Manufacturing has been contracting nationally An index greater than 50, implies growth 80 75 70 65 60 55 50 45 40 35 Institute of Supply Management Index Slide 20 30 2001 2003 2005 2007 2009 2011 U.S. Washington Source: Institute of Supply Management; data through August 2012
Index, 1986=100 Small business optimism is slowly improving 105 Small Business Optimism Index 100 95 90 85 80 Slide 21 75 2006 2007 2008 2009 2010 2011 2012 Source: National Federation of Independent Business; data through August 2012
Millions, SAAR WA New Vehicle Registrations, Thousands, SAAR Vehicle sales continue their upward trend U.S. LMV sales in August were up 17% yearover-year. 25 20 15 375 300 225 10 150 5 75 0 1990 1994 1998 2002 2006 2010 0 Slide 22 U.S. Light Trucks U.S. Cars WA New Vehicle Registrations Source: Autodata Corporation, WA DOL; data through August 2012
Billions of 2005 Dollars U.S. GDP Forecast Slightly Lower 15,000 Blue Chip Consensus Real GDP forecast 14,500 14,000 13,500 13,000 12,500 2011 2012 2013 2014 2015 Slide 23 June September Source: BEA, Blue Chip Economic Indicators September 2012; historical data through 2011
Billions of 2005 Dollars WA Personal Income Forecast Slightly Higher Washington Real Personal Income 310 300 290 280 270 260 250 240 2011 2012 2013 2014 2015 Slide 24 June September Source: BEA, ERFC September 2012 Forecast; historical data through 2011
Thousands WA Employment Forecast Slightly Higher Washington Nonfarm Payroll Employment 3,100 3,050 3,000 2,950 2,900 2,850 2,800 2,750 2,700 2011 2012 2013 2014 2015 Slide 25 June September Source: WA State ESD, ERFC September 2012 Forecast; historical data through 2011
Dollars per barrel Oil prices are expected to decline Average Price of Crude Oil 125 Forecast 100 75 50 Slide 26 25 2005 2007 2009 2011 2013 2015 September June Source: DOE, ERFC September 2012 forecast; historical data through 2012Q2
Thousands Washington construction employment will remain below trend throughout the forecast Washington Construction Employment 225 Forecast 200 175 150 125 100 1990 1995 2000 2005 2010 2015 Slide 27 Trend, 1990-2012:2 Employment Source: ERFC September 2012 forecast; historical data through 2012Q2
Thousands State and local government employment will remain weak Washington State and Local Government Employment 500 475 450 425 400 375 350 325 Forecast 300 1990 1995 2000 2005 2010 2015 Slide 28 Trend, 1990-2012:2 Employment Source: ERFC September 2012 forecast; historical data through 2012Q2
Housing permits relative to population will still be below historic levels in 2015 Washington Housing Permits per 1,000 People 20 18 Forecast 16 14 12 10 8 6 4 2 Slide 29 0 1969 1975 1981 1987 1993 1999 2005 2011 Source: U.S. Census Bureau, ERFC September 2012 Forecast; historical data through 2012 Q2
Cumulative Growth (percent) Revenue collections have been weak compared to past recoveries Revenue Act Collections after Business Cycle Peak 35 30 25 20 15 10 5 0-5 -10-15 0 2 4 6 8 10 12 14 16 18 Source: ERFC; data through 2012 Q2 1990 2001 2007-09 Quarters Slide 30
Revenue Act collections are still on an upward trend Collections were up 3.4% yearover-year in the August 11 - September 10, 2012 collection period. Collections through September 10 were $15 million (0.5%) lower than forecasted. $millions SA 1000 900 800 700 600 2002 2004 2006 2008 2010 2012 Slide 31 Revenue Act Revenue 3-Month Moving Average * Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act Source: DOR and ERFC; monthly data through estimated July 2012 activity
WA sales tax growth still moderate Preliminary seasonally adjusted sales tax receipts were up 4% yearover-year for July activity. $Millions, SA 700 650 600 Washington Retail Sales Tax Receipts 550 500 450 2004 2005 2006 2007 2008 2009 2010 2011 2012 Slide 32 Retail Sales Tax 3-Month Moving Average Adjusted for large payments/refunds, amnesty payments and taxpayer reporting frequency change Source: ERFC; Monthly data through July 2012 preliminary activity
B&O tax growth has slowed from its prior pace Preliminary seasonally adjusted business and occupation tax receipts were up 6% year-overyear for July activity. $Millions, SA 300 280 260 240 220 200 180 Washington B&O Tax Receipts 160 2004 2005 2006 2007 2008 2009 2010 2011 2012 Slide 33 B&O Tax 3-Month Moving Average Source: ERFC; Monthly data through July 2012 preliminary activity Adjusted for taxpayer frequency shift, amnesty payments, and recent large refunds
REET activity since April has been boosted by large commercial sales $Billions 10 Seasonally Adjusted Taxable Real Estate Excise Activity 9 8 7 6 5 4 3 2 1 Slide 34 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: ERFC; Monthly data through August 2012 preliminary
Millions of dollars Revenue for liquor sales has been volatile Revenue was $4.0 million (6.4%) above the June forecast We have raised our forecast by $10.9 million this biennium 24 22 20 18 16 14 Liquor Sales and Liter Taxes, SA 12 10 2006 2007 2008 2009 2010 2011 2012 Actual Source: DOR, ERFC; data through August 2012 June Forecast Slide 35
Forecast changes: General Fund State, 2011-2013 Biennium June Forecast: $30,440 million USD millions Dept. of Revenue All other agencies Collection Experience September Forecast Forecast Change Forecast $20 $24 $28,824 $44 Total Change* $1 ($16) $1,646 ($15) Total GF-S $21 $8 $30,469 $29 * Detail may not add to total due to rounding Slide 36
Forecast revisions to the 2011-13 biennium GF-S New Definition USD, millions 35,000 1,858 33,000 32,224 669 809 698 183 31,000 1,413 122 96 156 29 30,469 29,000 Slide 37 27,000 Feb-10 Sep-10 Mar-11 Sep-11 Feb-12 Sep-12 Source: ERFC September 2012 forecast
Forecast changes: General Fund State, 2013-2015 Biennium June Forecast: $32,626 million USD millions Dept. of Revenue All other agencies Noneconomic Change September Forecast Forecast Change Forecast $0 $39 $31,114 $39 Total Change* $0 ($15) $1,535 ($15) Total GF-S $0 $23 $32,649 $23 * Detail may not add to total due to rounding Slide 38
Forecast revisions to the 2013-15 biennium GF-S New Definition USD, millions 35,000 33,000 32,428 197 23 32,649 31,000 29,000 Slide 39 27,000 Feb-12 Jun-12 Sep-12 Forecast Source: ERFC September 2012 forecast
Initial Forecast: General Fund State, 2015-2017 Biennium The 2015-17 USD biennial Millions forecast is 8.8% higher than the 2013-15 forecast Dept. of Revenue $34,102 Forecast ($millions) All other agencies $1,416 Total GF-S $35,518 * Detail may not add to total due to rounding Slide 40
General Fund* forecast by fiscal year FY 2011 revenues were boosted by the tax amnesty program and one-time transfers of non-gf-s funds into the GF-S $billions 20 19 18 17 16 15 14 8.0% 1.2% General Fund-State Revenue (9.6%) (4.1 %) 7.9% Forecast 1.6% 4.7% 2.3% 4.8% 3.9% 4.5% 13 12 11 10 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Slide 41 *General Fund & Related Funds for FY 07-09, General Fund new definition for FY 10-13 Source: ERFC forecast, September 2012
Real Per Capita General Fund*-State Revenue * General Fund & Related Funds for FY 2007-2009 General Fund new definition, for FY 2010-2015 $2,500 $2,000 3.8% Per Capita GF-S*, $2005 Forecast (3.2%) (11.7%) 4.7% (2.0%) 1.5% 1.5 % 0.6 % 1.3 % (0.7%) (6.1%) $1,500 Slide 42 $1,000 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Source: ERFC forecast, September 2012
2011-13 Biennium alternative forecasts cash basis $Millions 2011-13 Biennium Difference From the baseline September 2012 Baseline (50%) $30,469 September 2012 Alternative Forecasts Optimistic (15%) $31,246 $776 Pessimistic (35%) $29,752 ($717) Probability Weighted Average $30,335 ($135) Slide 43 GCEA* $30,472 $3 *Based on the Governor s Council of Economic Advisors assumptions
2013-15 Biennium alternative forecasts cash basis $Millions 2013-15 Biennium Difference From the baseline September 2012 Baseline (50%) $32,649 September 2012 Alternative Forecasts Optimistic (15%) $35,830 $3,181 Pessimistic (35%) $29,364 ($3,285) Probability Weighted Average $31,976 ($673) Slide 44 GCEA* $32,491 ($158) *Based on the Governor s Council of Economic Advisors assumptions
Conclusion The forecast for the 2011-13 Biennium is $29 million higher than in June The forecast for the 2013-15 Biennium is $23 million higher than in June Revenues are expected to grow 8.0% between the 2009-11 and 2011-13 biennium and 7.2% between the 2011-13 and 2013-15 biennium As in June, an extended period of slow economic and job growth is expected for both the national and state economies The level of uncertainty in the baseline remains extremely high, and downside risks outweigh upside risks Slide 45
Questions Slide 46 Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560