NEW ENGLAND ECONOMIC OUTLOOK Mary A. Burke Senior Economist Federal Reserve Bank of Boston NCSL Atlantic States Fiscal Leaders Meeting Feb. 24, 2017 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.
Preview Current economic situation in region Extent of recovery from Great Recession Focus on employment Longer-term structural issues in economy Declining labor force participation Rise of the gig economy Changes in types of jobs available Outlook for U.S. economy
Economic Activity Levels Above Pre- Recession Peaks in All New England States 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 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Payroll Employment Still Not Fully Recovered in CT, ME, RI 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 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Employment Growth Rates Mixed Relative to Long-Term Trends Annual Long-term Trend Last 12 months Since Peak Percent Percent Number Percent Number United States 1.4 1.6 2,242,000 5.0 6,895,000 New England 0.9 1.2 90,400 3.5 250,100 Connecticut 0.5-0.1-2,000-2.1-35,300 Maine 1.1 0.0 0-1.6-10,000 Massachusetts 0.9 2.1 75,000 7.8 258,900 New Hampshire 1.5 1.7 11,500 3.1 20,000 Rhode Island 0.7 0.7 3,600-0.7-3,600 Vermont 1.3 0.7 2,300 2.0 6,200 Long-Term Trend: Average employment growth rate 1984-2016 Last 12 Months: Growth rate December 2015 - December 2016 Since Peak: Net change to date from pre-recession peak employment level Source: Bureau of Labor Statistics, Haver Analytics
Construction Employment Growth Robust in Region; Retail Trade Employment Lags Percent Change, December 2015 - December 2016 Construction Leisure & Hospitality Education & Health Professional & Business Services Finance Transportation, Warehousing, and Utilities Wholesale Trade Manufacturing Information Other Services Government Retail Trade 1.8 2.5 2.1 2.4 2.0 2.4 1.9 2.7 1.3 2.1 0.9 1.9 0.5 0.6-0.2 0.3 0.3 0.3 0.2 0.8 0.1 0.8 0.0 1.0 NE US -1 1 3 Source: Bureau of Labor Statistics, Haver Analytics
Construction Employment Growth is Variable; CT and ME Weak in Several Sectors Percent Change, December 2015 - December 2016 Construction -2.8-3.0-1.1-0.6 3.5 6.3 Leisure and Hospitality Prof. Services -0.4-0.5 0.3 0.2 1.8 2.4 3.0 2.6 2.6 3.9 5.7 5.5 CT ME MA NH RI VT Education and Health 0.3 0.6 0.5 0.8 1.8 3.3-4 -2 0 2 4 6 8 Source: Bureau of Labor Statistics, Haver Analytics
New England: Manufacturing in Long-Term Decline; Education/Health Care Jobs Rose Steadily Since 2004
Unemployment Rates Down in All NE States Since December 2015 12 10 8 Percentage 6 4 Recession US NE 2 0 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-14 Dec-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics Dec-15 Dec-16 United States 5.0 4.7 New England 4.7 3.5 Connecticut 5.4 4.4 Maine 4.0 3.8 Massachusetts 4.9 2.8 New Hampshire 3.1 2.6 Rhode Island 5.4 5.0 Vermont 3.5 3.1
U6 Unemployment Down Since 2014, But Still Above Pre-Recession Lows 20 18 Percentage 16 14 12 10 8 6 Recession US CT ME MA NH RI VT 4 2 0 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12 Q4-13 Q4-14 Q4-15 Q4-16 Source: Bureau of Labor Statistics/Haver Analytics.
U6 Unemployment Also Above Pre-Recession Lows in Mid-Atlantic States 18.0 16.0 14.0 Percentage 12.0 10.0 8.0 6.0 Recession US DE MD NY PA 4.0 2.0 0.0 Q4-05 Q4-06 Q4-07 Q4-08 Q4-09 Q4-10 Q4-11 Q4-12 Q4-13 Q4-14 Q4-15 Q4-16 Source: Bureau of Labor Statistics/Haver Analytics
CPI Inflation Close to 2 Percent in Boston and U.S., Rebounding from Lows of 2015 8 6 Recession Boston US Percent Change from Year Earlier 4 2 0-2 -4 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12 Nov-14 Nov-16 Source: Bureau of Labor Statistics, NBER, Haver Analytics
House Price Increases Steady in New England and U.S. Since Late 2014 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 Q3-02 Q3-04 Q3-06 Q3-08 Q3-10 Q3-12 Q3-14 Q3-16 Source: FHFA, NBER, S&P/Case-Shiller, Haver Analytics
Labor Force Participation Rates Down Since 2007; Smaller Net Decline in Region than U.S.
Labor Force Participation Up Among Seniors, Trend is Stronger in New England than U.S.
Prime-Age Participation Declining; Trend is Stronger Among those With No College Education
Without International Migration, Region Would be Losing Population
Participation in Informal or Gig Work Significant in U.S. and New England Based on nationally representative survey, 2015 In U.S., 37 percent of non-retired adults engaged in paid informal work in 2015 Rate is 20 percent not including renting/selling work (ebay, craigslist, AirBnB, etc.) or paid surveys Participation rates most likely higher in New England Source: Survey of Informal Work Participation within the Survey of Consumer Expectations (SCE- SIWP), 2013 Federal Reserve Bank of New York (FRBNY). Participation rates do not include individuals responding to surveys for pay.
Americans Earning Significant Extra Income from Informal Side Jobs Key: FT=full-time; PTER=part-time for economic reasons; PTNER=part-time for non-economic reasons; NILF=not in labor force
State Tax Collections Above Pre-Recession Peak in All NE States; Volatile in CT, ME 140 130 Indexed to Pre-Recession Peak (=100) 120 110 100 90 80 70 60 CT ME MA NH RI VT 50 Q3-04 Q3-05 Q3-06 Q3-07 Q3-08 Q3-09 Q3-10 Q3-11 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Source: Bureau of the Census/Haver Analytics; index based on nominal dollar values
Real Personal Incomes Above Pre-2009 Peaks; Lagging in CT 120 115 Indexed to Pre-Recession Peaks 110 105 100 95 Recession CT ME MA NH RI VT US 90 85 Q3-04 Q3-05 Q3-06 Q3-07 Q3-08 Q3-09 Q3-10 Q3-11 Q3-12 Q3-13 Q3-14 Q3-15 Q3-16 Source: Bureau of Economic Analysis/Haver Analytics
Corporate Income Tax Collections Below Pre-2009 Peaks in Mid-Atlantic States 120 110 Indexed to Pre-2009 Peak 100 90 80 70 60 50 Q2-04 Q2-05 Q2-06 Q2-07 Q2-08 Q2-09 Q2-10 Q2-11 Q2-12 Q2-13 Q2-14 Q2-15 Q2-16 New England - Total New England - Corporate Income Middle Atlantic - Total Middle Atlantic - Corporate Income Source: Nelson A. Rockefeller Institute of Government/Haver Analytics; indexes based on nominal dollar values
State Tax Revenue Growth Forecasts: Weakest Outlook is for CT Personal Income Tax ($ in millions) Sales Tax ($ in millions) State Forecast FY 2016 FY 2017 % chg., FY 2016 FY 2017 % chg., month forecast forecast 2016-17 forecast forecast 2016-17 Connecticut Jan-16 9,570 9,829 2.7 4230 4,092-3.3 Delaware Dec-15 1,307 1,361 4.1 NA NA NA Maine May-15 1,549 1,640 5.9 1,127 1,181 4.7 Maryland Dec-15 8,779 9,273 5.6 4,516 4,662 3.2 New York Dec-15 47,094 49,960 6.1 13,317 13,877 4.2 Pennsylvania Feb-16 12,772 13,213 3.5 9,830 10,178 3.5 Rhode Island Nov-15 1,215 1,265 4.2 981 1,015 3.5 Vermont Jan-16 761 794 4.3 378 392 3.6 New Hampshire NA NA NA NA NA NA NA Massachusetts* Jan-16 14,940 15,543 4.0 6,090 6,436 5.7 Source: The Rockefeller Institute, States Forecast Slow Tax Revenue Growth in 2017 and Over the Longer Term, Lucy Dadayan and Donald J. Boyd. *Massachusetts revenue growth figures sourced from Mass. Taxpayers Foundation and include capital gains tax growth.
Consumer Confidence Close to Pre-Recession Levels in New England and U.S. 120 100 Indexed to U.S. Average of 1985 80 60 40 20 Recession NE US 0 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Source: The Conference Board, NBER, Haver Analytics
Confidence Fell in Region Since Jan. 2016, Especially for Future 140 120 Jan-16 Jan-17 100 80 60 40 20 0 US NE US NE US NE Consumer Confidence Present Situation Future Expectations Source: The Conference Board, Haver Analytics
FOMC: GDP Growth May Increase in 2017-18, but Long-Run Growth Rate Below 2 Percent Source: Minutes of the Federal Open Market Committee December 13-14, 2016. https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20161214.pdf
FOMC: Unemployment Rate Drifts Down Further Through 2018; Settles at ~4.8 Percent in Long Run Source: Minutes of the Federal Open Market Committee December 13-14, 2016. http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20161214.pdf
FOMC: Inflation Higher in 2017, then Roughly Flat at ~2 Percent Through 2018 and Beyond Source: Minutes of the Federal Open Market Committee December 13-14, 2016. http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20161214.pdf
Federal Funds Rate to Rise ~75 Basis Points Per Year Through 2019; Lands at 3 Percent in Long Run Source: Minutes of the Federal Open Market Committee December 13-14, 2016. http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20161214.pdf
Risks to the Outlook Upside risks Domestic labor markets tightening: faster wage growth expected Renewed fiscal stimulus, tax cuts, deregulation? Downside risks Political uncertainty Higher trade tariffs, tighter immigration policies (?) FOMC saw risks as balanced in latest statement But: number perceiving above-average uncertainty increased Perception of upside risks to inflation increased Risks for the region Aging workforce, other drags on labor force participation Reliance on international immigration Health care law changes will states face greater cost burden?
New England States Lost More Prime Age Workers than U.S. Since 2005
And Gained More Older Citizens