NEW ENGLAND ECONOMIC UPDATE Real Estate Finance Association Annual Forecasting Luncheon January 15, 2014 Alicia Sasser Modestino Senior Economist New England Public Policy Center Federal Reserve Bank of Boston Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System.
Regional Economic Overview The New England and Massachusetts economies continue to expand at a modest pace. Recovery in the job market continues to be sluggish yet Massachusetts is leading the region. The housing market continues to make a healthy recovery as sales and prices continue to increase. The future outlook for the region is for the economy to continue growing slowly, with Massachusetts leading the way. Risks to the outlook include weakness in our trading partners as well as potential fiscal headwinds such as the debate over the debt ceiling.
State Coincident Economic Activity Indexes 1.20 Indexed to Pre-recession Peaks 1.10 1.00 0.90 Recession 0.80 CT ME MA 0.70 NH RI VT US 0.60 Nov-99 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Source: Federal Reserve Bank of Philadelphia, NBER, Haver Analytics
Recent Labor Market Trends New England s employment growth continues to be slower than the nation s but performance varies considerably across the six New England states. Employment growth in New England outperformed the U.S. in construction, information, professional & business services, health & education, and retail trade year over year. Jobless rates are coming down, but less steadily in New England, with the gap between the region and the nation narrowing over the past year. Online job postings accelerated in December.
Non-Agricultural Employment 1.04 Indexed to Pre recession Peaks 1.02 1.00 0.98 0.96 0.94 0.92 Recession CT 0.90 ME MA 0.88 NH RI 0.86 VT Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Monthly Employment Change by State 6.0 4.0 Percent Change from Year Earlier 2.0 0.0-2.0 Recession CT -4.0 MA RI US -6.0 Nov-99 Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Employment Change in Metro Areas Percent Change, November 2012 - November 2013 Barnstable Town 0.8 Boston-Cambridge-Quincy 2.5 Brockton-Bridgewater-Easton 0.5 Framingham 2.0 Haverhill-North Andover-Amesbury 2.2 Lowell-Billerica-Chelmsford 0.9 Peabody 1.6 Leominster-Fitchburg-Gardner -0.4 New Bedford 1.0 Pittsfield 0.0 Springfield 0.3 Worcester 1.2-1.0 0.0 1.0 2.0 3.0 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Employment Growth by Industry Percent Change, November 2012 - November 2013 Construction Information Professional & Business Services Transportation, Warehousing, and Utilities Education & Health Leisure & Hospitality Retail Trade Wholesale Trade Finance Government Manufacturing -0.1 0.1 2.5 1.9 2.4 2.3 1.8 1.6 1.5 0.7 1.2 1.5 0.8 2.2 0.4 1.1 0.3 3.1 3.1 3.5 4.8 MA US 7.6 Other Services -0.4 0.7 Source: Bureau of Labor Statistics, NBER, Haver Analytics -2 0 2 4 6 8
Unemployment Rates 12 10 8 6 4 Nov 12 Nov 13 United States 7.8 7.0 New England 7.2 6.9 Connecticut 8.3 7.6 Maine 7.2 6.4 Massachusetts 6.7 7.1 New Hampshire 5.7 5.1 Rhode Island 10.0 9.0 Vermont 5.0 4.4 Recession New England United States 2 0 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Unemployment Rates in Metro Areas Barnstable Town Boston-Cambridge-Quincy Brockton-Bridgewater-Easton Framingham Haverhill-North Andover-Amesbury Lawrence-Methuen-Salem Lowell-Billerica-Chelmsford Peabody Taunton-Norton-Raynham Leominster-Fitchburg-Gardner New Bedford Pittsfield Springfield Worcester 5.5 5.9 5.1 5.6 6.5 6.3 6.9 7.4 7.3 7.7 6.9 7 6.6 6.8 6.9 7.4 7.1 7.8 7.9 8.3 7.3 7.7 8.9 9.3 Nov-12 Nov-13 10.7 10.8 10.3 11.2 0 2 4 6 8 10 12 Source: Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Boston
Online Job Postings Total Online Job Postings (Percent Change) Total Online Ads Rate (Percent) Dec 2012 Dec 2013 Dec 2013 United States 6.4% 3.4% New England 7.9% 4.1% Median MSA 6.9% 3.5% Boston, MA 6.5% 4.7% Hartford, CT 7.4% 4.7% Providence, RI 11.8% 3.9% Source: The Conference Board
The Housing Market Recovery In terms of new housing construction, New England lags the nation with permits now at the levels they were at the bottom of the 1990 recession. Home prices are picking up in New England, with Massachusetts leading the way, but prices rising even faster nationwide. Foreclosures are coming down, but faster nationally than in New England, and are still elevated in Connecticut, Maine, and Rhode Island.
Housing Construction Relative contracts level (1988=1) Relative contracts level (1988=1) 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 4.5 4.0 Housing Permits: new private units authorized (1988 annual average = 1) Recession US NE MA Dollar value of residential construction contracts (1988 annual average = 1) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Nov-89 Nov-92 Nov-95 Nov-98 Nov-01 Nov-04 Nov-07 Nov-10 Nov-13 Source: U.S. Census Bureau/Federal Reserve Bank of Boston (top), McGraw-Hill Construction Dodge/Federal Reserve Bank of Boston (bottom)
S&P Case-Shiller Home Price Index 250 Percent Change from Year Earlier 200 150 100 50 Recession Composite 20 Composite 10 Boston MSA 0 Oct-99 Oct-01 Oct-03 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13 Source: S&P/Case-Shiller, Haver Analytics
House Price Changes Percent Change, Q3 2012 - Q3 2013 United States 4.5 8.5 11.2 Boston 3.4 6.7 New England 1.6 5.0 Connecticut 0.1 2.4 Maine Massachusetts 0.6 3.2 4.6 6.3 FHFA - Purchase Only FHFA - HPI Case Shiller New Hampshire 1.6 6.0 Rhode Island 0.4 6.6 Vermont 0.7 2.9 Source: FHFA, NBER, S&P/Case-Shiller, Haver Analytics 0 2 4 6 8 10 12
House Price Changes in Massachusetts Metropolitan Areas (Single Family Homes) Percent Change, Q3 2012 - Q3 2013 Barnstable Town 4.0 Boston-Cambridge-Newton 8.2 Pittsfield 3.0 Springfield 3.3 Worcester 5.3 0 1 2 3 4 5 6 7 8 9 Source: Freddie Mac Home Loan Mortgage Corporation, Haver Analytics
Foreclosures Foreclosure initiations as % of outstanding mortgages 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Recession US NE MA Foreclosure initiations as % of outstanding mortgages 0.00 0.50 1.00 1.50 US NE 0.6 0.6 CT ME 0.8 0.8 Q3-2012 MA 0.3 Q3-2013 NH 0.5 RI 0.8 0.0 Q3-99 Q3-01 Q3-03 Q3-05 Q3-07 Q3-09 Q3-11 Q3-13 Source: Mortgage Bankers Association, Haver Analytics VT 0.6
Other Economic Indicators Office vacancy rates have stabilized and rents are picking up. Consumer confidence has been rising in New England and has rebounded nationwide since the fall. Inflation has moved lower to around 1 percent with modest price increases, except for fuel & utilities. Personal incomes are growing but are just keeping pace with inflation. Revenue collections in Massachusetts are up relative to one year ago.
Office Vacancy Rates 25 20 15 Percent 10 Recession 5 US: Suburban US: Downtown Boston: Downtown Boston: Suburban 0 Q3-99 Q3-01 Q3-03 Q3-05 Q3-07 Q3-09 Q3-11 Q3-13 Source: CB Richard Ellis Econometric Advisors
TW Office Rent Index 60 Adjusted Asking Rent Per Square Foot 50 40 30 20 Recession US: Suburban 10 US: Downtown Boston: Downtown Boston: Suburban 0 Q3-99 Q3-01 Q3-03 Q3-05 Q3-07 Q3-09 Q3-11 Q3-13 Source: CB Richard Ellis Econometric Advisors
Consumer Confidence 160 Indexed to U.S. Average of 1985 140 120 100 Recession US NE 80 60 40 20 0 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Source: The Conference Board, Haver Analytics
Consumer Confidence 100 90 80 70 60 50 40 30 20 10 Dec-12 Dec-13 0 US NE US NE US NE Consumer Confidence Present Situation Future Expectations Source: The Conference Board, Haver Analytics
Consumer Price Index 8 6 Percent Change from Year Earlier 4 2 0 2 Recession Boston US 4 Nov 99 Nov 01 Nov 03 Nov 05 Nov 07 Nov 09 Nov 11 Nov 13 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Components of the Consumer Price Index Percent Change, November 2012 - November 2013 All Items 0.9 1.2 All Items, Less Food and Energy 1.2 1.7 Fuel & Utilities 2.6 4.7 Education and Communication 1.6 2.2 Shelter 1.7 2.4 Medical Care 1.7 2.2 Food 0.9 1.2 Recreation Transportation -0.8-0.7-0.3 0.5 US Boston -2-1 0 1 2 3 4 5 Source: Bureau of Labor Statistics, NBER, Haver Analytics
Personal Income 10 8 Percent Change from Year Earlier 6 4 2 0 Recession 2 NE US 4 Q3 02 Q3 03 Q3 04 Q3 05 Q3 06 Q3 07 Q3 08 Q3 09 Q3 10 Q3 11 Q3 12 Q3 13 Source: Bureau of Economic Analysis, Haver Analytics
Year-Over-Year Growth in Total State Revenue Collections 12% Percent Change through November FYTD 2013-2014 10% 9.6% 8% 6% 6.0% 4% 4.0% 4.3% 3.6% 2% 2.1% 0% CT ME MA NH RI VT Source: New England Public Policy Center at the Federal Reserve Bank of Boston, based on monthly revenue statements from respective state revenue offices
Regional Forecast The New England Economic Partnership forecasts positive economic growth and continuing labor market recovery in the region, with Massachusetts leading the way in job growth. Firm and household balance sheets have recovered somewhat, fiscal headwinds are expected to diminish, and trading partners are expected to improve.
State Leading Economic Activity Indexes 6 4 2 Percent 0-2 -4-6 Recession ME NH CT MA RI VT US -8 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Source: Federal Reserve Bank of Philadelphia, NBER, Haver Analytics
Gross State Product 8.00 Historical Data Percent Change from Year Earlier NEEP Forecast 6.00 4.00 2.00 0.00 2.00 4.00 6.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CT ME MA NH RI VT Source: New England Economic Partnership (NEEP)
Non-Agricultural Employment 1.10 Historical Data Indexed to Pre-recession Peaks NEEP Forecast 1.05 1.00 0.95 0.90 0.85 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CT ME MA NH RI VT US NE Source: New England Economic Partnership (NEEP)
Unemployment Rate 14.00 12.00 10.00 Historical Data NEEP Forecast CT ME MA NH RI VT US NE 8.00 6.00 4.00 2.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: New England Economic Partnership (NEEP)
Median Home Price 15.00 Historical Data Percent Change from Year Earlier NEEP Forecast 10.00 5.00 0.00 5.00 10.00 15.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 CT ME MA NH RI VT US NE Source: New England Economic Partnership (NEEP)
Population Projections The Metropolitan Area Planning Council projects population growth of 6.6% over the next three decades with substantial aging of the population. The school age population is expected to decline slightly while the labor force is expected to remain largely unchanged. Yet housing demand is expect to outpace population growth due to decreasing household size. Sales of Baby Boomer homes is expected to provide most of the single family homes needed by younger families. Many signs point to a resurgences of urban communities with at least half the demand for multifamily units.
Two scenarios of population growth Source: Metropolitan Area Planning Council, http://www.mapc.org/
School-Age Population has Peaked Metro Boston Population by Age, 1990-2040, Status Quo and Stronger Region Scenarios 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - AGE 0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80 plus Actual Population Status Quo Stronger Region 1990 2000 2010 2020 2030 2040 2020 2030 2040 Source: Metropolitan Area Planning Council, http://www.mapc.org/
Housing Demand Outpaces Population Average Household Size, Metro Boston, 1970-2040 Average Number of People per Household 3.30 3.20 3.10 3.00 2.90 2.80 2.70 2.60 2.50 2.40 2.30 2.20 3.22 1990-2010 Status Quo 2.84 2.69 2.53 2.50 2.38 2.31 2.28 1970 1980 1990 2000 2010 2020 2030 2040 Source: Metropolitan Area Planning Council, http://www.mapc.org/
A Senior Sell-off of single family homes Source: Metropolitan Area Planning Council, http://www.mapc.org/
Urban Resurgence Underway Net Migrants in/(out) in Previous Decade 100,000 80,000 60,000 40,000 20,000 0-20,000-40,000-60,000-80,000 0-4 Net Migration by Age, 1990s and 2000s, Inner Core and Regional Urban Centers 5-9 10-14 15-19 20-24 25-30 - 35-40 - 45-50 - 29 34 39 44 49 54 Age at End of Decade 55-59 60-64 1990-2000 2000-2010 65-69 70-74 75-79 80-84 85 plus Source: U.S. Census, MassCHIP, MAPC Analysis Source: Metropolitan Area Planning Council, http://www.mapc.org/
Most housing demand will be in urban communities Source: Metropolitan Area Planning Council, http://www.mapc.org/