Economic and Fiscal Update OCTOBER 2012 Donald J. Bruce, Professor Center for Business and Economic Research The University of Tennessee, Knoxville
88Q2 89Q2 90Q2 91Q2 92Q2 93Q2 94Q2 95Q2 96Q2 97Q2 98Q2 99Q2 00Q2 01Q2 02Q2 03Q2 04Q2 05Q2 06Q2 07Q2 08Q2 09Q2 10Q2 11Q2 12Q2 Percent Change from Previous Quarter SAAR Growth in Quarterly Real Gross Domestic Product (Chained 2005 Dollars) 2 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0-8.0-10.0
Risks to Economic Growth 3 Fiscal Cliff Collapse of EU or monetary union War in middle east or oil price spike Hard landing in China Housing falters again
Percenage change, SAAR Growth in Quarterly Real Personal Consumption Expenditures (Chained 2005 Dollars) 4 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0 88Q2 89Q4 91Q2 92Q4 94Q2 95Q4 97Q2 98Q4 00Q2 01Q4 03Q2 04Q4 06Q2 07Q4 09Q2 10Q4 12Q2
Rate Interest Rates and Inflation 5 8.0 6.0 Federal Funds Rate, % per annum Inflation, year over year 4.0 2.0 0.0-2.0-4.0 01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1
Percentage change, year over year Inflation Will Remain Subdued 6 20.0 15.0 CPI-All Items CPI-Core (excl. food & energy) PPI-Industrial Commodities 10.0 5.0 0.0-5.0-10.0-15.0 2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 Source: IHS Global Insight, Inc.
Unit Sales of New Light Vehicles Housing Starts (in millions) Unit Sales of New Light Vehicles and Housing Starts 7 20.0 2.5 18.0 16.0 14.0 12.0 10.0 8.0 2.0 1.5 1.0 6.0 4.0 2.0 Unit Sales Of New Light Vehicles Housing Starts (in millions) 0.5 0.0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 0.0
Percentage change, annual rate U.S. Nonresidential Fixed Investment in Equipment & Software and Structures 8 40.0 30.0 20.0 10.0 0.0-10.0-20.0-30.0 Equip & Software Structures -40.0 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1 2013.1 2014.1 Source: IHS Global Insight, Inc.
Percentage Change from Prev Qtr, Annual Rate Growth in Quarterly Real Private Residential Fixed Investment and Housing Starts (Chained 2005 Dollars) 9 40.0 20.0 0.0-20.0-40.0-60.0 Residential Fixed Investment Housing Starts -80.0 88Q2 90Q2 92Q2 94Q2 96Q2 98Q2 00Q2 02Q2 04Q2 06Q2 08Q2 10Q2 12Q2
Number of units in thousands U.S. Building Permits Stuck in the Trough 10 2,500 2,000 Total Permits Total Starts Single-Family Permits Single-Family Starts 1,500 1,000 500 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: U.S. Census Bureau and IHS Global Insight, Inc.
Number of units Tennessee Building Permits Poised for Rebound 11 5,000 4,500 4,000 3,500 Total Single-family 3,000 2,500 2,000 1,500 1,000 500 0 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 Source: U.S. Census Bureau, Building Permits Survey (as reported in the State of the Cities Data System [SOCDS] database).
Exchange rate Exports - Imports, Billions of Chained 2005 Dollars 12 U.S./Euro Foreign Exchange Rate and Real Exports Less Imports 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 U.S./Euro Foreign Exchange Rate Exports less Imports 0-100 -200-300 -400-500 -600-700 0.0-800 99Q1 00Q1 01Q1 02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1
Billions of dollars Unified Federal Budget Surplus 13 400 200 0-200 -400-600 -800-1000 -1200-1400 -1600 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Fiscal Year
Fiscal Cliff 14 Sequestration Elimination of extended unemployment benefits Expiration of Bush tax cuts Elimination of payroll tax decrease Alternative minimum tax
Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Rate 15 Tennessee and U.S. Unemployment Rates (seasonally adjusted) 12.0 10.0 U.S. TN 8.0 6.0 4.0 2.0 0.0 Source: Bureau of Labor Statistics.
Index, month #1 = 100.0 Tennessee Employment Doing Worse than Any Other Modern Business Cycle 16 115.0 110.0 1973 Nov 1980 Jan 1990 Jul 2001 Mar 2007 Dec 105.0 100.0 95.0 90.0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 Number of months from recession start month Note: Total nonfarm employment seasonally adjusted data indexed to the beginning month of each recession. Source: Calculated by CBER using data from the Bureau of Labor Statistics; and CBER-UT.
Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Percentage change, same month last year Tennessee and U.S. Employment Growth (seasonally adjusted) 17 6.0% 4.0% 2.0% U.S. TN 0.0% -2.0% -4.0% -6.0% -8.0% Source: Bureau of Labor Statistics.
Tennessee Job Growth by Sector (August 2012 over August 2011) 18 Mining, Logging, and Construction Durable Goods Education and Health Services Government Non-Durable Goods Leisure and Hospitality Total Private Other Services Professional and Business Services Trade, Transportation, and Utilities Information Financial Activities -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Growth Rate
Nonfarm Employment Growth, Tennessee MSAs (August 2012 over August 2011) 19 Clarksville, TN-KY Knoxville, TN Jackson, TN Memphis, TN-MS-AR Kings-Bristol-Bristol, TN-VA Cleveland, TN Chattanooga, TN-GA TN Johnson City, TN Nash-Davidson-Murf-Franklin, TN Morristown, TN 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Growth Rate
Nonfarm Employment Growth, Tennessee MSAs (2 nd Quarter 2012 over 2 nd Quarter 2011 ) 20 Knoxville, TN Clarksville, TN-KY Jackson, TN Memphis, TN-MS-AR TN Johnson City, TN Nash-Davidson-Murf-Franklin, TN Chattanooga, TN-GA Cleveland, TN Kings-Bristol-Bristol, TN-VA Morristown, TN -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% Growth Rate
TN as % of US Tennessee Per Capita Personal Income As a Percentage of U.S., 1988 2011 21 93% 92% 91% 90% 89% 88% 87% 86% 85% 84% 83% 82% 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Growth in Adjusted Tax Collections, 1972-2014 22
Change in Total Taxes July-March, FY2011 to FY2012 23 U.S. = 4.5% 7.4% Less than 3.0% ( 18 ) 3.0% to 6.6% ( 16 ) Greater than 6.6% ( 16 ) Source: Center for Business and Economic Research, http://cber.bus.utk.edu
Tax Revenues (in millions) Tennessee Tax Revenues, Total and as a Share of Personal Income, 1988-2014 24 As a percentage of personal income, tax revenues are at historical lows
Growth in Sales Tax Revenue (Adjusted for Tax Increases) (3- month moving average) 25
Sales Tax Collections by Category of Sales (Quarter Ending July 2012) 26
U.S. Forecast Summary 27 Slow GDP growth of just under 2% Stable consumption growth and residential investment alongside slower business investment and net exports Continued low inflation under 2% Slow housing recovery picks up steam Fueled by continued low interest rates Sluggish labor market High unemployment (8%) and low job growth (<2%) Federal deficit/debt paralysis
Tennessee Forecast Summary 28 Non-farm employment growth of 1.4% Continued gains in manufacturing Keeping pace with the national forecast Slow decline in unemployment to 8.1% Slightly above the national rate throughout Personal income growth of 4.2% Faster than national income growth Taxable sales growth of 2.2% Down somewhat from recent high growth
Center for Business & Economic Research 29 College of Business Administration The University of Tennessee, Knoxville 716 Stokely Management Center 916 Volunteer Boulevard Knoxville, Tennessee 37996-0570 phone: 865.974.5441 fax: 865.974.3100 http://cber.bus.utk.edu