Economic OutlookWhen Will It End?

2009 Tri-State ASBO Conference

May 14, 2009

Dennis DelayNHCPPS

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

All of our reportsare available on the web:

www.nhpolicy.orgwww.nhpolicy.org

New Hampshire Center New Hampshire Center for Public Policy Studiesfor Public Policy Studies

Board of Directors

Donna Sytek, Chair

John B. Andrews

John D. Crosier

Shelia T. Francoeur

Chuck Morse

Todd Selig

Stuart Smith

James Tibbetts

Brian Walsh

Kimon S. Zachos

Martin Gross

Staff

Steve Norton

Dennis Delay

Ryan Tappin

“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”

Edward Hopper – The Lee Shore:

It’s a Great Time to be an Economist:

Has Bear turned to Bull?

The Bursting Housing Bubble…

Fiserv Case Shiller National House Price Index (-31.6%)

Index: 2000q1 = 100

-20.2%

…Means Homes No Longer Equal to ATMs..

Household debt in delinquency or default, $ bil, annualized

0

100

200

300

400

500

600

700

800

900

1,000

00 01 02 03 04 05 06 07 08

Default90-120 days60-90 days30-60 days30 days

Sources: Equifax, Moody’s Economy.com

…Households Buckle Under the Stress…

Projected losses on assets as of 2008Q3, $ bil

0

200

400

600

800

1,000

1,200

Banks Other financial Government

At risk mortgages 20,000,000Foreclosure rate 50%

Foreclosed mortgages 10,000,000Loss rate 50%

Mortgage loss $1 trillion

Residential mortgages

Consumer loans

Commercial mortgages

Corporate

…Large and Growing Capital Shortfall

Net % of businesses responding positively to Dismal survey

-30

-20

-10

0

10

20

30

40

03 04 05 06 07 08 09

Source: Moody’s Economy.com

…Shattering the Collective Psyche

Difference between 3 month Libor and Treasury bill yields

Looking For Stability in the Financial System…

"TED" RateDifference Between 3 month LIBOR and 3 month T-Bill

0

1

2

3

4

5

6

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

LTCM Y2KTech Bust

SubPrime Shock

Lehman Failure

10/10/08

The Worst Downturn Since the Great Depression

Recessions since World War II

Recession Expansion Real NonfarmPeak Trough Peak to Trough Trough to Peak GDP Employment Low High Change

Dec 2007 Nov 2009 23 - - -3.1 -4.3 4.4 9.3 4.9Mar 2001 Nov 2001 8 120 -0.4 -2.0 3.8 6.3 2.5Jul 1990 Mar 1991 8 92 -1.3 -1.5 5.0 7.8 2.8Jul 1981 Nov 1982 16 12 -2.9 -3.1 7.2 10.8 3.6Jan 1980 Jul 1980 6 58 -2.2 -1.3 5.6 7.8 2.2Nov 1973 Mar 1975 16 36 -3.1 -2.7 4.6 9.0 4.4Dec 1969 Nov 1970 11 106 -1.0 -1.4 3.4 6.1 2.7Apr 1960 Feb 1961 10 24 -1.3 -2.3 4.8 7.1 2.3Aug 1957 Apr 1958 8 39 -3.8 -4.4 3.7 7.5 3.8Jul 1953 May 1954 10 45 -2.7 -3.3 2.5 6.1 3.6Nov 1948 Oct 1949 11 37 -1.7 -5.1 3.4 7.9 4.5

Average for past recessions 10 -2.0 -2.7 4.4 7.6 3.2

Sources: NBER, BEA, FRB, BLS, Moody's Economy.com

Jobless Rate

Peak-to-Trough% ChangeDuration in Months

Anecdotal evidence from the Fed Bank of Boston, April 15, 2009

Business activity continues to slow in the First District, Non-auto retail sector sales are better than expected. Manufacturers report ongoing year-over-year declines in

sales or orders, with the pace worsening in the first quarter. Consulting and advertising firms cite marked declines. Commercial and residential real estate markets remain in

the doldrums, although residential contacts see early signs of improvement.

Costs are generally declining. Real estate prices continue to fall, but most responding

manufacturers and advertising and consulting firms are holding prices steady.

Comparing Recessions – So Far:

Percent Change in Employment

-1.8%

-6.4%

-5.8%

-6.6%

-4.6%

-3.7%

-3.0% -2.9%

-1.6%

-4.6%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

United States New England Maine New Hampshire Vermont

1990 Recession Dec07 to Mar09

Home prices rose much faster than income.

Source: FHFA and Bureau of Economic Analysis

Maine, Annual Percent Change

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Sep

-99

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Income Home Price

Home prices rose much faster than income.

Source: FHFA and Bureau of Economic Analysis

New Hampshire, Annual Percent Change

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Sep-9

9

Sep-0

0

Sep-0

1

Sep-0

2

Sep-0

3

Sep-0

4

Sep-0

5

Sep-0

6

Sep-0

7

Sep-0

8

Income Housing Price

Home prices rose much faster than income.

Source: FHFA and Bureau of Economic Analysis

Vermont, Annual Percent Change

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Sep

-99

Mar

-00

Sep

-00

Mar

-01

Sep

-01

Mar

-02

Sep

-02

Mar

-03

Sep

-03

Mar

-04

Sep

-04

Mar

-05

Sep

-05

Mar

-06

Sep

-06

Mar

-07

Sep

-07

Mar

-08

Sep

-08

Income Home Price

Homebuilding at a stand still.

Source: US Dept of Commerce

Total Housing Permits

0

100

200

300

400

500

600

700

800

2001Average

2002Average

2003Average

2004Average

2005Average

2006Average

2007Average

2008Average

ME NH VT

If and When? Market is continuing to deteriorate in terms of

backlog of unsold homes and price declines• Price decline is approaching that experienced in the early 1990s

Major problem now is buyers sitting on the sidelines• New construction is not adding much inventory (that’s good)• Inventory in absolute terms is stable/modestly improving (that’s good)

To get buyers back in the game:• They need confidence they will have a job• They need confidence prices will not drop further• They need reasonable access to mortgage credit• They need low interest rates

Major national economic and buyer incentives could take hold in second half of 2009 to provide some stability, if not recovery.

50-50 chance we will see price and inventory stability by the end of the year, but at low levels

Look for a very gradual recovery, when it comes

Variation in State Tax Structure

Source: The Tax Foundation

State and Local Government Revenue by Source 2005

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0%

From FederalGovernment

Property Taxes

Sales Taxes

Individual IncomeTaxes

Corporate IncomeTaxes

From Non-TaxCharges and Misc.

U.S. AverageMaineNew HampshireVermont

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

Recovery.gov

Save or create • 15,000 jobs in ME

• 16,000 jobs in NH

• 8,000 in VT

Formula block grant awards 2/19/09 Fed agencies report use of funds

3/3/09 More reporting from Feds in May States start reporting in July

> $1,850

$1,750 to $1,850

$1,650 to $1,750

< $1,650

Northeast Scores Big in Stimulus Package – Source: Economy.com

Stimulus funding, $ per capita

ARRA 2009 funds for Education

Source: Economy.com and Recovery.gov

Title I GrantsIDEA, Part B State

Grants

Child Care Development Block

Grant Head Start Pell GrantsState Fiscal

Stabilization Fund

Quoted amount ($) $13,000,000,000 $12,200,000,000 $2,000,000,000 $2,100,000,000 $15,636,000,000 $53,600,000,000

Maine $51,443,951 $59,132,572 $6,757,950 $2,813,426 $57,819,239 $198,199,761New Hampshire $37,644,428 $51,284,643 $4,736,238 $1,359,668 $37,433,673 $205,981,865Vermont $32,381,262 $28,698,693 $2,823,372 $1,214,941 $25,166,252 $93,865,373

Per Capita Amount

United States $43 $40 $7 $7 $51 $176Maine $39 $45 $5 $2 $44 $150New Hampshire $29 $39 $4 $1 $28 $156Vermont $52 $46 $5 $2 $41 $151

EDUCATION FOR THE 21st CENTURY

ARRA of 2009 targeted to Education and Healthcare

Source: PolEcon Research, April 2009

ARRA of 2009 will see most of the impact next year

Source: PolEcon Research, April 2009

A significant recession with difficult challenges over the full forecast period

Global credit crisis and its after effects have pushed New England economy into recession.

Declining employment in the New England region (since first half of 2008). Forecast to lose over 250,000 jobs in the region by end of decline in 2010, or 3.6% of employment.

Unemployment rate is expected to rise to highest rate since 1992, to 9.2% in US, over 8% in the region by mid-2010.

Housing price decline expected till 2010.   Slow recovery expected ….in housing, employment and overall

regional economy.

Declining oil prices have softened the blow.

When Will it End? (Economy.com)

’08q1 ’08q2 ’08q3 ’08q4 ’09q1 ’09q2 ’09q3 ’09q4 ’10q1 ’10q2 ’10q3 ’10q4

Stock MarketBottoms

Oil PricesPeak Home Sales

Bottom

Housing StartsBottom

EmploymentBottoms

House PricesBottoms

ForeclosuresPeak

Jobless RatePeaks

House PricesResume Rising

Major Financial Failures Abate

Extraordinary WritedownsEnd

Fed Tightens

$ Rises

Right Place, Right Time.

Recasts- The Next Lee Shore?

Northern New England Scores Well

Northern New England Economic Scoreboard for 2008Ranking among the 50 states(Rank of '1' is best; for example 1 is lowest tax rate, highest income, etc.)

ME NH VTCategories Rank Rank RankFavorable Tax Climate (by burden on income, 2005) 45 1 41Standard of Living (by poverty rate 2005-2007) 26 1 4Most Livable State (CQ Press, 2008) 20 1 8Safest State (CQ Press, 2008) 2 1 4Child and Family Well Being (Annie E. Casey Foundation, 2007) 16 1 10Education – High School Degree or better (2006) 18 3 10Healthiest State (CQ Press, 2008) 4 2 3Per Capita Income (2008) 33 9 22Education – College Degree or better (2006) 25 10 7

A full proof economic indicator!

New Hampshire Boat Registrations and Payroll Employment (000's)

60000

65000

70000

75000

80000

85000

90000

95000

100000

105000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

400

450

500

550

600

650

700

NH Boat Registrations NH Payroll Employment