The Regional Economic Outlook Presented by: Mark McMullen, Director of Government Svcs Prepared for: FTA Revenue Estimating Conference September 15, 2008 Recent Economic Performance 2 1
The Job Market Signals Recession Change in payroll jobs, ths 150 Source: BLS 100 50 0 (50) (100) Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 3...In An Increasing Number of Areas Based on employment and industrial production, July 2008 Expansion At risk Recovery In recession 4 2
Northeast States Payroll Employment One-year vs. 3-month performance, 3-mo. MA Middle Atlantic New England South Atlantic Northeast States 3.5 January July 2008-1.5 - -2.5 Delaware Massachusetts New York 1.0 Maine New Hampshire Vermont Connecticut 0.5 New Jersey Pennsylvania - -2.5 - -1.5-0.5 0.5 1.0 1.5-0.5 Rhode Island 2.5 1.5 District Of Columbia Maryland - -3.5 Northeast States Payroll Employment One-year vs. 3-month performance. 3-mo. MA Northeast States 3.5 July 2008 Middle Atlantic New England 2.5 South Atlantic 1.5 Vermont District Of Columbia New Hampshire Connecticut 1.0 Pennsylvania 0.5 Maryland Delaware Massachusetts - -2.5 - -1.5-0.5 0.5 1.0 1.5 Maine -0.5 New Jersey New York -1.5 - -2.5 - Rhode Island -3.5 3
Midwest States Payroll Employment One-year vs. 3-month performance, 3-mo. MA West North Central East North Central Midwest States January July 2008 North Dakota 1.0 Minnesota Illinois - -1.5-0.5 0.5 1.0 1.5 Indiana Missouri Wisconsin Ohio Iowa Nebraska South Dakota Kansas Michigan - Midwest States Payroll Employment One-year vs. 3-month performance, 3-mo. MA Midwest States July 2008 West North Central East North Central South Dakota 1.0 Wisconsin Nebraska Ohio Iowa Kansas North Dakota - -1.5-0.5 0.5 1.0 1.5 Michigan Illinois Indiana Minnesota Missouri - 4
South States Payroll Employment One-year vs. 3-month performance, 3-mo. MA South Atlantic East South Central West South Central 2.5 1.5-1.5 South States January July 2008 Kentucky Texas North Carolina Alabama Oklahoma 1.0 Florida Arkansas Georgia Louisiana Virginia 0.5 Mississippi South Carolina Tennessee -1.5-0.5 0.5 1.0 1.5 2.5-0.5 West Virginia - -2.5 - -3.5 South States Payroll Employment One-year vs. 3-month performance, 3-mo. MA South Atlantic 2.5 East South Central West South Central South States July 2008 Texas 1.5 South Carolina Louisiana 1.0 Virginia Alabama 0.5 Mississippi Kentucky Oklahoma -1.5-0.5 0.5 1.0 1.5 2.5-0.5 West Virginia Arkansas North Carolina Tennessee -1.5 - Georgia Florida -2.5 - -3.5 5
West States Payroll Employment One-year vs. 3-month performance, 3-mo. MA Pacific Mountain 3.5 2.5 1.5 1.0 0.5-1.5 West States January July 2008 Hawaii Nevada Alaska Oregon Washington California -1.5-0.5 0.5 1.0 1.5 2.5 3.5-0.5 New Mexico Idaho Arizona Montana Colorado Utah Wyoming - -2.5 - -3.5 West States Payroll Employment One-year vs. 3-month performance, 3-mo. MA Pacific Mountain 2.5 West States 3.5 July 2008 1.5 Alaska 1.0 Colorado 0.5 Idaho New Mexico Wyoming -1.5-0.5 0.5 1.0 1.5 2.5 3.5 California -0.5 Montana Washington Hawaii Nevada -1.5 Oregon Utah - -2.5 Arizona - -3.5 6
Drags/Downside Risks 13 An Unprecedented Housing Downturn Projected peak-to-trough house price decline, = -26% < -30% -20 to -30% -10 to -20% 0 to -10% No decline Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO 14 7
...Ignites a Mortgage Crisis % of households defaulting on their first mortgage, 2008Q2 2.4% = = 2.4% Sources: Equifax, Moody's Economy.com Below Near Above 15 Job Cuts in Financial Services Add Further Risk Employment, financial services, % of total, 2007 Greater than 8% = 6% Near average Less than 4% 16 8
Growth Drivers/Upside Risks 17 Relief Will Come From Lower Oil Prices Change in oil demand, mil barrels per day 2,500 2,000 Sources: EIA, Moody s Economy.com Global 1,500 1,000 500 0-500 97 98 99 00 01 02 03 04 05 06 07 08 18 9
Exports Boost All Regions Exports, % of gross product, 2006 <3.1% Near average >10.4% Source: ITA 19 Impact on State Government Finances 20 10
Resource States Boom, Housing States Crash FY08 actual vs. projected tax revenues, % difference average=-1.4% -4% -7% NA -10% -9% More than 2% 2% to -1% Less than -1% Source: NASBO 21 A Bad Cycle for Sales Tax States General sales taxes, % share of: 36.5 36.0 35.5 35.0 34.5 34.0 33.5 Personal consumption (R) Total state & local taxes (L) 5.0 4.9 4.8 4.7 4.6 4.5 3 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 4.4 22 11
Not Much of a Recovery in Spending 18 17 16 15 14 Retail sales, (R) Vehicle sales, mil, SAAR (L) 8 7 6 5 4 3 13 04 05 06 07 08 09 2 23 Next Shoe to Drop: Personal Income Taxes Source: NIPA 2.9 2.8 2.7 2.6 2.5 Effective state personal income tax rate: Share of personal income, % (L) 25 20 15 10 2.4 2.3 2.2 2.1 Interest income (R) 5 0-5 90 92 94 96 98 00 02 04 06 08 10-10 24 12
Capital Gains Have Been Running Hot 900 800 700 600 500 400 300 200 100 0 S&P 500 stock index 1940-42=10 (R) Realized capital gains, $ bil (L) Forecast 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 25 State Borrowing Costs Are Out of Line 0.5 7.5 Spread between 20-yr GO bond, 30-yr. Treasury (L) 7.0 6.5-0.5 6.0 5.5 5.0 20-yr. General obligation bond, % (R) 4.5-1.5 90 95 00 05 10 15 4.0 26 13
Outlook 27 Employment Outlook Employment, 2009, % change Greater than 1% 0% to 1% = 0.4% Decline 28 14
Outlook for State Tax Revenue General fund taxes, % change, FY09 average=% More than 0% -2% to 0% Less than -2% 29 15