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“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”
New Hampshire Economic Forecast
January 7, 2013
Dennis [email protected]
Board of DirectorsSheila T. Francoeur, Chair
David Alukonis
Michael Buckley
William H. Dunlap
Eric Herr
Richard Ober
James Putnam
Stephen J. Reno
Stuart V. Smith, Jr.
Donna Sytek
Brian F. Walsh
Martin L. Gross, Chair Emeritus
John D. Crosier, Sr.,
Todd I. Selig
Kimon S. Zachos
Directors Emeritus
2
Anecdotal evidence from Fed Bank of Boston,
Nov. 28, 2012
• New England reports reflect a growing economy, although the pace has slowed.
• Retailers cite mixed sales results, manufacturers note slow growth, and software and IT services firms report disappointing results.
• Staffing firms are seeing a pick-up in growth. • Commercial real estate contacts indicate that fundamentals
remain flat, and sentiment has soured somewhat in recent weeks.
• Residential real estate respondents say growth in home sales has slowed, but home prices are rising modestly in some areas.
• Some firms cite shortages of specialized workers, few are hiring, none extensively, and no one mentions upward wage pressures.
3
Calculated Risk has the clearest picture of the problem we face:
4
3 Themes
• NH Recovery is Stalling• State revenues and the downside risk
• State Expenditures
5
New Hampshire – Less of a decline, but slow recovery
Index of Total NonFarm Employment (Seasonally Adjusted)
92.0
93.0
94.0
95.0
96.0
97.0
98.0
99.0
100.0
101.0
Jan-
07
May
-07
Sep-0
7
Jan-
08
May
-08
Sep-0
8
Jan-
09
May
-09
Sep-0
9
Jan-
10
May
-10
Sep-1
0
Jan-
11
May
-11
Sep-1
1
Jan-
12
May
-12
Sep-1
2
Dec
200
7 =
100
US NE NH
New England
United States
New Hampshire
6
Many NH Employment Sectors Have Not Recovered
Change in New Hampshire Jobs
-14000-12000-10000
-8000-6000-4000-2000
02000400060008000
Man
ufac
turin
g
Constr
uctio
n
Trade
& T
rans
porta
tion
Financ
ial A
ctivit
ies
Prof &
Bus
Ser
vices
Edu &
Hea
lth S
ervic
es
Leisu
re &
Hos
pitali
ty
Gover
nmen
t
Nov07 to Nov09Nov09 to Nov12
7
NH Unemployment Rate Still Higher than Average
Monthly NH Unemployment Rate, January 1969 - November 2012
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
01/6
9
01/7
0
01/7
1
01/7
2
01/7
3
01/7
4
01/7
5
01/7
6
01/7
7
01/7
8
01/7
9
01/8
0
01/8
1
01/8
2
01/8
3
01/8
4
01/8
5
01/8
6
01/8
7
01/8
8
01/8
9
01/9
0
01/9
1
01/9
2
01/9
3
01/9
4
01/9
5
01/9
6
01/9
7
01/9
8
01/9
9
01/0
0
01/0
1
01/0
2
01/0
3
01/0
4
01/0
5
01/0
6
01/0
7
01/0
8
01/0
9
01/1
0
01/1
1
01/1
2
% o
f Lab
or F
orce
Une
mpl
oyed
Long-term average - 4.4%
Grey boxes represent recessionary periods
88
NH Forecast from May 2008 compared to Dec 2012
Non Farm Employment-NH
560
580
600
620
640
660
680
700
00Q1
01Q1
02Q1
03Q1
04Q1
05Q1
06Q1
07Q1
08Q1
09Q1
10Q1
11Q1
12Q1
13Q1
14Q1
15Q1
16Q1
Th
ou
san
ds
of
Job
s
5/0812/12
NEEP Forecast Comparisons for New Hampshire
You are here
99
NH Real Estate May (Finally) Have Hit Bottom
NH Single-Family Residential Home Sales and Price (MLS)Source: NH Association of REALTORS
0
5,000
10,000
15,000
20,000
25,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Units sold Median Price
Median Home Price
Number of Units Sold
Decline from the Peak:Sales -40% from 2004Price -25% from 2005
2012 YTD thru November
10
NEEP Forecast for New Hampshire
Dec. 2012• Next four years should be better than the last four
years.• Policy Missteps: Debt Ceiling Fight Club in March
2013?• No 2013 recession assuming the Euro sovereign debt
crisis is resolved and world economy gains traction.• Fed Reserve has foot on the accelerator through 2016
(or until UR hits 6.5%).• Foreclosures are no longer a drag.• A housing-led recovery.
11
3 Themes
• NH Recovery is Stalling
• State revenues and the downside risk
• State Expenditures
12
This Recession has been very hard on state revenue
New Hampshire General and Education Trust Fund Revenue
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
$3,000.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
EstimateActual
13
This Recession was very hard on state revenue forecasts
NH State Revenue Annual Forecast Error
0.0%
3.2%
5.8%
1.9%3.7%
-2.9%
-14.2%
-1.5% -2.0%-0.4%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
14
This Recession was very hard on state revenue forecasts
NH State Revenue Growth Rates Over Prior Year
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-8% -6% -4% -2% 0% 2% 4% 6% 8%
Expected Growth
Act
ual G
row
th
15
NHCPPS Model Showing Revenues are Tracking Well
NHCPPS Projection of 2013 Combined General Fund & Education Trust Fund Revenues
(in millions of $)
-$400
-$300
-$200
-$100
$0
$100
$200
July
Au
g
Se
pt
Oct
No
v
De
c
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
e
Month of Fiscal Year Completed
Ab
ov
e (
Be
low
) B
ud
ge
t
16
US Economy Alternative Scenarios
• Stronger Near Term Rebound – Jobs and housing grow more than expected (10% probability)
• Mild 2nd Recession – US business confidence drops & Europe debt crisis worsens (25% probability)
• Deep 2nd Recession – Hiring falls with stock market decline, Greece leaves Euro-zone, but less severe than the 2008-2009 downturn (10% probability)
Source: Moody’s Analytics, October 2012
17
NH Revenue Forecasts in an Uncertain World
New Hampshire Unrestricted Revenue in Millions
$1,950.0
$2,000.0
$2,050.0
$2,100.0
$2,150.0
$2,200.0
$2,250.0
$2,300.0
$2,350.0
$2,400.0
2008 2009 2010 2011 2012 2013 2014 2015
Baseline (50% prob)
Stronger Near-TermRebound (10% prob)Mild Recession (25% prob)
Deep Recession (10%prob)
Actual Forecasts
18
New Hampshire Revenue Growth Lagging Other States
• Most states saw growth in state tax revenue during 2Q 2012.– US Personal Income taxes up 5%– US Sales taxes up 0.7% (Slowest in 2 Years)– US Total state taxes up 3.2%
• New Hampshire state tax revenue declined by 2% in 2Q 2012.
Source: Rockefeller Institute (www.rockinst.org)
19
3 Themes
• NH Recovery is in Danger of Stalling• State revenues and the downside risk.
• State Expenditures
20
State Revenues, Expenditures, and Gross State ProductGrowth from 1988 Levels
1.01.11.21.31.41.51.61.71.81.92.02.12.22.32.42.52.62.72.8
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
State Fiscal Year
1988
= 1
.0
General Fund Expenditures
Gross State Product
General Fund Revenues(without Medicaid Enhancement)
21
Annualized Growth in Selected Factors Driving State Expenditures
1982 - 2012
State Spending Drivers
1.2%
5.8%
2.9%
6.5%
0%
1%
2%
3%
4%
5%
6%
7%
Population Title XIX MedicaidCaseloads
Inflation Total Fund Spending
Annu
aliz
ed In
crea
se 1
982
to 2
012
22
Spending Options Grow Narrower
• “Natural” increases complicate efforts to restore cuts to state programs from the last round of budget-writing.
• Requests for new spending are significant (UNH, DHHS).
• A sluggish economy dictates the terms of policy debates.
232323
“…to raise new ideas and improve policy debates through quality information and analysis on issues shaping New Hampshire’s future.”
New Hampshire Center for Public Policy Studies
Want to learn more?
• Online: nhpolicy.org
• Facebook: facebook.com/nhpolicy
• Twitter: @nhpublicpolicy
• Our blog: policyblognh.org
• (603) 226-2500
Board of DirectorsSheila T. Francoeur, Chair
David Alukonis
Michael Buckley
William H. Dunlap
Eric Herr
Richard Ober
James Putnam
Stephen J. Reno
Stuart V. Smith, Jr.
Donna Sytek
Brian F. Walsh
Martin L. Gross, Chair Emeritus
John D. Crosier, Sr.,
Todd I. Selig
Kimon S. Zachos
Directors Emeritus
24
State Revenues Grew Because of New Taxes and Non-Tax Sources
NH General Fund Revenues 1988 to 2011 (Current $)
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
State Fiscal Year
Mil
lio
ns
of
Do
llar
s
Taxes and rates in place in 1988
Medicaid Enhancement New taxes Increased rates
$543
$936m
$1,369m$1,353
25
Two Thirds of NH Revenue Does Not Grow with Economy,
or Is Volatile2010 New Hampshire State Tax Revenue by Type
$765.3
$243.5
$444.7
$679.8
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
Per UnitUnchanged
Per Unit Changed Ad Valorem Stable Ad Valorem Unstable
Mill
ion
s o
f D
olla
rs
26
Does New Hampshire Have a Structural Deficit?
“New Hampshire can be characterized as having a long-term structural deficit in the sense that for a given scope of programs and revenue system, expenditures grow automatically faster than revenues.”
KPMG Peat Marwick
February 13, 1992
27
Structural Deficit: So What?
• Recognize to scale back on state activities OR recognize the necessity to raise tax rates or add new taxes to maintain a constant level of services.
• Results in more detailed review of all state programs every biennium because there is always a looming shortfall.
• Creates regular atmosphere of crisis and stress.• Reduces possibility of surpluses for investment in
desirable one-time projects.• Makes long-term strategic planning more difficult. • Should not be used as a political weapon to bludgeon
the other political party.