Economic & Revenue Outlook - Microsoft... · Lance Carey Economic & Revenue Outlook 08 July 2011...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Economic & Revenue Outlook

Presented for2011 Yakima Economic Symposium

Lance CareyEconomist

July 8, 2011Yakima, Washington

Lance Carey


08 July 2011

Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Summary

• The near term economic outlook has weakened since the March forecast.

• The impact from the devastation in Japan was worse than anticipated and the turmoil in the Middle East and North Africa has added to uncertainty in oil markets.

• We expect growth to pick up momentum later this year, as supply chain disruptions from Japan recede, and oil prices stabilize.

• This forecast changes expected GF–S revenues by

– Up $171 million this biennium (09-11)

– Down $183 million next biennium (11-13)

Lance Carey


08 July 2011


Definition of a recession

Source: ERFC

Bad

Good

Time

Dec 2007

Jun 2009

Not to Scale

National Bureau of Economic Research (NBER) is the official arbiter of business cycles

Lance Carey


08 July 2011


This is the worst recession since WW II

RecessionPeak-to-trough decline Recession

DurationReal GDP Employmentpercent percent months

1948-49 1.6 5.0 11

1953-54 2.5 3.4 10

1957-58 3.1 4.2 8

1960-61 0.5 2.3 10

1969-70 0.2 1.2 11

1973-75 3.2 1.9 16

1980 2.2 2.3 6

1981-82 2.6 3.1 16

1990-91 1.4 1.4 8

2001 0.7 1.7 8

Average 1.8 2.6 10

2007-09 4.1 6.3 18

Source: NBER, ERFC

Lance Carey


08 July 2011


Collections since March were $93 million above target because of the amnesty program

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

4.0

March Forecast Actual

Bil

lion

s,

US

D

Economic Amnesty Other Non-economic

$3.785

$3.878Amnesty:

March Forecast$85 Million

Collections$282 Million

Source: ERFC; data through June 10, 2011 Collections

Lance Carey


08 July 2011


Excluding one-time factors, revenues were 3.8% below the March forecast

-6

-4

-2

0

2

4

6

1990 1994 1998 2002 2006 2010

Percen

tAverage Adjusted Monthly Variance

Source: ERFC; Based on collections through June 10, 2011

Including one time payments, overall revenue collections were $93 million above forecast

Lance Carey


08 July 2011


The consensus near-term economic outlook has weakened since March

3.1

3.3

3.2

2.6

3.13.2

2.0

2.5

3.0

3.5

2011 2012 2013

Percen

tBlue Chip Consensus GDP forecast

March June

-0.5

-0.2

Source: Blue Chip Economic Indicators, data through June 2011

Lance Carey


08 July 2011


Private sector job gains slipped in May

-50

0

50

100

150

200

250

300

January February March April May

Th

ou

san

ds

U.S. Monthly Employment Growth, 2011

Private Public

Source: BLS; data through May 2011

Lance Carey


08 July 2011


This has been the slowest recovery in U.S. employment

-10

-8

-6

-4

-2

0

2

4

6

0 5 10 15 20 25 30 35 40

Millio

ns

Months

U.S. Employment after Business Cycle Peak

1981-82 1990 2001 2007-09

Source: BLS, WA ESD, ERFC; data through May 2011

Peak to trough job losses

1981-82:

2.6% of labor force

This time:

5.7% of labor force

6.9 Million

Lance Carey


08 July 2011


Employment should pick up as labor productivity growth declines

-6

-4

-2

0

2

4

6

8

1991 1995 1999 2003 2007 2011

Percen

t ch

an

ge (

Y/

Y)

U.S. Employment & Labor Productivity Growth

Employment Productivity

Source: BLS; data through 2011 Q1

Any increase in final demand will translate to job growth

Lance Carey


08 July 2011


Consumer demand is weak

-4

0

4

8

12

16

0 2 4 6 8 10 12 14

Cu

mu

lati

ve G

ro

wth

(p

ercen

t)

Quarters

U.S. Consumption after Business Cycle Peak

1981-82 1990 2001 2007-09

Source: BEA, ERFC; data through 2011 Q1

Lance Carey


08 July 2011


Exports are growing faster than imports

-20

-15

-10

-5

0

5

10

15

1993 1996 1999 2002 2005 2008 2011

Percen

t ch

an

ge (

Y/

Y)

Export growth minus Import growth

Export growth minus Import Growth 6 MMA

Source: Census Bureau, U.S. Balance of Payments Account; data through April 2011

Lance Carey


08 July 2011


GDP and consumer spending growth slowed in Q1

-8

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011

20

05

$Percent growth, SAAR

Real GDP Real Consumer Spending

Source: BEA, data through 2011 Q1, third estimate

Lance Carey


08 July 2011


Manufacturing and service sector growth is slowing

30

35

40

45

50

55

60

65

70

2001 2003 2005 2007 2009 2011

Institute of Supply Management Index

Services Manufacturing

Source: Institute of Supply Management; data through June 2011

An index greater than 50, implies growth

Lance Carey


08 July 2011


Consumer confidence is showing signs of softening

25

50

75

100

125

150

1980 1985 1990 1995 2000 2005 2010

Index

Mich: 1966Q1 = 100, SAConf Board: 1985 =100, SA

U Mich Conf Board

Source: University of Michigan; Conference Board, data through June 2011

Lance Carey


08 July 2011


Gas prices are retreating, but remain high

0

20

40

60

80

100

120

140

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

1990 1993 1996 1999 2002 2005 2008 2011

Pric

e p

er b

arrel

Pric

e p

er g

all

on

U.S. Average Gas and WTI Crude Oil Prices

Gas Crude Oil

Source: U.S. Energy Information Administration; data through June, 2011

Lance Carey


08 July 2011


-3.0

0.0

3.0

6.0

9.0

12.0

15.0

1970 1975 1980 1985 1990 1995 2000 2005 2010

Percent

Consumer Price IndexY/Y Percent Change

All-items Core

Source: BLS; data through May 2011

All-items inflation is ticking up, but the “core” remains stable

Lance Carey


08 July 2011


U.S. LMV sales slowed in May and June...

0

6

12

18

24

30

0

5

10

15

20

25

1990 1994 1998 2002 2006 2010

WA

New

Veh

icle

Reg

istr

ati

on

s,

Th

ou

san

ds,

3 M

MA

, S

A

Millio

n U

nit

s,

SA

AR

U.S. Light Trucks U.S. Cars WA New Vehicle Registrations

Source: Autodata Corporation, WA DOL; data through June 2011

U.S. LMV sales fell 10.4% in May

Lance Carey


08 July 2011


... as Japanese brands were hit by supply chain disruptions

-15

-10

-5

0

5

10

15

20

25

2011 YTD June 2011

Percen

tY/Y percent Change in Car Sales

Big 3 Japanese All Other

Source: Autodata Corporation, data through June 2011

Lance Carey


08 July 2011


This is WA’s worst downturn in non-residential construction in 30 years

-40

-30

-20

-10

0

10

20

30

40

50

1981 1985 1989 1993 1997 2001 2005 2009

Percen

tNon-Residential Contract Value

Annual Percent Change

Source: McGraw-Hill Construction, data through May 2011

Lance Carey


08 July 2011


Home prices continue to decline

-25

-20

-15

-10

-5

0

5

10

15

20

25

2001 2003 2005 2007 2009 2011

Percen

t

Case Shiller Home Price Index, SAYear-over-Year % Change

Seattle Composite 20

Apr 2011

U.S is down 3.9%

SEA is down 6.9%

Source: S&P/Case-Shiller; data through April 2011

Lance Carey


08 July 2011


0.0

2.0

4.0

6.0

8.0

10.0

12.0

2008 2009 2010 2011

Percen

tSeriously Delinquent

Washington U.S.

Source: Mortgage Bankers Association® National Delinquency Survey, data through 2011 Q1

More foreclosures can be expected...

WA Rank:

2010Q4 : 252011Q1 : 23

Seriously Delinquent = 90+ Days Past Due or in foreclosure

Lance Carey


08 July 2011


0.0

1.0

2.0

3.0

4.0

5.0

2008 2009 2010 2011

Percen

t30 Days Past Due

Washington U.S.

Source: Mortgage Bankers Association® National Delinquency Survey, data through 2011 Q1

...but will eventually slow down

WA Rank:

2010Q4: 462011Q1: 47

Lance Carey


08 July 2011


WA multi-family building permits are gradually improving

0

5

10

15

20

25

30

35

40

45

50

1970 1975 1980 1985 1990 1995 2000 2005 2010

Th

ou

san

ds

Washington Housing Units Authorized by Building

Permits, 3MMA, SAAR

Multiple Single

Source: U.S. Census Bureau; data through May 2011

Lance Carey


08 July 2011


Boeing has over 7 years of commercial orders on its books

0

1000

2000

3000

4000

0

400

800

1200

1600

03 04 05 06 07 08 09 10 11

Backlo

g

Ord

ers &

Deli

verie

s

Net Orders Deliveries Backlog

Source: Boeing, data through May 2011

YTD

Excludes the military’s new refueling tanker

Lance Carey


08 July 2011


Software publishing employment is growing

-10

-5

0

5

10

15

20

25

2000 2002 2004 2006 2008 2010 2012

Percent change, year ago

Source: ERFC Preliminary June 2011 forecast; actual through May 2011

Forecast

Lance Carey


08 July 2011


WA export growth is strong, and will help state outperform in the recovery

-40

-20

0

20

40

60

80

1998 2000 2002 2004 2006 2008 2010

Exports

Percent Change, year ago

Total Total excluding Transportation Equipment

Source: Wiser Trade Data; through 2011 Q1

Total exports were up 12.4% y/y in Q1

Lance Carey


08 July 2011


Credit conditions for small business are improving, but remain tight

-18

-15

-12

-9

-6

-3

0

2004 2005 2006 2007 2008 2009 2010 2011

Availability of LoansNet Percent ("Easier" minus "Harder"), 3mma

Source: National Federation of Independent Business; data through May 2011

Lance Carey


08 July 2011


WA employment will recover slightly faster than the U.S.

0.85

0.90

0.95

1.00

1.05

2000 2002 2004 2006 2008 2010 2012

December 2007=1.0

Washington U.S.

Source: ERFC June 2011 forecast; actual through May 2011

Forecast

WA employment peaked 1 month after U.S. (Feb. 2008 vs. Jan. 2008)

Both WA and the U.S. reached a trough in Feb. 2010

WA is forecasted to reach its pre-recession peak in December 2013, the U.S. after 2013

Lance Carey


08 July 2011


WA personal income will recover faster than that of the U.S.

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

2000 2002 2004 2006 2008 2010 2012

2007Q4 = 1.0

Washington U.S.

Forecast

Source: ERFC June 2011 forecast; actual data through 2011Q1

Date of regaining peak:

WA:

Nominal 10Q2

Real 10Q3

U.S.:

Nominal 10Q2

Real 11Q1

Lance Carey


08 July 2011


Forecast changes: General Fund State, 2009-2011 Biennium

June 2011 Forecast

Collection Experience

Non-economic Change

Forecast Change Forecast

Total Change*

Dept. of Revenue

$94 $147 ($74) $26,769 $168

All other agencies

($1) $0 $5 $1,449 $3

Total GF-S $93 $147 ($69) $28,218 $171

* Detail may not add to total due to rounding

March Forecast:

$28,047 million

USD millions

Lance Carey


08 July 2011


Forecast changes: General Fund State, 2011-2013 Biennium

June 2011 Forecast

March 2011 Forecast

Non-economic Change

Forecast Change Forecast

Total Change*

Dept. of Revenue

$30,340 $33 ($217) $31,156 ($184)

All other agencies

$1,567 $7 ($6) $1,568 $1

Total GF-S $31,907 $40 ($223) $31,724 ($183)

* Detail may not add to total due to rounding

USD millions

Lance Carey


08 July 2011


General Fund* forecast by fiscal year

10

11

12

13

14

15

16

17

18

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

USD billions

Forecast

8.0% 1.2%

(9.6%)(4.1 %)

7.9%

Source: ERFC forecast, June 2011

* General Fund & Related Funds for FY 07-09

General Fund – new definition, for FY 10-13

YTD: 8.1%

4.6%

7.0%

GF-State

Lance Carey


08 July 2011


Conclusion

• The U.S. economy has entered another soft patch in the recovery.

• The impact of the Japanese disaster was worse than anticipated and uncertainty in oil markets has increased.

• GDP growth will have to rely on private demand going forward.

• The recovery should pick up momentum in the third and fourth quarter of the year.

• Downside risks are four times as high as upside risks.

Lance Carey


08 July 2011


Questions

Economic & Revenue Forecast Council1025 E. Union Avenue, Suite 544Olympia WA 98504-0912

www.erfc.wa.gov360-534-1560

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