TD Economics @TD_Economics http://economics.td.com State Economic Forecast New England • is year’s pandemic-induced contraction will be more pronounced in New England as several headwinds hold back the regional economy. ese include an overexposure to the tourism industry for the smaller states of Maine, New Hampshire and Vermont, along with a more measured reopening process for Massachusetts. e good news is that the region has generally managed to keep the virus’ spread well below the national rate. is element should continue to aid the reopening process, keeping the region on a recovery path. Soft fundamentals will keep the recovery pace moderate for states like Con- necticut and Rhode Island, while Massachusetts and New Hampshire, which sport a high-tech tilt, are likely to outperform over the next two years as they play catch-up. Beata Caranci, SVP & Chief Economist | 416-982-8067 James Marple, Managing Director | 416-982-2557 September 22, 2020 Middle Atlantic • e Mid-Atlantic region has managed to keep the virus’ spread well below the U.S. average in recent months and the re- opening process has continued. e region should follow a positive growth trajectory as additional restrictions are eased but will still underperform the nation due to the severity of the crisis earlier in the year. Pennsylvania should fare a little better than its neighbors, given a lower reliance on tourism and a slightly faster reopening process. New York, meanwhile, is poised to trail the region given a slower reopening and continued pressures faced by New York City. e Empire State should stage a stronger recovery once a vaccine becomes available. New Jersey’s performance is likely to be wedged between that of its neighbors, with an above-average contraction of over 5% this year, followed by a recovery of around 3%. Admir Kolaj, Economist | 416-944-6318 Johary Razafindratsita, Economist | 416-430-7126 Upper South Atlantic • e economic outlook for the Upper South Atlantic is mixed. e federal government’s presence in the national capital region (D.C., Maryland and Virginia) cushioned the pandemic’s initial blow and provided support in the early stages of the recovery. Still, business activity remains depressed in its large travel and tourism sector. Delaware, which was already struggling before the pandemic, recorded the region’s deepest contraction in the first quarter. Its economic output is not expected to return to pre-pandemic levels until 2023. To the south, a soaring case count in early summer and a cautious reopening have slowed North Carolina’s recovery. As economic conditions normalize, its healthcare and life sciences sector will help it achieve above-average economic growth. On net, real GDP is forecast to contract by 4.5% in the region in 2020, before expanding by 3.5% in 2021. Lower South Atlantic • A steep surge in coronavirus cases in early summer has weighed on the economies of the Lower South Atlantic. Florida’s prominent travel and tourism sector has been battered by the pandemic and is unlikely to see a full recovery until a vaccine or a treatment is widely available. Likewise, depressed demand for air travel and slow global growth will remain hurdles to South Carolina’s manufacturing and export-driven economy. Real GDP by State Forecast (2020) Source: TD Economics. Forecast as of September 2020. Middle Atlantic New Jersey: -5.3% New York: -6.4% Pennsylvania: -4.2% 2 3 District of Columbia: -5.9% Delaware: -5.7% Maryland: -4.2% North Carolina: -4.0% Virginia: -4.0% West Virginia: -5.1% Upper South Atlantic 3 2 Lower South Atlantic Florida: -4.3% Georgia: -3.8% South Carolina: -3.5% 4 4 Connecticut: -5.6% Massachusetts: -4.6% Maine: -5.2% New Hampshire: -5.1% Rhode Island: -5.7% Vermont: -6.1% New England 1 1 For more on the national outlook please see our Quarterly Economic Forecast.
Transcript
TD Economics
@TD_Economicshttp://economics.td.com
State Economic Forecast
New England• This year’s pandemic-induced contraction will be more pronounced in New England as several headwinds hold back the
regional economy. These include an overexposure to the tourism industry for the smaller states of Maine, New Hampshire and Vermont, along with a more measured reopening process for Massachusetts. The good news is that the region has generally managed to keep the virus’ spread well below the national rate. This element should continue to aid the reopening process, keeping the region on a recovery path. Soft fundamentals will keep the recovery pace moderate for states like Con-necticut and Rhode Island, while Massachusetts and New Hampshire, which sport a high-tech tilt, are likely to outperform over the next two years as they play catch-up.
Middle Atlantic• The Mid-Atlantic region has managed to keep the virus’ spread well below the U.S. average in recent months and the re-
opening process has continued. The region should follow a positive growth trajectory as additional restrictions are eased but will still underperform the nation due to the severity of the crisis earlier in the year. Pennsylvania should fare a little better than its neighbors, given a lower reliance on tourism and a slightly faster reopening process. New York, meanwhile, is poised to trail the region given a slower reopening and continued pressures faced by New York City. The Empire State should stage a stronger recovery once a vaccine becomes available. New Jersey’s performance is likely to be wedged between that of its neighbors, with an above-average contraction of over 5% this year, followed by a recovery of around 3%.
Admir Kolaj, Economist | 416-944-6318
Johary Razafindratsita, Economist | 416-430-7126
Upper South Atlantic• The economic outlook for the Upper South Atlantic is mixed. The federal government’s presence in the national capital
region (D.C., Maryland and Virginia) cushioned the pandemic’s initial blow and provided support in the early stages of the recovery. Still, business activity remains depressed in its large travel and tourism sector. Delaware, which was already struggling before the pandemic, recorded the region’s deepest contraction in the first quarter. Its economic output is not expected to return to pre-pandemic levels until 2023. To the south, a soaring case count in early summer and a cautious reopening have slowed North Carolina’s recovery. As economic conditions normalize, its healthcare and life sciences sector will help it achieve above-average economic growth. On net, real GDP is forecast to contract by 4.5% in the region in 2020, before expanding by 3.5% in 2021.
Lower South Atlantic• A steep surge in coronavirus cases in early summer has weighed on
the economies of the Lower South Atlantic. Florida’s prominent travel and tourism sector has been battered by the pandemic and is unlikely to see a full recovery until a vaccine or a treatment is widely available. Likewise, depressed demand for air travel and slow global growth will remain hurdles to South Carolina’s manufacturing and export-driven economy.
Real GDP by State Forecast (2020)
Source: TD Economics. Forecast as of September 2020.
Middle AtlanticNew Jersey: -5.3%
New York: -6.4%
Pennsylvania: -4.2%
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District of Columbia: -5.9%
Delaware: -5.7%
Maryland: -4.2%
North Carolina: -4.0%
Virginia: -4.0%
West Virginia: -5.1%
Upper South Atlantic3
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Lower South AtlanticFlorida: -4.3%
Georgia: -3.8%
South Carolina: -3.5%
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Connecticut: -5.6%
Massachusetts: -4.6%
Maine: -5.2%
New Hampshire: -5.1%
Rhode Island: -5.7%
Vermont: -6.1%
New England1
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For more on the national outlook please see our Quarterly Economic Forecast.
New England (CT, MA, ME, NH, RI, VT)Connecticut: Rolling With The Punches
The pandemic has taken a heavy toll on the U.S. economy, and Connecticut is no exception. Yet, the Nutmeg State, which hadn’t fully recovered from the Great Recession and entered the current downturn on a soft footing, is showing some resilience. The state has continued to re-cover lost jobs in recent months, helped along by some success in containing the virus’ spread and a quicker re-opening process relative to some of its larger neighbors. Non-farm payrolls are down 7.8% from February, not far off from the U.S. tally and one of the better showings in the Northeast. The unemployment rate meanwhile is moving broadly in line with the nation (Chart 1). Several factors are helping the state weather the storm. For instance, Connecticut has a lower exposure to hard-hit tourism activities compared to the region as a whole. Connecticut’s housing market is also receiving a help-ing hand from the inflow of residents fleeing NYC. With lower interest rates an added fillip, home price growth in the state, which was essentially flat before the pandemic, has since accelerated to around 2% year-on-year (y/y) – one of its better showings of the past several years. The recent inflow of residents from NYC will also help temporarily counter some the negative effects of outmi-gration and slower international immigration this year. Positive spillovers are likely to extend to overall consump-tion and state finances. On the fiscal front, despite a pre-carious long-term fiscal position, the state has a healthy rainy-day fund balance, which topped $3 billion recently. The healthy fund balance helps reduce the likelihood of major spending cuts and tax increases in the near-term. The pandemic’s volatile nature still presents a great deal
of uncertainty and the recovery path is likely to be un-even. A recent drop in the total number of ‘small busi-nesses that are open’ is a cause for concern. What’s more, this month’s minimum wage hike from $11 to $12 per hour, while positive for employed workers, is likely to present an added hurdle for small businesses navigating an already-challenging environment.All in all, looking past the likely bouts of turbulence, we expect the Connecticut economy to remain on a recovery path going forward. The steep pullback in economic ac-tivity in the first half of this year will still result in an out-sized yearly contraction of -5.6%, followed by moderate gains averaging 2.6% in 2021-22. Among the sectors that we expect to remain outsized contributors are healthcare and manufacturing. The defense tilt of the latter is likely to prove advantageous over the medium term, with exist-ing contracts expected to keep production pipelines for helicopters and submarines busy for years to come.
Massachusetts: Pandemic Pain Sets In
The COVID-19 pandemic has dealt a major blow to the Bay State. Despite bouncing back from the April low, non-farm payrolls are still down an outsized 11% rela-tive to February. Meanwhile, the state’s unemployment rate, which stood at close to a nation low pre-pandemic, remains in double-digit territory at 11.3% in August. Several factors lie behind this underperformance. The Bay State experienced an earlier spike in COVID-19 cases compared to many other parts of the country and swift measures to stem the virus’ spread resulted in more pronounced job losses early on. Despite some recent suc-cess in slowing the spread, the state has been taking a careful approach at reopening, with a rise in infections in late-July leading to pause in the process. Recovery remains elusive in the state’s key leisure and hospitality industry, where payrolls are still down 40% from pre-virus levels. Transportation and construction mark other notable weak spots. The recession will con-tinue to test the real estate market, both commercial and residential, posing additional downside risk for the con-struction sector. So far, however, the residential market appears to be holding up well, thanks to support from lower interest rates and the resilience of medium and high-wage jobs that tend to be associated with higher rates of homeownership (Chart 2). Underneath the gloomy headline payroll numbers are
some pockets of strength, such as information and pro-fessional & tech services. These industries, whose workers may be more adept at working remotely, should provide additional support ahead. While the pandemic may dent the expansion plans of tech firms, many tech giants are slated to follow through with their long-term expansion plans in the Boston core. Massachusetts’ tilt toward life sciences, whose growth trajectory has not been as im-pacted by the pandemic, should also lend a helping hand. Overall, the state’s higher reliance on “high touch” ser-vice jobs will remain a near-term challenge. Still, we do see potential for Massachusetts’ job market to moderately outperform in the quarters ahead as it plays catch-up. Ultimately, we expect the state’s jobless rate to dip back below that of the nation over the medium term, resuming a balance that has held for the good part of three decades.
Maine, N.H. & Vermont: Recovery Continues
Maine, New Hampshire and Vermont have continued to keep the spread of COVID-19 well below the national average heading into autumn. Given success on this front, the trio seems to be doing a decent job at recovering from the pandemic’s shock, especially Maine, according to a Moody’s/CNN index that tracks back-to-normal activity (Chart 3). The ongoing jobs recovery is part of the sto-ry. Compared to pre-pandemic levels, payrolls are down 8.6% in Maine and New Hampshire, and close to 10% in Vermont. While these are some of the better show-ings in the Northeast, they still trail the nation. This re-sult however, isn’t entirely unwarranted given that these states have a higher exposure to tourism-related activi-ties, which have borne the brunt of the pandemic. Look-ing ahead, all three states are expected to remain on a re-covery path, but the Granite State is likely to fare better,
thanks in part to its economy’s high-tech tilt and a more favorable demographic backdrop. The tourism industry is likely to pick up gradually along-side improving public health conditions. Ongoing re-strictions on out-of-state visitors and on activities such as indoor dining will continue to weigh on the sector’s recovery. While the industry may receive some support from regional demand, limits on international travel and an extended border closure with neighbouring Cana-da will continue to weigh on demand. The cancellation of this year’s Women’s World Cup ski race in Vermont marks an unfortunate development on this front. Not all the pandemic’s impact on consumer-related busi-nesses has been negative. The housing market, for in-stance, appears to have seen some benefit. The tri-state region, which is a hot spot for vacation homes, has also proven popular with out-of-state buyers during the pan-demic. Helped along by low mortgage rates, price growth has picked up and is particularly strong in Maine, where out-of-state home purchases were up 5.5% y/y in July. With all three states low on housing inventory, the con-struction sector should get a lift.Looking at the other sectors, apart from healthcare, which will continue to be buoyed by the region’s aging de-mographics, the manufacturing sector should also lend a hand. Large manufacturers in the region, including those in the high-tech space, continue their work largely unper-turbed by the pandemic thanks in part to their defense tilt. At the same time, warship production at Maine’s BIW is expected to run at a high rate after a two-month strike ended in August. The US-EU lobster deal, coupled with direct federal aid to the fishing industry in response to the trade war, mark other positive developments for Maine.
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Chart 2: Medium and High-wage Jobs, Where Home-ownership Rates Are Higher, Faring Better
Middle Atlantic (NJ, NY, PA)New Jersey: Fiscal Matters Back On The Radar
New Jersey’s public health crisis has improved markedly in recent months. New cases per population remain well below the U.S. average (Chart 4). With the state economy gradually reopening, the jobs recovery has continued at a steady clip. About half of the jobs lost in the March-April period were recovered by August. We expect the Garden State economy to remain on a recov-ery path. Still, reduced economic activity will take a heavy toll on state finances, which never fully recovered from the Great Recession. On this front, a new gas tax hike will go into effect next month, while an income tax rate increase (from 8.97% to 10.75%) on income above $1 million was recently agreed upon. These measures will fill in some of the fiscal shortfall. The ‘millionaire’ tax hike will facilitate the funding of other initiatives such as rebate checks of up to $500 to families with incomes below $150k, affecting an estimated 800k families. But, given that the state already ranks low on overall tax climate, these measures could ac-centuate negative fiscal pressures down the road by hasten-ing migration to lower-tax jurisdictions. In the meantime, an inflow of residents from NYC is helping prop up sub-urban housing markets.A few sectors will be key to New Jersey’s growth outlook, which we expect to clock in at around 3% over the next two years. The healthcare sector hasn’t been spared from losses during the pandemic, but it is likely to see a solid recovery. An increase in the minimum wage for direct-care staff at long-term care facilities by $3/hr should provide an added fillip for the industry.
Measures to rein in drug prices pose a risk to the state’s pharma industry, but with several firms poised to see a ben-efit from work directly related to the pandemic, it should continue to lend a helping hand. The logistics sector is also poised offer support. Reduced global trade marked a recent obstacle, but an improving global outlook is changing the narrative, with the sector also slated to continue benefitting from a rise in e-commerce.The recovery of other ‘high-touch’ consumer-related activi-ties is likely to be more gradual. The leisure and hospitality sector continues to fare worst, with payrolls still down 33% from pre-pandemic levels. The recent lifting of a ban on indoor dining (now at 25% capacity) will provide a life-line for the sector. The change marks an added boon for Atlantic City casinos, which opened in July and will now be able to serve guests indoors as temperatures drop. The long-awaited opening of the American Dream mega-mall next month marks another positive development for con-sumer-related industries.
New York: In For Some Hard Times
New York has been one of the hardest-hit states from the COVID-19 pandemic. That said, the negative pressures emanating from the health-crisis are not evenly distributed regionally. The typically slower-growing upstate economy has emerged as an outperformer in recent months. This part of the state is not as reliant on tourism and is less-densely populated, which has helped in suppressing the vi-rus’ spread and allowed a slightly faster reopening process. NYC on the other hand has been faring worse (Chart 5). NYC’s orientation towards a number of hard-hit consum-er-oriented service industries continues to weigh on recov-ery prospects. Leisure and hospitality payrolls in the city for instance, are still down 50% from February’s level. A lack of tourists, ongoing restrictions, such as on indoor dining, and a very slow return of workers to offices, are weighing heav-ily on retailers and restaurants. In light of the challenging conditions, many establishments, including national retail brands situated in Manhattan, have closed shop, leading to an increase in vacancies.NYC’s economy has also suffered from an outflow of resi-dents to other parts of the country. The pandemic has ac-celerated this existing trend, adding to the headwinds on housing conditions in the city. NYC’s home price decline has intensified as a result, with prices in Manhattan down
3.4% y/y and the number of vacant rental apartments near-ly tripling from last year’s levels. A sharp drop in interna-tional migrants is likely to accentuate the pandemic’s sting. Given reduced commercial activity and outmigration, fis-cal woes are a growing risk. Without proper federal sup-port, tax hikes, spending cuts and the deferral of important public works are all likely. The planned overhaul of the JFK airport, for instance, is likely to face significant delays. Despite these headwinds, we expect the pace of econom-ic activity in the Big Apple and Empire State to pick up gradually heading into 2021. In recent months, both have had success at keeping the virus spread in check, which should stand the region in good stead as it continues with the reopening process. On this point, NYC will finally al-low indoor dining at 25% capacity at the end of Septem-ber – an important lifeline for the industry as temperatures drop. The turnaround in the economy is likely to pick up once a vaccine is available, which will allow for a firmer re-turn of tourists to the Big Apple and workers to the office.
Pennsylvania: Slightly Ahead Of Its Neighbors
Pennsylvania’s initial spike in COVID-19 was not as pro-nounced as neighboring New York or New Jersey, and the state has managed to keep the virus’ spread well below the national average since May. This has allowed its economy to reopen at a faster clip. In fact, all counties in the state were in the last phase of reopening by early July. This last stage allowed bars and restaurants to open at reduced ca-pacity, which is part of the reason why payrolls in its leisure and hospitality industry are faring better than its neigh-bors’. The state also had a lower exposure on tourism-relat-ed activities to begin with, an added reason for its relatively
quicker labor market recovery (Chart 6). This outperfor-mance is mirrored in consumer spending, with Pennsyl-vania the only East Coast state so far to see spending rise above pre-pandemic levels. Put together, these elements build the case for a relatively better economic outcome than its middle-Atlantic neighbors. The state economy is expected to contract by just over 4% this year, before re-bounding by 3.4% next year.Still, given the state’s heavy energy tilt, the weak energy backdrop is a factor behind the behind the modest un-derperformance vis-à-vis the nation this year. Fortunately, an improving global economic outlook suggests a more positive energy price environment next year, with invest-ments expected to follow. The related manufacturing sector meanwhile, already stands on solid footing. The Philly Fed Manufacturing index has remained in positive territory for the fourth consecutive month in September, with broad strength across the subcomponents. The state recently landed a $360M can factory, beating out New York, mark-ing yet another positive development for the sector. The healthcare sector meanwhile is well-positioned to stage a firm comeback. In recent years, investments have expanded the sector’s capacity, and demographic forces re-main a tailwind. As public health conditions improve and patients feel more confident visiting doctors and sched-uling procedures, activity will move higher. Healthcare’s higher value-added branches, such as the pharmaceutical industry, should offer additional support. Pittsburgh-based UMPC has committed $800M in new investments related to the development of new drugs, diagnostics and medical devices over the next four years, which should help prop up the life sciences sector.
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Chart 5: Negative Pressures Concentrated in NYC, Rest of State Faring Better on Employment
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Source: BLS, TD Economics.
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Chart 6: Pennsylvania's Labor Market Recovery Slightly Ahead of Its Neighbors
Upper South Atlantic (DC, DE, MD, NC, VA,WV)Delaware: Slow And Steady
For a state that has struggled with sluggish economic growth over the past few years, the COVID-19 recession has hit Delaware harder than most. Even before the pan-demic’s adverse impacts were on full display in the second quarter, the state’s economy contracted at a hefty 5.6% annualized rate in the first quarter, marking the deepest contraction among states in the Upper and Lower South Atlantic. The healing process, which likely began in the third quarter, is expected to be lengthy, with output not recovering to pre-virus levels until the second half of 2023. As Delaware’s economy slowly recovers, a few bright spots have emerged. Notably, the labor force participation rate, which plummeted as the crisis hit, rebounded to 63.5% in August, its highest level since July 2009. Encouragingly, employment growth has also shown signs of coming back to life over the last few months (Chart 7). The recovery has been spearheaded by a strong rebound in hard-hit industries such as accommodation and food ser-vices and, to a lesser extent, retail and health care and social assistance. As the pace of recovery in these areas naturally normalizes, other key industries are expected to take up the slack. Indeed, the state’s prominent financial services industry, which has weathered the crisis relatively well thus far, is expected to remain a source of strength. The industry will benefit from the addition of 300 jobs at Barclays’ head-quarters in Wilmington as part of a $7 million investment. However, with payroll employment still 9.7% below its February level, Delaware’s recovery is still nascent. The unemployment rate, while having eased considerably since
peaking at 15.9% in May, remains elevated at 8.9%. The state hit the pause button on its reopening plan in June and, with cases trending higher of late, indicated it will maintain the status quo in recent communications. All considered, Delaware’s economy will likely recover at a slower rate in the latter months of the year.
D.C.-Maryland-Virginia: A Test Of Resilience
When the COVID-19 crisis hit, the national capital re-gion received some insulation from the federal govern-ment’s large presence in the area. Indeed, while aggregate employment contracted in all major sectors of the region’s economy in the second quarter, employment at the federal government level increased. Overall, August payroll em-ployment was 7.3% below their February levels in D.C. and Maryland, and 6.1% below in Virginia, compared to 7.6% nationally. While much of the bounce-back in labor markets recorded since April has been powered by employment in services industries, a few other sectors stand out. Construction jobs, for instance, have rebounded sharply in the region with the addition of over 22,000 positions (+6.3%) since April (Chart 8). This was underpinned by a big jump in residen-tial construction, with housing starts up sharply across all three regions over the past two months. Similarly, con-struction in the commercial space has continued to benefit from large-scale projects that have forged ahead despite the pandemic, including Amazon’s second headquarters in Pentagon City. Likewise, home resales have held up comparatively well in D.C. and Virginia, contrasting with less encouraging trends
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Chart 7: Employment Slowly but Steadily Recovering in Delaware
*Seasonally adjusted. Source: Bureau of Labor Statistics, TD Economics. Last observation August 2020.
in Maryland. The Old Line State also recorded somewhat slower home price growth at 3.4% y/y in July, compared to 3.9% in D.C. and 4.2% in Virginia. Overall, price growth in the region has been more subdued than at the national level thus far in the recovery. The area continues to be faced with affordability issues caused by a lack of supply at the lower end of the price spectrum, which has kept a lid on price growth in recent years. Looking ahead, the recovery is likely to slow as the spot-light refocuses on some longer-term growth challeng-es. The shortfalls in state and local government budgets created by the pandemic will represent an impediment to growth over the coming years. Maryland recently an-nounced a $413 million cut to its budget, mainly aimed at higher education, and signaled more could be coming. Meanwhile, unemployment rates have been slower to im-prove over the summer months and remained historically high at 6-8% across the regions. Business activity also remains heavily depressed in indus-tries such as travel and tourism. In downtown D.C., hotel revenues were down 94% in June from a year earlier, while conventions and meetings facilities such as the Walter E. Washington Convention Center have opted to remain closed for the year.
North Carolina: Cautiously Reopening
After turning in an outperformance earlier in the pandem-ic, the Tar Heel State’s economic recovery has been slowed by a sharp rise in new coronavirus cases in the early sum-mer months. Indeed, the rebound in consumer spending has plateaued since June and has recently shown signs of pulling back. While new infections have since leveled off, they remain relatively high going into the fall. Assuming further inroads are made in bending the COVID-19 curve this autumn, we expect the economy to regain some gusto by year end, setting the stage for an above-average growth performance in 2021. The theme of a slower recovery has also borne out in un-employment claims data. While the number of new fil-ings has steadily decreased from April to July, progress has slowed markedly over the past month, with new applica-tions stabilizing around 13,000 per week. Considering the expiration of the $600 per week in supplemental federal unemployment benefits at the end of July, over 140,000 North Carolinians relying on unemployment insurance are now at risk of seeing their incomes take a big hit. For reference, the Tar Heel State has one of the shortest and
lowest state unemployment benefit programs in the coun-try, with payouts capped at $350 per week for a maximum eligibility period of 12 weeks (Chart 9). Like consumer spending, business activity has fallen vic-tim to the pandemic outbreak this summer. Business clo-sures have accelerated over the past few months, leaving the number of open small businesses down 12.4% in early August relative to January. This is not entirely surprising, given that North Carolina’s reopening plan was placed on hold for several months. The state entered the second phase of its plan in late May and only moved to loosen additional restrictions in early September following a streak of de-clining caseloads. Gyms, playgrounds, museums, bowling alleys and aquariums have been added to the list of busi-nesses allowed to reopen, while bars, nightclubs, movie theaters and indoor entertainment venues are still closed. Housing activity, which has provided a boost to several states over the past few months, has been more muted in North Carolina. Both existing home sales and housing starts lag the national increase. As it relates to the latter, a 11.6% contraction in building permits in July suggests a more moderate pace of growth going forward. The lack of supply may help explain the strength in home prices, which increased by 5.5% y/y in July and have consistently outpaced the national growth rate this year. Looking ahead, North Carolina will be able to rely on its strong healthcare and life sciences sector to drive the re-bound as economic conditions normalize. In fact, the state has continued to see an influx of large-scale investment projects this year. These notably include $470 million, $352 million and $100 million investments from Eli Lilly, Grifols Therapeutic and Grail Inc., respectively.
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Chart 9: State Unemployment Benefits Less Generous in North Carolina
Maximum Weekly State Unemployment Benefit Payout*, $
Maximum Unemployment Benefit Duration, Weeks*For individuals. Source: State Departments of Labor and Divisions of Unemployment Insurance, TD Economics.
The Palmetto State implemented one of the shortest stay-at-home orders across the country in the spring and was very aggressive in reopening its economy. By many ac-counts, this approach resulted in a strong rebound in the early stages of the recovery. South Carolina’s economic resiliency, however, was put to the test by a surge in infec-tions in early summer. This has weighed on activity and appears to have stalled the state’s economic convalescence to a certain degree.Illustrating these points, consumer spending had virtu-ally recouped all its pandemic-related losses by early June. However, it has since failed to make meaningful progress, and even showed signs of pulling back in recent weeks (Chart 10). In a similar fashion, high-frequency indicators of mobility have flattened out over the last few months following a swift upturn as the state loosened restrictions on activity. These dynamics also came through in the jobs data. Af-ter a strong start, employment growth slowed markedly through the summer. Meanwhile, South Carolina’s unem-ployment rate clocked in lower at 6.4% in August (from 12.8% in April), though it was helped by a substantial drop in the labor force participation rate. On the good news front, new vehicles sales have rebound-ed briskly, emerging as one of a few areas showcasing a “V-shaped” recovery (Chart 11). This is an encouraging development for South Carolina’s large auto manufactur-ing sector. Still, while sales have now increased for four
consecutive months, a slower pace of growth will likely materialize in the coming months as pent-up demand eases and economic conditions prove slower to improve. Beyond the near-term, the state’s export-driven economy will be challenged by sluggish global demand in certain industries. The bleak outlook for air travel, in particular, will weigh on South Carolina’s prominent aircraft manu-facturing industry. Adding credence to this view, the In-ternational Air Transport Association recently indicated that it does not expect air travel to return to pre-crisis volumes before 2024. Already, plans to purchase new air-planes have been scrapped at several airline companies, many of which have downgraded their medium and long-term outlooks. As a result of the low demand environment, Boeing, one of the state’s most important employers announced a 10% reduction of its workforce earlier this year and recently warned that more layoffs could be coming after a dismal second quarter. Indeed, the aircraft manufacturer only sold 20 commercial jets in the second quarter, down from 50 in the first quarter. Importantly, it is also scaling back the production of its 787 airplanes, which it manufactures in South Carolina and Washington State, to six jets per month in 2021, down from 10 per month in 2020. The company is considering consolidating its production at a single plant to reduce costs.All in all, real GDP growth is expected to contract by 3.5% in South Carolina in 2020, before rebounding to 3.6% in 2021.
Chart 10: Surging Infections Weighed on South Carolina's Spending Recovery
Source: Affinity Solutions, TD Economics. Last Observation August 30, 2020.
Consumer Spending, South Carolina, % Change from January 2020
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2012 2013 2014 2015 2016 2017 2018 2019 2020*Seasonally adjusted at annual rates.Source: Bureau of Economic Analysis, TD Economics. Last observation August 2020.
have remained limited thus far. In fact, while official capac-ity figures have remained under wraps, the state’s largest theme parks reportedly only managed to hit their reduced capacity limits for the first time in early September. Be-sides, given a highly uncertain outlook and sluggish de-mand, theme parks have continued to extend previous temporary furloughs and, in some instances, have turned them into permanent layoffs.Despite these struggles, Florida’s economy has a few bright spots. In particular, the housing sector, supported by strong demand from out-of-state buyers, has been thriving over the past few months. These buyers, attracted by the state’s enjoyable climate, low population density and friendly tax environment, have helped boost home price growth, espe-cially outside of dense metro areas (Chart 13). Assuming the downtrend in the state’s COVID-19 casel-oad continues, its economic recovery should make further inroads over the coming months. The state recently loos-ened some of the restrictions it implemented in June, nota-bly allowing bars to reopen at 50% capacity. This decision, however, does not apply to Miami-Dade, Florida’s most populous and hardest-hit county. Despite recent progress, the Sunshine State is not out of the woods yet. Positive test rates remain elevated, and con-firmed cases have started to tick higher in recent days. Be-yond the near-term, a full recovery in Florida’s prominent travel and tourism sector is unlikely until a treatment or a vaccine is widely available. Overall, Florida’s economy is expected to contract by an above-average 4.3% this year, before expanding by 3.3% in 2021.
Florida: An Uphill Battle
In the span of a few months, Florida’s coronavirus case-load went from under control to disastrous. Indeed, the Sunshine State was lauded for its early success in keeping infection rates low, in no small part thanks to its relatively low density and the early adoption of social distancing by its population. This, however, changed in early June when Florida became home to one of the worst outbreaks since the health crisis began.The state’s economy, due to its large dependence on travel and tourism, has been particularly vulnerable to the pan-demic-led downturn. This has been illustrated by the dis-proportionate hit to the accommodation and food services sector, which represents about 11% of the state’s employ-ment but has accounted for nearly 42% of the jobs lost this year. Meanwhile, demand for hotel rooms, which fell by over 77% at the height of the crisis, is still down 30% compared to a year ago (Chart 12). Unsurprisingly, tourist arrivals to Florida stumbled in the second quarter, declining by almost 61% from a year earlier. The pullback was led by a 91% contraction in international tourism, while domestic tourism retreated by a less severe 56.4%. Even with the reopening of interstate travel, Flori-da’s well documented case count has made it a less attrac-tive destination. In addition, travelers from Florida have been required to self-quarantine in several states, including New York, New Jersey, Connecticut and Pennsylvania.Still, the reopening of the state’s popular theme parks in early summer fueled some hope that economic activity would finally take off. Traffic volumes, however, appear to
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Chart 12: Hotel Demand Still Depressed in Florida
Source: VisitFlorida.org, STR, TD Economics.
Sales of Hotel Room-Nights, Florida, Year/Year % Change
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Chart 13: Florida Home Price Growth Showing no Signs of Slowing amid Strong Demand
Source: Corelogic, TD Economics.
Home Prices, Single-family Combined, Florida, Year/Year % Change
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