NEW ENGLAND ECONOMIC OUTLOOK

Mary A. Burke

Senior Economist

Federal Reserve Bank of Boston

NCSL Atlantic States Fiscal Leaders

Meeting

Feb. 19, 2016

Disclaimer: The views expressed here are those of the speaker and do not necessarily represent the views

of the Federal Reserve Bank of Boston or the Federal Reserve System.

Disclaimer

Views presented here are my own

NOT the official views of the Federal Reserve Board or the Federal Reserve Bank of Boston

Economic Activity Levels At or Above Pre-Recession Peaks

Source: Federal Reserve Bank of Philadelphia, NBER, Haver Analytics

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Ind

exed

to

Pre

-rec

essi

on

Pea

ks Recession

CT

ME

MA

NH

RI

VT

US

Payroll Employment Still Not Fully Recovered in CT, ME, RI

Source: Bureau of Labor Statistics, NBER, Haver Analytics

0.85

0.90

0.95

1.00

1.05

1.10

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Ind

exed

to

Pre

-rec

essi

on

Pea

ks Recession

CT

ME

MA

NH

RI

VT

US

Employment Growth Rates Above Trend in Most States (past 12 months)

Source: Bureau of Labor Statistics, Haver Analytics

Annual Long-term Trend Last 12 months Since Peak

Percent Percent Number Percent Number

United States 1.4 1.9 2,735,000 3.4 4,705,000

New England 0.8 1.7 119,400 2.7 189,200

Connecticut 0.5 1.3 22,600 -0.7 -12,300

Maine 1.2 1.4 8,600 -1.2 -7,600

Massachusetts 0.8 2.1 73,800 5.9 194,700

New Hampshire 1.5 0.5 3,400 0.6 3,700

Rhode Island 0.6 1.8 8,400 -1.6 -8,000

Vermont 1.3 0.8 2,600 1.5 4,700

Industry Emp. Growth Rates Mostly Follow U.S.; Region Lags in Wholesale/Retail Trade

1.6

1.0

0.2

0.4

1.0

1.9

2.7

3.2

1.2

3.0

3.3

4.9

-0.3

0.0

0.4

0.4

1.7

1.8

1.9

2.2

2.2

2.6

3.4

5.1

-1 1 3 5 7

Retail Trade

Wholesale Trade

Manufacturing

Government

Information

Finance

Transportation, Warehousing, and Utilities

Education & Health

Other Services

Leisure & Hospitality

Professional & Business Services

Construction

Percent Change, December 2014 - December 2015

NE US

Source: Bureau of Labor Statistics, Haver Analytics

Unemployment Rates Down Significantly in All NE States Since Dec. 2014

Source: Bureau of Labor Statistics, NBER, Haver Analytics

0

2

4

6

8

10

12

Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15

Perc

enta

ge

Recession

US

NE

Dec-14 Dec-15

United States 5.6 5.0

New England 5.5 4.7

Connecticut 6.3 5.2

Maine 5.5 4.0

Massachusetts 5.3 4.7

New Hampshire 4.0 3.1

Rhode Island 6.8 5.1

Vermont 4.1 3.6

Labor Force Participation Rates Flat or Down Since Late 2013

60

62

64

66

68

70

72

74

05-Jan 06-Jan 07-Jan 08-Jan 09-Jan 10-Jan 11-Jan 12-Jan 13-Jan 14-Jan 15-Jan

Per

cen

t

Recession US CT ME MA NH RI VT

Source: Bureau of Labor Statistics/Haver Analytics

U6 Unemployment Down Sharply Since Mid-2014, But Still Elevated

5

7

9

11

13

15

17

19

21

05-Q1 06-Q1 07-Q1 08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1

Per

cen

t

Recession USCT MEMA NHRI VT

Source: Bureau of Labor Statistics/Haver Analytics

U6 Unemployment Well Above Pre-Recession Lows in Mid-Atlantic States

5

7

9

11

13

15

17

19

05-Q1 06-Q1 07-Q1 08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1

Per

cen

t

Recession US DE MD NY PA

Source: Bureau of Labor Statistics/Haver Analytics

CPI Inflation Down Sharply Since 2014

Source: Bureau of Labor Statistics, NBER, Haver Analytics

-4

-2

0

2

4

6

8

Nov-01 Nov-03 Nov-05 Nov-07 Nov-09 Nov-11 Nov-13 Nov-15

Perc

ent

Ch

ange

fro

mYe

ar E

arlie

r

Recession

Boston

US

House Price Increases Flat in New England Since 2013; Down in U.S.

Source: FHFA, NBER, S&P/Case-Shiller, Haver Analytics

-15

-10

-5

0

5

10

15

20

Q3-01 Q3-03 Q3-05 Q3-07 Q3-09 Q3-11 Q3-13 Q3-15

Perc

ent

Ch

ange

fro

m Y

ear

Earl

ier

RecessionNE FHFA-Purchase OnlyUS FHFA-Purchase OnlyUS S&P Case-Shiller

State Tax Collections Above Pre-Recession Peak in All NE States except NH

Source: Bureau of the Census/Haver Analytics; index based on nominal dollar values

40

50

60

70

80

90

100

110

120

130

140

05-Q1 07-Q1 09-Q1 11-Q1 13-Q1 15-Q1

Ind

exed

to

Pre

-20

09

Pea

k

CT ME MA NH RI VT

Real Personal Incomes Above Pre-2009 Peaks; Lagging in ME

85

90

95

100

105

110

115

05-Q1 06-Q1 07-Q1 08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1

Ind

exed

to

Pre

-20

09

Pea

k

Recession US

CT ME

MA NH

RI VT

Source: Bureau of Economic Analysis/Haver Analytics

Corporate Income Tax Collections Below Pre-2009 Peaks in New England and Mid-Atlantic

Source: Nelson A. Rockefeller Institute of Government/Haver Analytics; indexes based on nominal dollar values

20

30

40

50

60

70

80

90

100

110

120

05-Q1 07-Q1 09-Q1 11-Q1 13-Q1 15-Q1

Ind

exed

to

Pre

-20

09

Pea

k

New England - Total Middle Atlantic - Total

New England - Corporate Income Middle Atlantic - Corporate Income

Corporate Income Tax Share Same or Higher in New England

4

5

6

7

8

9

10

11

12

05-Q1 06-Q1 07-Q1 08-Q1 09-Q1 10-Q1 11-Q1 12-Q1 13-Q1 14-Q1 15-Q1

Per

cen

t

New England

Middle Atlantic

Source: Nelson A. Rockefeller Institute of Government/Haver Analytics

General Revenue Collections Little Changed 2014-2015

0

5

10

15

20

25

30

CT ME MA NH RI VT

Gen

eral

Rev

enu

e ($

Mill

ion

)

2014 Fiscal Year

2015 Fiscal Year

Source: Federal Reserve Bank of Boston/Haver Analytics

State Tax Revenue Growth To Slow in 2017 in CT, MD, NY, PA, VT

Personal Income Tax ($ in millions) Sales Tax ($ in millions)

State Forecast FY 2015 FY 2016 FY 2017 % chg., % chg., FY 2015 FY 2016 FY 2017 % chg., % chg.,

month forecast forecast forecast 2015-16 2016-17 forecast forecast forecast 2015-16 2016-17

Connecticut 15-Nov 9,148.70 9,645.00 10,004.10 5.4 3.7 4,216.30 4,121.10 4,084.70 -2.3 -0.9

Delaware 15-Sep 1,251.90 1,306.70 1,372.10 4.4 5 NA NA NA NA NA

Maine 15-May 1,500.30 1,548.80 1,640.40 3.2 5.9 1,194.00 1,127.50 1,180.60 -5.6 4.7

Maryland 15-Sep 8,346.10 8,745.30 9,173.30 4.8 4.9 4,350.70 4,543.10 4,710.10 4.4 3.7

New York 15-Aug 43,709.00 47,075.00 49,701.00 7.7 5.6 12,991.00 13,532.00 14,067.00 4.2 4

Pennsylvania 15-Dec 12,107.00 12,687.00 13,180.00 4.8 3.9 9,493.00 9,840.00 10,188.00 3.7 3.5

Rhode Island 15-Nov 1,227.60 1,214.90 1,265.40 -1 4.2 963.4 981 1,015.00 1.8 3.5

Vermont 15-Jul 705.9 763.8 797.8 8.2 4.5 364.6 382.2 394.3 4.8 3.2

New Hampshire NA NA NA NA NA NA NA NA NA NA NA

Massachusetts* NA NA NA NA 2.2 2.6 NA NA NA 5.6 5.9

Source: The Rockefeller Institute, “States Forecast Slow Tax Revenue Growth in 2017 and Over the Longer Term,” Lucy Dadayan and Donald J. Boyd. *Massachusetts revenue growth figures sourced from Mass. Taxpayers’ Foundation and include capital gains tax growth.

Consumer Confidence Lagging in Region Since 2014

Source: The Conference Board, NBER, Haver Analytics

0

20

40

60

80

100

120

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

Ind

exed

to

U.S

. Ave

rage

of

19

85

RecessionNEUS

New Englanders More Gloomy About Future in 2016 than 2015

Source: The Conference Board, Haver Analytics

0

20

40

60

80

100

120

140

US NE US NE US NE

Consumer Confidence Present Situation Future Expectations

Jan-15 Jan-16

NEEP Forecast: VT Will Lead in Employment Growth, ME Will Lag

Source: New England Economic Partnership; Fall 2015 Economic Outlook Conference Bulletin

Region’s Employment Growth to Peak in 2015-2016; Falls Farther Behind U.S. by 2018

Annualized percent changes in total employment

Source: New England Economic Partnership; Fall 2015 Economic Outlook Conference Bulletin

FOMC Predicts Further Improvements in GDP Growth, Unemployment in 2016

Source: FOMC Minutes, Dec. 15-16, 2015

Fed Funds Rate Predictions Vary Across FOMC members

Source: FOMC Minutes, Dec. 15-16, 2015

Has Recession Risk Increased Recently?

“Financial indicators, from the bear market in stocks to widening credit spreads, are signaling the likelihood of recession. Fundamental indicators, by contrast, are signaling the reverse. ”

Gene Epstein, Barron’s, Feb. 15

“Federal Reserve Chair Janet Yellen told Congress this week that the U.S. economy is in decent shape and would be even better if not for the blasted rest of the world. Financial markets beg to differ.”

Opinion, The Wall Street Journal Online, Feb. 11, 2015

Unemployment Rate Rise Preceded All Recessions Since 1948

Civilian unemployment rate, ages 16+, seasonally adjusted

Risks to the Outlook

Upside risks Domestic labor markets tightening Lower oil prices boost consumer spending

Downside risks Slower growth in China, emerging markets Stronger dollar hurts exports Domestic and global political uncertainty Aging workforce, aging infrastructure, structural deficits

FOMC December risk assessment Risks to growth and unemployment mostly balanced Inflation risk skewed down for almost half of members