Whats Wrong With the New Hampshire Economy and What Can Be Done - - PowerPoint PPT Presentation

What’s Wrong With the New Hampshire Economy and What Can Be Done About It?

Joint Economic Briefing New Hampshire House and Senate Finance and Ways and Means Committees January 14, 2015

Brian Gottlob PolEcon Research bgottlob@poleconresearch.com

Outline

• NH’s Recent and Current Economic Performance in Context
• Factors Influencing NH’s Outlook
• Implications for NH Revenues
• Implications for State Policy

Annual Rate of Employment Growth

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

H U.S.

The Pace of Employment Growth Has Been on a Long, Downward Trend

• Nationally. After Decades of Faster Growth, NH Spent Much of the Past 10

Years Lagging U.S. Employment Growth

Three Full Years After the Recession Ended, NH Was Near the Bottom in Total Job Growth

Total Emp. Growth 2010 Thru 2013

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

New Mexico Arkansas Maine Alabama Mississippi West Virginia Pennsylvania New Jersey New Hampshire Missouri Vermont Rhode Island Connecticut Wyoming Virginia Maryland Wisconsin Illinois Delaware Kansas South Dakota Nebraska Louisiana Alaska Kentucky Iowa New York Massachusetts Ohio Georgia Oregon Indiana Montana North Carolina Oklahoma South Carolina Tennessee Minnesota Nevada Hawaii Washington Arizona Florida Idaho Michigan California Colorado Texas Utah

H MA VT ME RI CT Note: Annual 2014 Data Not Yet Available.

But Private Sector Job Growth in NH Has Been Stronger - Below the U.S. Average but Better Relative to Other Northeastern States

Private Sector Job Growth 2010 Thru 2013

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%

Arkansas New Mexico Maine West Virginia Mississippi Alabama Missouri Vermont New Jersey Pennsylvania Rhode Island Virginia Wyoming Maryland Connecticut Delaware New Hampshire Kentucky Wisconsin Illinois Nebraska Kansas South Dakota Iowa Massachusetts Ohio South Carolina New York Georgia Alaska Louisiana North Carolina Indiana Minnesota Nevada Oregon Oklahoma Montana Hawaii Tennessee Washington Arizona Idaho Florida Colorado Michigan California Utah Texas

H MA VT ME CT RI

Austerity Cuts to Govt. (Primarily Local Govt.) Shaved About One Percent From NH’s Job Growth Since 2010 – More Than in all But Two States

Impact of Change in Govt. Emp. on Total Emp. Growth 2010 Thru 2013

• 1.5%
• 1.0%
• 0.5%

0.0% 0.5% 1.0%

Louisiana Michigan New Hampshire Pennsylvania Alaska New Mexico New York Oregon New Jersey Maine California Indiana Alabama Florida Tennessee Georgia Montana Texas Ohio Illinois Kansas Connecticut Rhode Island Wisconsin South Dakota Mississippi Arizona Nevada Washington Arkansas Minnesota North Carolina Nebraska Hawaii Idaho Oklahoma Vermont Massachusetts Delaware West Virginia Maryland North Dakota Missouri Virginia Iowa South Carolina Wyoming Kentucky Colorado Utah

H

Business & Professional Services Added the Most Jobs (But only 25% are in Highest Skill Industries – Prof./Sci/Tech), While Local Government Shed the Most Jobs Since 2010

NH Job Growth January 2010- November 2014

300 1,500 2,200 2,500 2,700 6,400 6,400 (100) (5,800) (100) 3,100 6,300 1,200 (300)

(8,000) (6,000) (4,000) (2,000) 2,000 4,000 6,000 8,000

Local Government Federal Government Arts, Entertainment, & Rec. Information Wholesale Trade Financial Activities State Government Manufacturing Construction

• Prof. Sci. &Tech. Srvcs.
• Ed. Services

Other Services Health Care & Soc. Srvcs. Retail Trade Accomodations & Food Services Other Business Services

There are Large Regional Differences in Job Growth – Some is Related to Differences in Industry Composition but as Much or More is Related to Labor Force Trends

1.4% 3.6% 5.8% 8.0% 3.9% 4.5% 4.4% 7.2% 8.0% 3.2%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

ashua ECTA Manchester ECTA H Dover/Rochester ECTA Portsmouth ECTA Labor Force Job Growth 2003 to 2013

Labor Force Growth (Index Jan 2001 =100)

90.0 95.0 100.0 105.0 110.0 115.0 120.0

01 02 03 04 05 06 07 08 09 10 11 12 13 14

Manchester Portsmouth Dover/Roch. H

12 Mos Moving Average

Differences in Growth Across NH are Largely Attributable to the Ability to Keep and Attract “Talent” – Today Businesses Follow Labor, a Resource Shortage They Can’t Compensate For

Key Current Economic Indicators Suggest Job Growth Should be Stronger

12 Private Sector Industry Diffusion Index (3 Mos Moving Avg.)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

U.S. Industry Difussion Index H Industry Difussion Index

The NH Economy Can’t Seem to “Fire on All Cylinders.” While Most Industries in the U.S. are Adding Jobs, In NH, Only About One-Half of Major Industries Are.

Average Weekly New Unemp. Ins. Claims & Yr. Over Yr. Job Growth in NH

(2,500) (2,000) (1,500) (1,000) (500)

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

• 6.00%
• 4.00%
• 2.00%

0.00% 2.00% 4.00% 6.00%

• Avg. Weekly ew Claims (Inverted)
• Yr. Over Yr. Job Growth (1 Month Lag)

Correlation = -.85

A Sharp Decline in Initial Unemp. Claims is Usually Followed by a Sharp Rise in Hiring –This Time Hiring Has Not Kept Pace

14 16 18 20 22 24 26 28 30 32

09 10 11 12 13 14 15

• 7.0%
• 5.0%
• 3.0%
• 1.0%

1.0% 3.0% 5.0% 7.0%

Help Wanted Ads in H (000s) Year-Over-Year Private Sector Job Growth in H (%)

Help Wanted Ads are Growing at a Much Faster Rate Than are Jobs in NH –Employers are Not Able to Fill Openings

3 Mos. Moving Average

The Largest Number of On-Line Job Postings in NH are for Prof./Scientific & Tech. Occupations but Job Growth in Industries Employing Them Has Not Grown as Fast – Evidence of a Supply Rather Than a Demand Problem?

• Avg. # of Help Wanted Ads In NH by Broad Occupational Grouping

2,000 4,000 6,000 8,000 10,000 12,000 Mangement Business & Finance Prof./Sci./Tech Service Sales & Office Construction & Maintanence Production & Transportation

• Avg. Sept./Oct/ov. 2010
• Avg. Sept./Oct/ov. 2013
• Avg. Sept./Oct/ov. 2014

Whether Job Growth is a Matter of Lack of Demand for Labor or a Lack of Supply of Labor is the Most Fundamental Issue Confronting Policymaking – An Accurate Assessment is Critical for Determining the Best Course of Action to Boost the Performance of the New Hampshire Economy

For More than Two Decades an Influx of Skilled Labor Provided NH With an Advantage for Growing Employment. Slow Labor Force Growth is Now Capping Potential Employment Growth

• Avg. Annual Labor Force Growth Over Three Time Periods

3.2% 0.5% 1.4% 2.0% 1.2% 0.7%

0% 1% 1% 2% 2% 3% 3% 4% 77-90 91-00 00-13

H U.S.

Annual Rate of Labor Force Growth

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6%

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

H U.S.

Slower Labor Force Growth (Some Due to Demographics, Some Structural, and Some Cyclical) Caps the Amount of Job Growth that is Possible in New Hampshire and the Nation

Annual Rate of Labor Force & Employment Growth

• 6%
• 4%
• 2%

0% 2% 4% 6% 8% 10%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 8 9 10 11 12 13

H Emp Growth H Labor Force Growth

Labor Force and Emp. Grow in Tandem. NH’s Slow Labor Force Growth Implies Lower Rates of Employment and Economic Growth

The Number of Advertised Jobs for Each Unemployed Person is Higher in NH Than in all but 5 States - if Unemployed Don’t Have the Skills in Demand They Remain Unemployed or Drop Out of the Labor Force – Job Growth Suffers

Number of Help Wanted Ads per Unemployed Individual

0.0 0.5 1.0 1.5 2.0 2.5

North Dakota South Dakota Nebraska Utah Colorado Minnesota N.H. Montana Iowa Vermont Idaho Hawaii Maine Wyoming Alaska Massachusetts Oklahoma Wisconsin Kansas Delaware Virginia Pennsylvania Washington Ohio Texas Connecticut United States Maryland NewYork Oregon Illinois Michigan New Mexico Rhode Island New Jersey Nevada Arizona Florida Missouri Indiana North Carolina South Carolina Louisiana California West Virginia Kentucky Georgia Tennessee Arkansas Alabama Mississippi

MA NH CT

The Number of Help Wanted Ads for Every 100 in the Labor Force is Higher in NH than in Most States, Suggesting Job Growth Should be Higher (Unless there is not Enough Labor Available, there is a Skills Gap, or Both)

Number of Help Wanted Ads Per 100 Individuals in the Labor Force.

2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

Mississippi Alabama Kentucky Indiana West Virginia Louisiana Arkansas Florida Missouri South Carolina North Carolina Tennessee Kansas Texas Georgia California New Jersey New York Ohio Arizona Oklahoma Illinois Hawaii Maryland Pennsylvania New Mexico Virginia Nevada Michigan Idaho Rhode Island Wisconsin Wyoming Connecticut Washington Oregon Vermont N.H. Iowa Delaware Utah Minnesota Nebraska Massachusetts South Dakota Montana Alaska Colorado North Dakota MA VT NH

NH Already Has a Relatively High Percentage of its Pop. Age 25-64 With at least a Bachelor’s Degree in a STEM Field – Emp. Growth is Just as Much Constrained by Slow Overall Labor Force Growth

% of Population Age 25-64 With at least a BA Degree in a STEM Field

0% 2% 4% 6% 8% 10% 12%

Mississippi West Virginia Arkansas Nevada Kentucky Louisiana Oklahoma Tennessee South Carolina Alabama South Dakota Indiana Iowa Florida Missouri North Dakota Ohio Nebraska Maine Wisconsin Hawaii Wyoming Georgia New Mexico Arizona Utah Idaho Kansas North Carolina Texas Michigan Pennsylvania New York Total GEOG- Rhode Island Alaska Illinois Oregon Montana Delaware Minnesota California Vermont Connecticut New Hampshire Washington Virginia New Jersey Colorado Maryland Massachusetts MA VT NH

Net Domestic and International Migration to NH

12,132 9,170 6,472 3,117 4,600 2,170

• 2,389
• 2,473
• 2,602
• 956

2,305 2,298 2,292 2,214 1,809 1,813 1,561 1,787 1,165 1,828

• 2,763

2,099

• 4,000
• 2,000

2,000 4,000 6,000 8,000 10,000 12,000 14,000 01 02 03 04 05 06 07 08 09 10 11 12

et State-to-State Migration et International

Movement Into NH Slowed Dramatically Over the Past Decade. Other Demographic Trends Play a Role but this has Been the “Game Changer” for the NH Economy

Differences in the Cost of Living Between NH and Higher Cost States in the Northeast are Narrowing (Largely Due to Rents) – “Compensating Factors” Have to Be Present to Justify Higher Costs and Support Pop. Growth

Lower Gasoline Prices Will, Conservatively, Put an Additional $600 Million (and as much as $900 Million) in the Pockets of ew Hampshire Families and Businesses in 2015

• Avg. Price of Electricty for Industrial Customers (Cents/kwh)

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 01 02 03 04 05 06 07 08 09 10 11 12 13

H U.S. MA

Despite NH’s High Electricity Costs for Industrial Customers, the Difference Between NH and the U.S. Avg. Costs Has Narrowed Somewhat in Recent Years

Source: U.S. Energy Information Agency, PolEcon

The Economy in State’s With High Electricity Costs Become Less Energy

• Intensive. In the Near-Term, Price Reductions Would be Beneficial But Would

Have a Smaller Impact on the Economies of Less Energy Intensive States (Not NH’s Economic “Savior”)

2 4 6 8 10 12 14 16 18 20 6 8 10 12 14 16

Energy Intensity kwh/$ GSP

Electricity Price Cents/kwh

NH CT OR NV MD WY ID LA NY KY WA VT ND RI MA CA ME AL AR

Electricity Prices and Energy Intensity of State Economies

Commerical & Industrial Energy Consumption (Thousand BTUs) Per Real Dollar (2005) of GDP 2 4 6 8 10 12

77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

NH MA ME US

The Energy Intensity of the NH Economy is Declining. The Commercial and Industrial Sectors Use Much Less Energy Per Dollar of GDP Than the U.S. Average – Offsetting Some of the Disadvantage NH Faces With High Energy Costs

• Avg. NH Electricity Prices as a % of U.S. Average Prices

75% 95% 115% 135% 155% 175% 195% 215% 01 02 03 04 05 06 07 08 09 10 11 12 13

Industrial Commercial Residential

Commercial and Residential Customers in NH Pay About One- Third More for Electricity Than the National Average but Industrial Customers in NH Pay About 70% More Than the U.S. Avg.

Source: U.S. Energy Information Agency, PolEcon

Some Implications for State Revenues

Private Sector Job Growth and NH Revenue Growth 500 510 520 530 540 550 560 570 580

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

$800 $900 $1,000 $1,100 $1,200 $1,300 $1,400 $1,500 $1,600 $1,700 $1,800

H Private Sector Payroll Emp. (000s) H Revenue From 9 Largest Gen. Fund Sources

NH Tax Revenues From Major Sources Did Not Fall as Far and are Not Growing as Fast as Suggested by Growth in Private Sector Employment

• 5.0%
• 4.0%
• 3.0%
• 2.0%
• 1.0%

0.0% 1.0% 2.0% 3.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

• 25%
• 20%
• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25%

Yr./Yr. Pct. Change in Private Sector Emp. Yr./Yr. Pct Change Business Tax Revenue

Historically, Business Tax Revenues in NH Tracked Private Sector Job Growth But That Relationship Has Weakened Post-Recession

Actual and Forecast Annualized Revenue From 9 Major Sources of Revenue ($ Millions)

800 900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Historical Revenue Forecast Forecast Made in Jan. 2013

Forecast from Jan. 2013 was $28 Million Too High (as of Dec. 2014)

Pre-Recession Levels of Revenue From Nine Major Sources Will be Reached in the QII of 2015. My Model Forecast Calls for Three Percent Annual Increases Each of the Next Two Years

Conclusions and Some Editorializing

• Whether job growth trends are the result of lower demand for workers in NH

(cyclical and structural) or a limited supply is the fundamental economic policy question that must be answered for effective policymaking.

• A dramatic changes in NH’s business climate is not responsible for slower

growth trends. Lower business and energy prices will help but are not “game changers.”

• Slow labor force growth is constraining job growth. Demographic trends are

hardest to alter – NH must maximize participation and skills of all potential labor.

• Think as much about making NH an “attractive place to live” as an “attractive

place to “do business”

• We will not see job gains like we did in the 1980’s and mid 1990’s again -

1.5% will be the norm.

• Expect modest revenue growth 3%.
• NH’s unique system worked because of “balance,” compromise, and

cooperation, between business, govt., and citizens, even with large political

• majorities. Without balance the system will not work.