2008 economic recession

Contact: Susan Houston President New England Economic Partnership 781-489-6262 Ross Gittell Vice President, Forecast Manager New England Economic Partnership 603-862-3340 shouston@massecon.com ross.gittell@unh.edu SIGNIFICANT RECESSION ANTICIPATED ACROSS NEW ENGLAND; SLOW, WEAK RECOVERY TO FOLLOW BOSTON, Mass. (November 20, 2008) – The New England Economic Partnership (NEEP) released new economic forecasts for the U.S., the New England Region and each of the six New England states at its Fall Economic Outlook Conference held at the Federal Reserve Bank of Boston today. NEEP economists anticipate a significant recession, with difficult challenges ahead for the New England economy. The broadening and deepening impact of the global credit crisis was cited as a major source of New England’s current problems. The crisis now has extended from the housing market, to construction, to the financial sector, to retail trade and beyond to other sectors of the regional economy. Lowered consumer and business confidence have already led to declining sales and investment and employment. Declining employment is expected to further reduce consumer and business confidence, contributing to further reductions in spending and more layoffs. NEEP economists expect this negative cycle to persist in the regional economy well through much, if not all, of 2009. During the forecast period the region is expected to lose about 250,000 jobs, or 3.6 percent of its employment. Total employment in the region is expected to decline through the remainder of the decade and then remain virtually flat through 2011. Unemployment is expected to rise to its highest rate since 1992, from its September rate of 6 percent to over 8 percent in mid-2010 but remaining below the national average. The comparatively favorable forecast compared to the nation is due to the relatively high level of educational attainment and slow growth in the labor force in the region. Among the New England states, Rhode Island is expected to have the highest unemployment, peaking at 10.3 percent. All the other states in the region are expected to have unemployment peaks below the U.S. rate. Maine is expected to have the second highest unemployment in the region, with a peak of 8.7 percent. Connecticut and Massachusetts are anticipated to have unemployment peaks of 8.3 percent, and Vermont (6.9 percent) and New Hampshire (7.4 percent) are expected to experience the lowest unemployment peaks in the region. Real per capita income in the region and nation are expected to decline sharply in the 4th quarter of 2008 -- at a 4.4 percent annualized rate -- and then be flat through 2009. Real income per capita is expected to rise only modestly after 2009 – not reaching 3 percent growth until 2011. This decline in real per capita income growth in New England is expected to be higher in this recession than in the three previous recessions and greater than the national average in this recession. It is anticipated that this decline will contribute to a more pronounced and prolonged employment decline in New England than in other regions. Housing prices in all states in the region except Vermont have been experiencing sharp decline, but the “good news” is that New England’s housing declines are not as sharp as those being seen in the more “over-heated” housing markets in California, Florida, Nevada and Arizona and also in some of the depressed markets in the Midwest. In addition, mortgage past due rates are below the national average in five of the six states – all except Rhode Island. The peak-to-trough decline in the region in median housing prices is expected to be 22 percent – less than the forecasted peak-to-trough national decline of 30 percent. “While NEEP’s forecast is for a deeper and more prolonged recession than forecasted by Moody’s economy.com and some other pundits, the projected 2 employment decline and unemployment rates are in line with prior recessions,” said Ross Gittell, NEEP Vice President and James R. Carter professor at the University of New Hampshire’s Whittemore School of Business and Economics. “The employment decline forecast for the region is very close to the percentage decline in employment in the last recession in the early 2000s in the region and it is significantly less than the employment decline in the early 1990s recession when the region lost nearly 10 percent of its employment base. In each of the last three recessions, however, the percentage decline in employment in New England was more pronounced and more prolonged than the national average. This is forecast to be the case again in this recession.” Looking further ahead, a weak economic recovery is expected across the region, due mainly to the extensive credit market and economic challenges and the anticipated long time period required to work through them. The recovery is expected to be weaker and slower in New England than in the nation, and the region’s relatively high concentration in business investment and high income dependent industries will contribute to a more pronounced and extended employment decline in New England than nationally. By the end of the forecast period (end of 2011) the region is expected to have 157,000 fewer jobs, or 2.2 percent , than at the beginning of 2008. Mark Zandi, Chief Economist for Moody’s Economy.com opened the conference with a presentation on the U.S. economy. He noted that the year-long recession is intensifying, with nearly 1.2 million jobs lost since the beginning of 2008 – more than 500,000 in just the past two months. Unemployment has surged to 6.5 percent, the highest rate since the early 1990s. Zandi commented that due to massive intervention by the Federal Reserve and other global central banks, many short-term financial markets have performed somewhat better than before the interventions. The Fed’s moves are anticipated to promote stability; however, even if they succeed as expected, a substantial amount of damage has already been done to underlying confidence. 3 Consumer confidence plunged in October to its lowest reading since the Conference Board began its survey more than 40 years ago. It was noted that this is all the more surprising given the sharp drop in gasoline prices during the month, which usually improves household spirits. “The outlook has darkened rapidly in recent weeks,” said Zandi. “Real GDP is expected to fall through the second quarter of 2009 and post a decline for the year as a whole. The unemployment rate is expected to rise through early 2010, peaking at 8 percent. This represents a dramatic change in the forecast. As recently as the August outlook, 2009 real GDP was projected to be near 1.5 percent. This is the largest change in the outlook in such a short period since Moody’s Economy.com began forecasting the US macro economy nearly 20 years ago. Moreover, until the financial system is stabilized and policymakers take the steps expected, risks to this outlook remain firmly to the downside. The longer financial markets remain unsettled, the less credit will flow, the bigger the hit to household wealth, and the longer confidence will founder.” In conclusion, Zandi stated, “Without substantial fiscal stimulus and a much larger foreclosure mitigation plan, the economy’s slide will be much longer and deeper. The Great Depression occurred in significant part because of government missteps and inaction. That is a lesson that today’s policymakers must heed.” Today’s conference, sponsored by A.D. Makepeace, and also featured keynote speaker Tom Curry, a director of the FDIC, who remarks focused on the security of the financial system. The New England Economic Partnership is a nonprofit economic forecasting organization that has been tracking and analyzing the regional economy since 1971. Its members include financial institutions, utilities, insurance providers, government 4 agencies, academic institutions, business services firms, health care organizations, and others. ### 5 FOR IMMEDIATE RELEASE Contact: Edward Deak, Ph.D. Connecticut Forecast Manager New England Economic Partnership 203-254-4000, Ext. 2866 deak@mail.fairfield.edu Ross Gittell Vice President, NEEP Forecast Manager New England Economic Partnership 603-862-3340 ross.gittell@unh.edu CONNECTICUT – LATE TO FEEL BROAD JOB LOSS, SECOND PHASE OF FINANCIAL CRISIS EXPECTED TO HIT HARD In discussing current conditions in the Connecticut economy, NEEP forecasters today noted that the state registered a decrease of 2.3k jobs from 8/08-9/08, despite having recorded year-over job gains from JanSept 2008. State employment is down by -4.1k from its job peak of 1.7065m in 12/07, and the unemployment rate at 6.1 percent is well above the 4.4 percent low recorded in the first six months of 2007. “Despite these numbers, Connecticut is relatively better off (so far) than the 760k jobs that have been lost in the US since the start of 2008,” said Edward Deak, Professor of Economics at Fairfield University and Connecticut Forecast Chair. “Connecticut has been late to feel the broader job loss because of its failure to be an aggressive participant in the housing boom-bust cycle that is at the heart of the early phase of the recession. However, the state is expected to be relatively harder hit by the second phase as the financial crisis leads to substantial reductions in the high income jobs that have been a major pillar of the Connecticut expansion.” NEEP forecasters anticipate that the restructuring of the U.S. financial services industry including Wall Street, insurance, and commercial plus investment banking will undermine the Connecticut recovery, causing slower job and income growth. The state will be late to emerge from the recession with a peak unemployment rate of 8.5 percent in 10:Q2 and job losses of 15k in 2010. Jobs lost in Connecticut in the recession are unlikely to be regained until sometime in late 2012 and possibly beyond. Absent overbuilding and reckless lending, the housing recession arrived later in Connecticut than the U.S., but housing is expected to be weak through the end of 2009. Existing single family Connecticut home median sale prices peaked at $326.8k in 07:Q4, but have fallen to $285.5 in 08:Q3, and may drop to a low of $232.2 in 10:Q2. ### 6 FOR IMMEDIATE RELEASE Contact: Charles Colgan Maine Forecast Manager New England Economic Partnership 207-780-4008 colgan@maine.edu Ross Gittell Vice President, NEEP Forecast Manager New England Economic Partnership 603-862-3340 ross.gittell@unh.edu MAINE ENTERS RECESSION WITH SOME STRENGTHS, MAY ESCAPE THE WORST OF NATIONAL RECESSION At today’s outlook conference, NEEP forecasters noted that the state faces a recession of some depth and length. The forecast shows a decline in Maine employment of more than 17,000 jobs from peak in 20007 Q4 to the third quarter of 2010, a decline of 2.9 percent. This will be considerably more serious than the most recent recession in Maine in 2001, but well short of the disastrous 1990-91 recession. The closing of Naval Air Station Brunswick during the forecast period will result in the major outmigration of military personnel and their families in 2009 and early 2010, right in the depths of the recession. Given the relentless losses in Maine’s manufacturing industries over the past several decades, however, the forecast relatively mild job losses in manufacturing must be counted as a bright spot. Like the rest of the U.S., Maine has been suffering from problems in the housing sector. Residential housing permits declined by nearly 40 percent through the first three quarters of 2008 compared with the same period a year earlier, and existing home sales were down nearly 18 percent. But the median house price had fallen only 4 percent through the first part of 2008 compared with the same period in 2007, and wage and salary employment in construction was down only about 1,000 jobs, or 3.4 percent. “Looking ahead, several major construction projects in connection with wind energy development and modernization of the electric transmission grid in Maine count as bright spots, said Charles Colgan, Professor of Public Policy and Management in the Edmund S. Muskie School of Public Service at the University of Southern Maine, and Maine Forecast Chair. “None of these projects has cleared regulatory hurdles yet and so are not built into the forecast. However, if they are built the projects together will employ perhaps 2,000-3,000 people. While many of those hired would be specialized construction workers from outside the state, the projects would clearly soften the blow of the recession.” 7 FOR IMMEDIATE RELEASE Contact: Alan Clayton-Matthews Massachusetts Forecast Manager New England Economic Partnership 617-287-6945 alan.clayton-matthews@comcast.net Ross Gittell Vice President, NEEP Forecast Manager New England Economic Partnership 603-862-3340 ross.gittell@unh.edu MASSACHUSETTS ENTERS RECESSION, RETURN OF JOB GROWTH NOT SEEN UNTIL MID-2010 At today’s Fall Outlook Conference, NEEP forecasters said that the Massachusetts economy has entered a recession that will last through the first half of next year, although job growth will not return until the middle of 2010. Massachusetts payroll employment is projected to decline by 4.1 percent between the peak in the second quarter of 2008 to the trough in the third quarter of 2010, or by approximately 135,000 jobs. In the dot-com recession of 2001, the state lost 205,000 or 6.1 percent of its jobs, and in the recession of the late 1980s/early 1990s, Massachusetts lost 356,000 or 11.3 percent of its jobs. On an annual basis (fourth quarter to fourth quarter), real gross state domestic product is expected to slow from 2.0 percent growth in 2007 to 1.3 percent growth in 2008, and 0.3 percent growth in 2009. In the last three years of the forecast period 2010 through 2012, annual average growth is projected to be 3.1 percent. Personal income growth will slow from 6.3 percent in 2007 (on a fourth-quarter to fourth-quarter basis) to 1.8 percent in 2008. In real terms the growth rates are 2.8 percent and -2.0 percent respectively. Housing production in the state has slowed to a crawl, and the fall in house prices is expected to continue through the first half of 2010, with a cumulative price decline, on a seasonally-adjusted quarterly basis, of 21 percent from the peak in the third quarter of 2005 to the trough in the second quarter of 2010. “It’s difficult to see how the economy could perform better over the next year or two than the scenario embodied in this forecast,” noted Alan Clayton-Matthews, Associate Professor, McCormack Graduate School of Policy Studies, UMass Boston and Massachusetts Forecast Chair. “It is easier to imagine scenarios that are worse, if only because of the time required for the economy to turn around given its downward momentum. It appears that asset prices for both stocks and real estate are overshooting on the downside, with consequent effects on the real economy through falling wealth and falling expectations that affect both consumer and investment demand. This vicious downward spiral will take some time to correct itself and turn around.” ### 8 FOR IMMEDIATE RELEASE Contact: Dennis C. Delay N.H. Forecast Manager New England Economic Partnership 603-226-2500 ddelay@nhpolicy.org Ross Gittell Vice President, NEEP Forecast Manager New England Economic Partnership 603-862-3340 ross.gittell@unh.edu NEW HAMPSHIRE ECONOMY STRONGER THAN NEW ENGLAND AND U.S. AS RECESSION LOOMS NEEP forecasters today commented on the comparative strength of the New Hampshire economy, as the state enters the recessionary period in a stronger position than the rest of the New England states and the nation as a whole. Unemployment rates in New Hampshire have remained below the U.S. average, and though housing prices in the state have fallen, they are not anticipated to drop as much as has been the case in parts of California and Florida. Granite State manufacturing related to national defense and precision instruments is expanding, while motor vehicle related manufacturing is in recession. Manufacturing jobs in the state declined at a -1.8 percent annual rate in the last five years (2002 to 2007) and the decline in New Hampshire manufacturing jobs will slow to a -0.2 percent average loss each year in the forecast period. New Hampshire single-family residential home sales have fallen 42 percent from the peak, from 17,000 units sold in 2004 to about 10,000 estimated for 2008. Housing prices have so far held up much better, declining 11 percent from $269,900 in 2005 to an estimated $240,000 in 2008. The inflation adjusted price in 2008 is now lower than the 2003 price. “Few doubt that we are in a recession now,” said Dennis C. Delay, Deputy Director, New Hampshire Center for Public Policy Studies and New Hampshire Forecast Chair. “Dark days are ahead, for New Hampshire and the world economy, but New Hampshire’s financial distress is not as severe as that in other parts of the country, given the fact that consumers are consistently making their credit card payments on time and unemployment rates in the state have remained below the US average.” ### 9 FOR IMMEDIATE RELEASE Contact: Edinaldo Tebaldi RI Forecast Co-Chair NEEP 401-232-6901 Edward Mazze RI Forecast Co-Chair NEEP 401-874-4308 etebaldi@bryant.edu emazze@uri.edu Ross Gittell VP, NEEP Forecast Manager NEEP 603-862-3340 ross.gittell@unh.edu RHODE ISLAND’S ECONOMY DECLINES SWIFTLY, HIGHEST UNEMPLOYMENT RATE IN US At today’s outlook conference, NEEP forecasters said that the Rhode Island economy shrank 0.39 percent in September and 1.34 percent over the third quarter – one of the fastest rates in the nation. The decline was due to the loss of jobs, a credit crunch brought about by subprime mortgages, the support of financial institutions by the federal government, the deterioration of the housing market, high energy costs and the state’s budget deficit. In September, Rhode Island’s unemployment rate of 8.8 percent was the highest in the United States. Unemployment is forecasted to be 9.5 percent in 2009 and 10.2 percent in 2010. The unemployment rate will not be below 8 percent until 2012. The annual growth rate of real GDP will be 0.2 percent in 2009 – in 2010 it is expected to grow by 5.4 percent. Housing continues to become more affordable in the state as the average median price of a home declines. The median price of a home in 2008 was $263.3 thousand and is expected to be $230.5 in 2009. By 2011 the median price of a home is forecast to be $203 thousand, an $80,000 reduction from 2007. “Rhode Island had a budget deficit of $430 million for FY2008. To balance the budget, the state made substantial cuts in personnel, health and social programs and higher education, and the state’s FY 2009 budget is more than $65 million in deficit as of early November and is expected to increase,” said Edward Mazze, Distinguished University Professor of Business Administration in the College of Business Administration, University of Rhode Island, and Rhode Island Forecast Chair. “The challenges facing job growth and economic development in the state continue to be a lack of leadership in both public and private sectors, high tax rates, an unfriendly business, environment, dependence on public jobs rather than private employment and a poorly performing education system.” 10 FOR IMMEDIATE RELEASE Contact: Jeffrey B. Carr Vermont Forecast Chair New England Economic Partnership 802-878-0346, x108 jbc@epreconomics.com Ross Gittell Vice President, NEEP Forecast Manager New England Economic Partnership 603-862-3340 ross.gittell@unh.edu VERMONT ECONOMY FOLLOWS U.S. ECONOMY INTO RECESSION NEEP forecasters today said that the Vermont economy has followed that of the U.S. into what is anticipated to be a lengthy period of economic recession. As is the case with the rest of the country, a slow, historically restrained rate of recovery is expected. Payroll jobs will decline through the second quarter of calendar year 2010, followed by a gradual recovery, with improvements in the rate of job growth in the final two years of the forecast period. GSP, with the exception of the initial recession year of the forecast in calendar 2008, will rebound and recover at a slightly slower pace than New England as a whole from 2009 to 2010, and then at a slightly stronger rate in 2012. The unemployment rate will rise to levels not experienced since the early 1990s, but will remain below that of both the New England region and the U.S. Vermont’s unemployment rate is forecast to rise to a maximum of 6.7 percent in 2010, well below New England’s projected maximum of 8.3 percent. Despite having had one of the lowest delinquency rates in the country and region so far, delinquencies are rising in Vermont and the forecast indicates that the housing market will continue to be a drag on the pace of the state’s economic forward progress over at least the next 18 months. “The most thorough analysis of the Vermont economy indicates that the state is currently in a full-fledged economic downturn that likely began in December of 2007,” said Jeff Carr, vice president and economist, Economic and Policy Resources, Inc. and NEEP Vermont forecast chair. “The worst economic recession for the U.S. economy since the early 1980s is going to produce a recession in Vermont and the entire New England region that in many respects will be the deepest and longest since the 1989-91 downturn. If that forecast holds, the current economic recession in Vermont will be the most significant state economic recession since World War II, except for that very difficult 1989-91 downturn.” ### 11