The Party Started: How Long Can it Last For New Hampshires Economy? - - PowerPoint PPT Presentation

The Party Started: How Long Can it Last For New Hampshire’s Economy?

Joint Economic Briefing New Hampshire House and Senate Finance and Ways and Means Committees January 9, 2017

Brian Gottlob PolEcon Research bgottlob@poleconresearch.com

Outline

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

Yr.-Over-Yr. Private Sector Job Growth

0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

2012 2013 2014 2015 2016 2017

NH MA U.S.

After Lagging for Much of the Recovery, Private Sector Job Growth in NH Has Accelerated Over the Past 2 Years

3 Mos. Moving Average

14 16 18 20 22 24 26 28 30 32

09 10 11 12 13 14 15 16 17

• 7.0%
• 5.0%
• 3.0%
• 1.0%

1.0% 3.0% 5.0% 7.0%

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

Help Wanted Ads Have Declined During the Same Time – More and Faster Hiring Reduced Repeat Ads?

3 Mos. Moving Average

Annual Rate of Labor Force Growth

• 2%
• 1%

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

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 14 15 16

NH Labor Force Growth U.S. Labor Force Growth

After Years of Stagnation NH’s Labor Force Growth Supported Greater Job Growth

$22.0 $22.5 $23.0 $23.5 $24.0 $24.5 $25.0 $25.5 $26.0 $26.5 12 13 14 15 16 17 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

• Avg. Hourly Wages in Private Sector

(3 Mos Moving Avg.) Yr.-Over-Yr. % Growth Private Emp. In NH R = .80 R

2 = .66

Markets Work! As Hiring Has Accelerated So Too Have Private Sector Wages

$20.0 $21.0 $22.0 $23.0 $24.0 $25.0 $26.0 $27.0 08 09 10 11 12 13 14 15 16 17

• 8.00
• 7.00
• 6.00
• 5.00
• 4.00
• 3.00
• 2.00
• Avg. Hourly Wages in Private Sector (3 Mos Moving Avg.)

NH Unemployment Rate (Inverted)

Average Wages Also Track NH’s Unemployment Rate

NH is Second Only to Utah in Personal Income Growth Since 2015

(2.00) 0.00 2.00 4.00 6.00 8.00 10.00

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

% Growth in Personal Income 2015 to QIII 2016

NH MA

VT ME CT RI

Alternative Measures of Labor Underutiliation

2.8 3.4 3.6 3.8 6.4 6.0 5.4 5.6 5.2 4.2 3.4 2.9

0.7 0.6 0.6 0.8 1.2 0.9 1.1 1.1 1.0 1.0 0.8 0.8 2.4 2.1 2.3 3.2 4.9 4.9 4.8 4.5 4.7 4.5 3.8 3.2

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3- 2016

Part-Time (Not by Choice) Discouraged & Marginally Attached Basic Unemp Rate

All is Not Perfect - Labor Utilization is Still Not Back to Pre-Recession Levels

NH Should Continue to Have Above U.S. Average Employment Growth

Job Growth Forecast

1.9% 1.7% 1.5% 1.6% 2.1% 2.1% 1.9% 1.8% 1.5% 1.1%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0%

2014 2015 2016 Est 2017 2018

U.S. New Hampshire

Historical Forecast

Key Factors Affecting NH’s Growth

NH’s Brain GAIN: All States are Seeing Increases in Ed. Attainment But Very Different Rates of Job Growth (Don’t Forget About Demand Side Policies!)

% Pop. Age 25+ With a BA Degree or Higher

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

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

% Chng 2005-15 2005

NH MA VT ME CT RI

We ARE Adding Educated Labor But We are Adding More Than is Being Employed by NH Businesses (Demand Side Matters! And Maybe Associate’s and Certificate Degrees are a Better Indicator)

31.8% 35.7% 31.6% 30.9%

10% 15% 20% 25% 30% 35% 40% 45% 50% 2005 2015

% of NH Pop Age 25+ With at BA Degree or Higher % of NH Jobs Held by Someone Age 25+ With a BA Degree or Higher

New England Has Been on the Losing End of Demographic Trends as More of the Nation’s Population Moves South and West – NH and MA Have Strongest Growth (Albeit from Different Sources)

• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

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

NH MA

VT ME CT RI

Population Growth 2010-2016

Population Growth From Migration

100,910 236,088 25,406 (72,605) (28,565) 5,196 12,587 9,715 (9,272) (2,783) (1,962) (135,684)

(200,000) (150,000) (100,000) (50,000) 50,000 100,000 150,000 200,000 250,000 300,000 CT ME MA NH RI VT

Domestic International

All of New England Lost Population Due to Net Out-Migration to Other States but Gained From Net In-Migration From Other Countries Between 2010 and 2016

Net Migration to NH

12,132 9,170 6,472 3,117 4,600 2,170 (2,389) (2,473) (2,602) (773) (938) (2,337) 2,854 (1,570) 2,187 (2,206)

• 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 13 14 15 16

Net State-to-State Migration Net International Migration

Net State-to-State Migration to NH is Resuming and is the Most Important Factor in Determining How Much We Grow

The Seacoast Has Accounted for Almost all of NH’s Net State-to- State Migration Since the End of the Recession (Providing Clues to What it Takes to Attract Individuals)

Net Domestic Migration 2010-2015

(6,685) 104 556 1,157 3,389 (93) (667) (1,360) (1,038) (887)

• 8,000
• 6,000
• 4,000
• 2,000

2,000 4,000 Hillsborough County Cheshire County Coos County Grafton County Sullivan County Merrimack County Carroll County Belknap County Strafford County Rockingham County

Migration Into NH is Weighted Toward Younger Demographics, Two-Thirds of Movers Into The State are Under Age 35, With Ages 25-34 is the Largest Group

Age Distribution of Out-of-State Movers to NH (2011-2015)

14.7% 12.7% 13.5% 23.0% 11.7% 9.9% 14.4% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Under 18 18 to 19 20 to 24 25 to 34 35 to 44 45 to 54 55 +

Economically There is No Difference Between Someone in NH Who Graduated From a NH College or From a College Somewhere Else (Ed. Attainment of Individuals Age 25+ Who Moved to NH Between 2011 and 2015)

7.7% 29.1% 28.8% 21.6% 12.8% 8.7% 13.2% 18.0% 36.3% 23.8% 5.3% 21.1% 25.9% 29.2% 18.4%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%

Less Than HS Grad. HS Grad. Some College or Associate's Degree Bachelor's

• Grad. Or Prof.

Moved From Another State Moved From Another Country Non-Migrants (Same State)

Results by Bound et al.: The link between attending college in a state and remaining in that state following graduation is so minor that state policymakers “have only a modest capacity” to influence their college-graduate retention rate through higher education investment. Results by Groen.: The probability of a student remaining in a state 10 years after graduation is increased by approximately 25% if she/he attends an in-state school. The percentage increase drops to 11% 20 years after graduation. Universities are a Critical Resource for Growth But Popular Public Policies Supporting Them May Not Maximize the Impact on a State’s Economy

Corporate Taxes as a % of Private Sector Gross State Product

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

NH MA

A Key Demand Side Policy is Tax Rates. Business Taxes as a Pct.

• f Private Sector Gross State Product is a Better Relative Measure
• f Than Burden Than is the Tax Rate – They are High in NH

• 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 14 15

Industrial Commercial Residential

Electricity Prices in NH are Especially Hard on Manufacturers. Industrial Customers Pay About 80% More for Electricity in NH Than the U.S. Avg..

Source: U.S. Energy Information Agency, PolEcon

First Year Energy Cost Savings in NH From NED ($Million)

$17.7 $24.1 $20.9 $40.7 $40.9 $21.2

$0 $10 $20 $30 $40 $50 $60 $70 Residential Sector Commercial Sector Industrial Sector

Millions

Electricity Natural Gas

$58.4 (3.4% Reduction) $65.0 (6.5% Reduction) $42.1 (8.9% Reduction)

One Pipeline Project’s (NED) Impact on Natural Gas Prices in New England Would Have Resulted in an Annual $165.5 Million in Energy Cost Savings in the Residential, Commercial, and Industrial Sectors in NH

Annual Energy Savings in NH by Sector

$64.9 $69.7 $74.5 $79.3 $84.1 $88.9 $93.8 $98.7 $103.6 $108.5 $42.1 $45.0 $48.0 $51.1 $54.1 $57.0 $60.0 $62.9 $65.7 $68.4 $58.4 $62.4 $66.7 $71.1 $75.6 $80.0 $84.4 $88.8 $93.2 $97.7

$0 $50 $100 $150 $200 $250 $300

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Millions

Commercial Industrial Residential

I Estimated Energy Savings to NH Consumers to be About $2.2 Billion in the First 10 Years of NED Operation

Implications for Revenues

• 25.0%
• 20.0%
• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Yr./Yr. Pct Change in Annualized NH Business Tax Revenue Yr./Yr. Pct Change in Annualized U.S. State Corp. Business Tax Revenue

NH is Bucking the Downward Trend in State Corporate Income Taxes Collections Unlike Other States, Private Sector Emp., Wage and Salary Growth Contribute to Business Tax Revenues via the Business Enterprise Tax

Private Sector Emp. and Wage Growth Have Propelled the Rate of NH Business Enterprise Tax Revenue Growth Even as the Rate of Business Profit Tax Growth Slowed Somewhat

• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0%

2015 QI QII QIII QIV 2016 QI QII QIII QIV

Growth in Annualized (Four QTR Sum) Business Tax Revenue s Over Same Quarter Prior Year

Business Profits Tax Business Enterprise Tax

• 6.0%
• 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 2015 2016 2017

• 25%
• 20%
• 15%
• 10%
• 5%

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

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

The Relationship Between Business Tax Revenue Growth and in Private Sector Job Growth in NH is Strong But Has Weakened Post-Recession

Growth in NH Business Tax Revenues and Private Employment

$400 $450 $500 $550 $600 $650 $700

07 08 09 10 11 12 13 14 15 16 17

500 510 520 530 540 550 560 570 580 590 600 NH Business Tax Revenues ($millions) NH Private Emp (000s)

Business Tax Revenues Track Growth in Private Sector Employment. Private Emp. Should Grow by 1.5-2.0% , Implying 5-9% Growth in Business Taxes Without Rate Adjustments

R = .90 R2 = .81

Annualied Meals and Rentals Receipts

$1,500 $1,700 $1,900 $2,100 $2,300 $2,500 $2,700 $2,900 $3,100 $3,300 $3,500 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Millions

Spending on Rooms and Meals Continues Strong Growth

Yr.-Over-Yr. % Change in Meals and Rentals Receipts

• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 3 Mos Moving Average

Rooms and Meals Revenue Should Increase by No Less Than 5%

National Avg. 30 Year Fixed Rate Mortgages

2.0 3.0 4.0 5.0 6.0 7.0 8.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rising Mortgage Rates Will Only Marginally Curb Home Sales (-2%) and Sale Prices (Depending on How High Rates Go). RET Revenue Growth Will Slow Proportionally

November 10, 2016