National and Virginia Economic Outlook Professor Robert M. McNab Dragas Center for Economic Analysis and Policy Strome College of Business

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1 National and Virginia Economic Outlook Professor Robert M. McNab Dragas Center for Economic Analysis and Policy Strome College of Business October 24, 2018

2 The forecasts and commentary do not constitute an official viewpoint of Old Dominion University, its President, John R. Broderick, the Board of Visitors, the Strome College of Business, or the generous donors who support the activities of the Dragas Center for Economic Analysis and Policy. The data in this presentation are subject to revision. To our knowledge, all data in this presentation are accurate at the time of the presentation.

3 Expansion Current and Historical Expansions Duration In months Annual Employment Growth Annual Real GDP Growth October 1949 July % 6.95% May 1954 August % 3.96% April 1958 April % 5.42% February 1961 December % 4.81% November 1970 November % 4.99% March 1975 January % 4.20% December 1982 July % 3.90% March 1991 March % 3.55% November 2001 December % 2.86% June 2009 Present* % 2.21% Source: Bureau of Labor Statistics, Bureau of Economic Analysis, National Bureau of Economic Research, and Old Dominion University Economic Forecasting Project. Real GDP in chained 2009 dollars. CAGR = Compound Annual Growth Rate. Annual Real GDP CAGR derived from quarterly series. Annual employment CAGR derived from monthly series. Current expansion data ends in 2018 Q2 for GDP and September 2018 for Employment. Average annual Real GDP CAGR of previous expansions = 4.21% while average annual employment CAGR from previous expansions = 2.92%. 3

4 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Growth in Real Gross Domestic Product United States and Virginia, Q1 1.8% Q1 United States Real GDP 3.0% 0.8% 2.8% 2017 Q2 2.8% 2017 Q3 Virginia Real GDP 3.7% 2.3% 2.5% 2017 Q4 2.4% 2.2% 2018 Q1 4.2% 3.0% 2018 Q2 Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Real GDP measured in chained 2009 dollars. U.S Q2 is the 3 rd estimate and Virginia 2018 Q1 are advance estimates. Quarterly numbers are annualized rates of growth. 4

5 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Thousands of Jobs 155, , , , , , , ,000 Total Nonfarm Employment United States, January 2007 September , Million Jobs 149, ,000 Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. Data for August and September 2018 are preliminary. Trough was February

6 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Thousands of Jobs 4,100 4,000 3,900 3,800 3,700 3,600 3,500 3,400 Total Nonfarm Employment Virginia, January 2007 September , ,100 Jobs 4,025 3,300 Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. Data for September 2018 are preliminary. Trough was February

7 % 8% 6% 4% 2% 0% -2% -4% -6% -8% Recovery from the Great Recession Measured in Total Jobs Restored, * 8.01% 6.23% United States Virginia Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Peak Pre-Recession Dates are January 2008 (United States), and April 2008 (Virginia). *Data for USA through September 2018, and Virginia through August US data preliminary for August and September Virginia data are preliminary for September Seasonally adjusted data. 7

8 % 6% Recovery from the Great Recession Measured in Employment of Individuals, * 6.1% 4% 2% 6.4% 0% -2% -4% -6% -8% United States Virginia Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Peak Pre-Recession Dates are November 2007 (United States) and July 2008 (Virginia). *Data for USA through September 2018, Virginia through August US data preliminary for August and September Virginia data preliminary for September Seasonally adjusted data. 8

9 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 12% Headline Unemployment Rate (U3) Virginia and United States, January 2007 September % 8% 6% 4% 4.6% 3.7% 2% 0% 2.9% 2.9% Virginia United States Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted unemployment rates. 9

10 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 10.1% Alternative Measure of the Unemployment Rate (U6) Virginia and the United States, nd Quarter % 8.2% 6.8% 6.0% 12.9% 8.1% 7.2% Q2 United States Virginia Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. U-6 measures total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. State level data based on 4-quarter moving average. Annual averages are presented. 10

11 Unemployed/Job Openings 7 6 Number of Unemployed Individuals per Job Opening United States, January 2001 to August Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. 11

12 % Corporate Profits as Percent of GDP United States, 1 st Quarter nd Quarter % 10% 9.5% 8% 6.5% 6% 4% 2% 0% Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Corporate Profits After Tax Without Inventory Adjustment 12

13 Cyclically Adjusted Price/Earnings Ratio Standard and Poor s Composite Price Index January 1881 October 2018* Source: Robert Schiller, Irrational Exuberance. Prices and earnings are in January 2000 dollars. Data as October 10, 2018 market close. For further information: 13

14 S&P Case-Shiller Home Price Index United States, January 1987 July Source: S&P Dow Jones Indices, LLC. Seasonally adjusted series. January 2000 =

15 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Case-Shiller Home Price Index Change from Pre-Recession Peak to July % 6.1% 52.9% Source: S&P Case Shiller Home Price Index. Seasonally adjusted series. Updated September 25, January 2000 =

16 January 2000 = Single Unit Starts and Units in Buildings with 5 Units or More Starts 12 Month Moving Average United States, January 2001 June Single Unit Housing 5 or More Units Source: U.S. Bureau of the Census and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Annual rate. Next update: August 16, January 2000 =

17 % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cash Out Refinance Activity United States, 1st Quarter nd Quarter % 12% 77% Source: Freddie Mac, Quarterly Refinance Statistics, 2nd Quarter Percentage of refinances refers to loan amounts that were at least 5 percent higher than the amortized unpaid principal balance of the original loan. 17

18 Federal Spending

19 Billions of Nominal Dollars $800 $700 $600 $691 $687 Department of Defense Discretionary Budget Authority, FY 2010 FY 2023 $645 $577 $581 $560 $580 $605 $655 $686 $701 $714 $727 $742 $500 $400 $300 $200 $100 $0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 DoD Base Budget Overseas Contingency Operations Sources: U.S. Department of Defense and the Dragas Center for Economic Analysis and Policy. FY 2019 DoD Budget Materials. Nominal dollars. Includes military construction. 19

20 Days from End of Last Fiscal Year 250 Delays in Department of Defense Appropriations, FY 1970 FY Average Delay = [VALUE] days FY70 FY74 FY78 FY82 FY86 FY90 FY94 FY98 FY02 FY06 FY10 FY14 FY18 Fiscal Year Sources: Center for Strategic and International Studies, Todd Harrison, and Dragas Center for Economic Analysis and Policy 20

21 Billions of Budget Year Dollars $120 $100 Federal Awards in Virginia, FY 2008 FY 2017 $99.2 $80 $60 $40 $66.0 $33.2 $20 $ Fiscal Year Total Federal Awards Total DoD Awards Non-DoD Awards Sources: Dragas Center for Economic Analysis and Policy and USASpending.Com. Nominal budget dollars. Awards include contracts, direct payments, grants, other financial assistance, and loans. FY 2018 is not included as the fiscal year recently concluded and expenditure data are incomplete. 21

22 Billions of Dollars $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200 -$1,400 -$1,600 -$1,800 Congressional Budget Office: Projected Federal Deficit FY FY 2028 ($779) ($973) ($1,527) CBO Baseline Source: Congressional Budget Office (2018), Budget and Economic Output: 2018 to 2018 and Dragas Center for Economic Analysis and Policy. Federal deficits in nominal dollars. 22

23 Billions of Dollars $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 $263 $325 Projected Net Interest United States. FY 2017 FY 2028 $702 $ Source: Congressional Budget Office (2018), Budget and Economic Output: 2018 to 2018 and Dragas Center for Economic Analysis and Policy. Interest expenditures in nominal dollars. 23

24 2018: Accelerating growth Price inflation remains moderate and interest rates remain historically low. Reduced federal income tax withholding has increased consumer confidence. Decreases in federal business tax rates and increased repatriation of overseas profits are increasing share buybacks. Increases in federal discretionary spending caps by almost $300 billion through Fiscal Year 2019 and suspension of the debt limit through March 1, 2019 will further boost growth 24

25 2018: Increasing Economic Risk Price-to-earning ratios remain high and a significant (10% plus) correction is again likely if adverse information appears. Prices and wages have increased with personal-consumption expenditure prices hitting the Federal Reserve s 2% target in March. Core CPI was 2.2% in September 2018 and all-items CPI was 2.3%. Over $2 trillion in federal deficit spending has been added over the next decade since mid-december Increasing trade conflicts threatens to undermine economic growth. 25

26 Virginia s Metropolitan Regions

27 Annual Growth in Real GDP 4% Real (Inflation-Adjusted) Gross Domestic Product Growth % 2% 2.3% 2.4% 2.6% 2.7% 2.1% 1.5% 1% 0.6% 0.7% 1.0% 0% 0.0% -1% -2% Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Winchester Hampton Roads Northern Virginia Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Real GDP is measured in billions of 2009 chained dollars. 27

28 3.5% 3.2% Labor Force Growth 2017 and Year-to-Date % 2.5% 2.6% 2.8% 2.2% 2.2% 2.0% 1.5% 1.0% 1.1% 0.9% 0.9% 1.3% 1.8% 1.0% 1.3% 1.5% 1.6% 0.5% 0.0% 0.2% 0.0% 0.4% 0.4% 0.3% -0.5% -0.6% -1.0% Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Winchester Northern Virginia Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Year-to-date is measured by comparing the average labor force from January to August for 2017 and

29 4.5% Individual Employment Growth 2017 and Year-to-Date % 3.9% 3.5% 3.3% 3.0% 2.9% 2.5% 2.0% 1.7% 2.2% 2.1% 1.8% 2.0% 2.0% 2.6% 2.4% 2.3% 1.5% 1.4% 1.1% 1.2% 1.2% 1.0% 0.7% 0.6% 0.6% 0.5% 0.2% 0.0% Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Winchester Northern Virginia Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Year-to-date is measured by comparing the average labor force from January to August for 2017 and

30 5.0% Unemployment Rate August 2017 and August % 4.4% 4.0% 4.1% 3.7% 3.8% 3.9% 3.7% 4.1% 3.7% 3.5% 3.0% 2.5% 3.0% 3.3% 2.6% 2.8% 3.4% 3.0% 2.8% 2.8% 3.2% 3.4% 2.8% 3.4% 2.0% 1.5% 1.0% 0.5% 0.0% Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Winchester Northern Virginia Aug-17 Aug-18 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Smoothed seasonally adjusted data. 30

31 Average Weekly Hours Average Weekly Work Hours August 2017 and August Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Winchester Northern Virginia Aug-17 Aug-18 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. 31

32 Average Weekly Hours $40 Average Hourly Earnings August 2017 and August 2018 $35 $33.7 $34.9 $30 $25 $20 $20.7 $20.0 $22.9 $25.4 $23.0 $23.0 $22.8 $22.6 $24.9 $25.7 $20.9 $22.6 $20.4 $22.3 $24.2 $24.0 $22.5 $21.7 $15 Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Winchester Northern Virginia Aug-17 Aug-18 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. 32

33 Change in Average Weekly Earnings 20% Growth in Average Weekly Earnings August 2017 and August % 15.4% 10% 5% 0% 8.3% 1.3% 1.9% 6.7% 5.6% 0.8% 4.5% -5% -2.6% -10% -9.3% -15% Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Staunton Hampton Roads Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Winchester Northern Virginia 33

34 Virginia August 2018 Unemployment Rates Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Buchanan County had the highest unemployment rate in August 2018 at 5.8%. Darker shades of blue represent lower unemployment rates. Arlington County had the lowest unemployment rate in August 2018 at 2.1%. 34

35 Labor Force Participation Rates,

36 35.0% 30.0% Recovery in Housing Prices Change in FHFA Housing Price Index, 2010 Q Q2 31.1% 30.9% 25.0% 22.7% 20.0% 15.0% 18.8% 17.3% 15.6% 10.8% 10.0% 7.1% 6.4% 5.0% 4.1% 3.1% 0.0% Source: Federal Housing Finance Agency and Dragas Center for Economic Analysis and Policy. *Data compare 4 th quarter 2010 with the 4 th Quarter of

37 If you would like to receive economic updates from the Dragas Center for Economic Analysis and Policy and to have immediate access to our reports, please leave your card with us. You may also text CEAPODU to to join our list. Follow CEAPODU on Facebook, LinkedIn, and Twitter for up-to-date information to help you understand new economic developments. You ll receive absolutely up-to-date economic information the same day it is released by the Bureau of Labor Statistics, the Bureau of Economic Analysis and other major data providers. And, we will put it in context so that you can better understand the numbers. 37

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2018 Annual Economic Forecast Dragas Center for Economic Analysis and Policy

2018 Annual Economic Forecast Dragas Center for Economic Analysis and Policy PRESENTING SPONSOR EVENT PARTNERS 2 The forecasts and commentary do not constitute an official viewpoint of Old Dominion University,