Economic Update and Prospects for 2019 Professor Robert M. McNab Dragas Center for Economic Analysis and Policy Strome College of Business January 3, 2019
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.
Expansion Current and Historical Expansions Duration In months Annual Employment Growth Annual Real GDP Growth October 1949 July 1953 45 4.35% 6.95% May 1954 August 1957 39 2.51% 3.96% April 1958 April 1960 24 3.58% 5.42% February 1961 December 1969 106 3.23% 4.81% November 1970 November 1973 36 3.38% 4.99% March 1975 January 1980 58 3.51% 4.20% December 1982 July 1990 91 2.81% 3.90% March 1991 March 2001 120 2.01% 3.55% November 2001 December 2007 73 0.88% 2.86% June 2009 Present* 113 1.42% 2.30% Source: Bureau of Labor Statistics, Bureau of Economic Analysis, National Bureau of Economic Research, and Dragas Center for Economic Analysis and Policy. Real GDP in chained 2012 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 Q3 for GDP and November 2018 for US Nonfarm Payrolls. Average annual Real GDP CAGR of previous expansions = 4.21% while average annual employment CAGR from previous expansions = 2.92%. 3
4.5% Growth in Real Gross Domestic Product United States and Virginia, 2010-2018* 4.2% 4.0% 3.5% 3.0% 2.5% 2.0% 2.1% 3.4% 3.0% 2.8% 2.8% 1.5% 2.2% 1.0% 0.5% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 Q1 2018 Q2 2018 Q3 2014 Q4 United States Real GDP Virginia Real GDP Source: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Real GDP measured in chained 2009 dollars. *U.S. 2018 Q3 is the second estimate and Virginia 2018 Q2 is the advance estimate. Virginia Q3 and Q4 and US Q4 are forecasts. Quarterly numbers are annualized rates of growth. 4
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 155,000 150,000 145,000 140,000 135,000 130,000 125,000 120,000 Total Nonfarm Employment United States, January 2007 November 2018 129,726 + 20.17 Million Jobs 149,893 115,000 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. Data for October and November 2018 are preliminary. Trough was February 2010. 5
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 November 2018 3,596 + 435,600 Jobs 4,032 3,300 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. Data for November 2018 are preliminary. Trough was February 2010. 6
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Recovery from the Great Recession Measured in Total Jobs Restored, 2008-2018* 8.3% 6.4% 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 November 2018, and Virginia through November 2018. US data preliminary the last two months. Virginia data are preliminary for the last month. Seasonally adjusted data. 7
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 8% 6% 4% 2% 0% -2% -4% -6% Recovery from the Great Recession Measured in Employment of Individuals, 2007-2018* 6.3% 7.0% -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 November 2018, Virginia through November 2018. US data preliminary for last two months. Virginia data preliminary for the last month. Seasonally adjusted data. 8
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 November 2018 10% 8% 6% 4% 4.6% 3.7% 2% 0% 2.9% 2.8% Virginia United States Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted unemployment rates. Virginia data through September 2018. September and October 2018 data are preliminary for the United States. September data are preliminary for Virginia. 9
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Unemployed/Job Openings 7 6 Number of Unemployed Individuals per Job Opening United States, January 2001 to October 2018 6.65 5 4 3 2 0.86 1 0 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. 10
1881 1885 1889 1893 1897 1901 1906 1910 1914 1918 1922 1926 1931 1935 1939 1943 1947 1951 1956 1960 1964 1968 1972 1976 1981 1985 1989 1993 1997 2001 2006 2010 2014 2018 50 45 40 35 30 25 20 15 10 5 0 Cyclically Adjusted Price/Earnings Ratio Standard and Poor s Composite Price Index January 1881 December 2018* 32.6 44.2 29.0 16.9 Source: Robert Schiller, Irrational Exuberance. Prices and earnings are in January 2000 dollars. Data as December 7, 2018 market close. For further information: http://www.econ.yale.edu/~shiller/data.htm 11
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Case-Shiller Home Price Index Change from Pre-Recession Peak to October 2018-9.2% 6.1% 54.0% Source: S&P Case Shiller Home Price Index. Seasonally adjusted series. January 2000 = 100. 12
January 2000 = 100 160 140 120 100 80 60 40 20 0 Single Unit Starts and Units in Buildings with 5 Units or More Starts 12 Month Moving Average United States, January 2001 November 2018 107.7 70.0 Single Unit Housing 5 or More Units Source: U.S. Bureau of the Census and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. Annual rate. January 2000 = 100. 13
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cash Out Refinance Activity United States, 1st Quarter 1994 3rd Quarter 2018 89% 12% 81% Source: Freddie Mac, Quarterly Refinance Statistics, 3rd Quarter 2018. Percentage of refinances refers to loan amounts that were at least 5 percent higher than the amortized unpaid principal balance of the original loan. 14
Hampton Roads
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Millions of Dollars $110,000 $100,000 Nominal and Real Gross Domestic Product (GDP) Hampton Roads, 2002 2018* $99,313 $90,000 $80,000 $70,000 $60,000 $50,000 $69,410 $57,558 $83,621 $40,000 Nominal GDP Real GDP Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. Data for 2017 for Hampton Roads is the advance estimate. *Data for 2018 represents our forecast. Real GDP in 2009 Chained Dollars. 16
Annual Real GDP Growth 6% 5% 4.3% Growth in Real Gross Domestic Product Hampton Roads, 2003-2018* 4% 3% 1.6% 2% 1% 0% -1% -2% -3% -0.1% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. Data for 2017 for Hampton Roads is the advance estimate. *Data for 2018 represents our forecast. CAGR GDP growth in horizontal bars. 17
Index of Real GDP (2006 = 100) 125.0 120.0 115.0 110.0 105.0 100.0 95.0 Index of Real GDP, 2006 2018* Hampton Roads, Virginia, and the United States 121.2 111.8 102.1 90.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Hampton Roads Virginia United States Sources: Bureau of Economic Analysis and Dragas Center for Economic Analysis and Policy. Data on GDP incorporates latest BEA revisions in September 2018. Data for 2017 for Hampton Roads is the advance estimate. Index is equal to 100 in 2006. *Data for 2018 represents our US, Virginia, and Hampton Roads forecast. 18
Individuals 900,000 880,000 860,000 840,000 820,000 800,000 780,000 760,000 740,000 720,000 Civilian Labor Force and Individual Employment Hampton Roads, January 2006 November 2018 700,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Labor Force Employment 12 per. Mov. Avg. (Labor Force) 12 per. Mov. Avg. (Employment) Sources: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Non-seasonally adjusted data. Data for November 2018 are preliminary. 19
Unemployment Rate 12% 10% Headline Unemployment Rate (U3) Hampton Roads and the United States, January 2007 November 2018 10.0% 8% 6% 4% 4.6% 7.9% 3.7% 2% 3.5% 3.0% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Hampton Roads United States Sources: Bureau of Labor Statistics and Dragas Center for Economic Analysis. Seasonally adjusted monthly data for the United States. Non-seasonally adjusted data for Hampton Roads. 20
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 Jobs 800,000 790,000 780,000 770,000 760,000 750,000 740,000 730,000 720,000 710,000 700,000 781,600 Total Nonfarm Employment (Jobs) Hampton Roads, January 2007 November 2018 733,800 + 57,200 Jobs 791,000 Sources: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Trough was February 2010. Data for November 2018 are preliminary. 21
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 97 101 105 109 113 117 121 125 129 133 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Recovery from the Great Recession Measured in Total Jobs Restored, 2008-2018* 8.3% 6.4% 1.2% United States Virginia Hampton Roads 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 November 2018, and Virginia through November 2018. US data preliminary for last two months. Virginia data are preliminary for last month. Hampton Roads data through November 2018. Seasonally adjusted data. 22
Change in Annual Covered Employment (Jobs) by Selected Industry Hampton Roads 2 nd Quarter 2007 to 2 nd Quarter 2018 Education and Health Services 20,878 Federal Government (Civilian) 11,082 Professional and Business Services Leisure and Hospitality 5,763 7,183 Manufacturing -1,728 Local Government Information Financial Activities -4,910-4,954-5,631 Trade, Transport, Utilities -12,415-17,500-12,500-7,500-2,500 2,500 7,500 12,500 17,500 22,500 Sources: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Annual data from Quarterly Census of Employment and Wages. 2 nd quarter 2018 data are preliminary. Due to non-disclosure requirements, we use annual data for Financial Activities. 23
Percentage of Respondents 60% 50% 40% Personal and Family Financial Situation in Hampton Roads Life in Hampton Roads Survey, 2018 34.6% 42.5% 56.2% 50.3% 30% 20% 10% 8.1% 4.3% 2.9% 1.1% 0% Better off Same Worse off DK/Refused Personal Finance Today Personal Finance Next Year Source: Life in Hampton Roads Survey, 2018. Social Science Research Center, Old Dominion University. Advance estimates from the 2018 LIHR Survey. 24
Percentage of Respondents 60% 50% 40% 39.5% Business Conditions in Hampton Roads Life in Hampton Roads Survey, 2018 51.6% 45.4% 30% 28.7% 20% 10% 15.5% 11.3% 4.1% 3.8% 0% Better off Same Worse off DK/Refused Business Conditions Today Business Conditions Next Year Source: Life in Hampton Roads Survey, 2018. Social Science Research Center, Old Dominion University. Advance estimates from the 2018 LIHR Survey. 25
Single Family Housing in Hampton Roads
30,000 25,000 Existing and New Construction Home Sales Hampton Roads, 2002-2018 24,755 24,587 20,000 15,000 14,703 10,000 5,000 4,969 2,265 3,142 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Existing Homes New Construction Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new construction activity in our region. 27
New Building Permits 1,200 Total New Private Building Permits and 1-Unit Building Permits Hampton Roads, January 2000 October 2018 12-Month Moving Average 1,000 800 600 400 200 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Total Permits 1-Unit Permits Source: U.S. Bureau of the Census and Dragas Center for Economic Analysis and Policy. Non-seasonally adjusted data. 28
Existing Residential Home Sales Hampton Roads, 2006 Q1 to 2018 Q3 8,000 7,000 6,618 7,275 7,013 6,000 5,000 4,000 4,751 4,716 3,000 3,435 2,000 2006 2008 2010 2012 2014 2016 2018 Existing Residence 4-Quarter Moving Average Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all sales activity in our region. 29
$240,000 $230,000 $220,000 $210,000 $200,000 $190,000 $180,000 $170,000 $199,900 Median Sale Price for Existing Homes Hampton Roads, 2006 Q1 to 2018 Q3 $215,000 $160,000 $168,500 $150,000 2006 2008 2010 2012 2014 2016 2018 Existing Residence 4-Quarter Moving Average Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all sales activity in our region. 30
Months Supply 12 Estimated Months of Supply of Existing Homes Hampton Roads, January 1996 November 2018 10 8 6 4 Average = 5.54 months 2 3.68 0 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. Months of supply is based on average sales in the last 12 months 31
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Distribution of Existing Home Sales by Type of Financing Hampton Roads, 1995-2018 32.5% 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 FHA VA Conventional Cash 32.0% 15.5% 15.1% Source: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. 32
Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 3,500 Number of Active Listing of Distressed Homes Hampton Roads, June 2008 to December 2018 3,224 3,000 2,500 2,000 1,500 1,000 500 606 704 0 Source: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. Distressed properties are short-sales or bank-owned. 33
Foreclosure Filings 8,000 7,000 Hampton Roads Residential Foreclosure Fillings January to June: 2008 to 2018 7,341 6,000 5,000 4,000 3,000 2,000 1,000 2,801 2,439 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: ATTOM Data Solutions formerly known as RealtyTrac and the Old Dominion University Economic Forecasting Project. NTS and REO 34
Median Sale Price of Existing Residential Homes for Selected Cities Hampton Roads, 2007 and 2018 City 2007 2018 Source: Real Estate Information Network and Dragas Center Economic Forecasting Project. Information deemed reliable but not guaranteed. * Williamsburg represents Williamsburg, James City County, York County and Gloucester County. ** Median price in Suffolk peaked in 2006 at $263,950 Percent Change Chesapeake $250,100 $254,900 1.9% Norfolk $195,000 $192,000-1.5% Portsmouth $165,500 $149,900-9.4% Suffolk** $257,500 $243,000-5.6% Virginia Beach $245,000 $254,900 4.0% Hampton $180,000 $165,900-7.8% Newport News $199,250 $179,000-10.2% Williamsburg* $284,450 $291,500 2.5% Hampton Roads $223,000 $225,000 0.9% 35
Marriage and a birth of the first child, which are often considered the indicators of the transition from rental housing to single-family residential housing, are increasingly delayed Homeownership by age cohort is falling, younger generations are less likely to own a home 52 percent of those born between 1956 and 1960 owned a home by the time they were 30 to 34 years old 46 percent of those born between 1981 and 1985 owned a home by the time they were 30 to 34 years old Student debt, stagnant real wages, and changing preferences for residential housing appear to play a role 36
Prospects for 2019
2018: The Good Price and wage inflation remains moderate and interest rates remain historically low. Consumer confidence remains high, although there are some signs of erosion. Decreases in federal business tax rates and increased repatriation of overseas profits have increased share buybacks and dividends. 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. 38
2018-2019: We should be concerned about Price-to-earning ratios remain high and volatility will continue due to political uncertainty and slowing global growth. Over $2 trillion in projected federal deficit spending has been added over the next decade since December 2017. Interest on the federal debt is increasing at double-digit rates. The federal government and many states lack fiscal space to cope with an economic downturn. Many states also face increasing pension liabilities that will require reductions in public pension benefits, increased taxes, or both. 39
2019: The Ugly (Potentially) Housing prices are softening in the Pacific region. The end of cheap money may lead to a correction in housing values. There are several fiscal speedbumps in 2019, including the debt ceiling (March 1, 2019) and the return of the Budget Control Agreement of 2011 spending caps (October 1, 2019). Global economic growth is slowing. China may be on the precipice of a subnational government debt crisis and Europe s growth may slow due to Brexit. The underlying indicators of the U.S. and Virginia economy are mostly positive. Slower but steady growth in 2019 as the risk of recession increases 2019 and into 2020. 40
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