National and Virginia Economic Outlook Professor Robert M. McNab Dragas Center for Economic Analysis and Policy Strome College of Business October 24, 2018
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* 112 1.41% 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
4.5% 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, 2010-2018 Q1 1.8% 2010 2011 2012 2013 2014 2015 2016 2017 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. 2018 Q2 is the 3 rd estimate and Virginia 2018 Q1 are advance estimates. 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 September 2018 129,726 + 19.77 Million Jobs 149,500 115,000 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 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 September 2018 3,596 + 429,100 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 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 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Recovery from the Great Recession Measured in Total Jobs Restored, 2008-2018* 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 2018. US data preliminary for August and September 2018. Virginia data are preliminary for September 2018. 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% Recovery from the Great Recession Measured in Employment of Individuals, 2007-2018* 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 2018. US data preliminary for August and September 2018. Virginia data preliminary for September 2018. 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 September 2018 10% 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
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 10.1% Alternative Measure of the Unemployment Rate (U6) Virginia and the United States, 2003 2 nd Quarter 2018 16.7% 8.2% 6.8% 6.0% 12.9% 8.1% 7.2% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2018 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
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 August 2018 6.65 5 4 3 2 1 0 0.87 Source: Bureau of Labor Statistics and Dragas Center for Economic Analysis and Policy. Seasonally adjusted data. 11
1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 14% Corporate Profits as Percent of GDP United States, 1 st Quarter 1950 2 nd Quarter 2018 12% 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
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 October 2018* 32.6 44.2 31.5 16.9 Source: Robert Schiller, Irrational Exuberance. Prices and earnings are in January 2000 dollars. Data as October 10, 2018 market close. For further information: http://www.econ.yale.edu/~shiller/data.htm 13
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 250 200 S&P Case-Shiller Home Price Index United States, January 1987 July 2018 206.66 211.61 150 100 50 0 Source: S&P Dow Jones Indices, LLC. Seasonally adjusted series. January 2000 = 100. 14
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Case-Shiller Home Price Index Change from Pre-Recession Peak to July 2018-10.0% 6.1% 52.9% Source: S&P Case Shiller Home Price Index. Seasonally adjusted series. Updated September 25, 2018. January 2000 = 100. 15
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 June 2018 105.0 69.7 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, 2018. January 2000 = 100. 16
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 2nd Quarter 2018 89% 12% 77% Source: Freddie Mac, Quarterly Refinance Statistics, 2nd 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. 17
Federal Spending
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
Days from End of Last Fiscal Year 250 Delays in Department of Defense Appropriations, FY 1970 FY 2019 174 200 150 100 Average Delay = [VALUE] days 50 0-50 -100 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
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 $0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 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
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 2018 - FY 2028 ($779) ($973) ($1,527) 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 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
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 $915 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 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
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
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 2017. Increasing trade conflicts threatens to undermine economic growth. 25
Virginia s Metropolitan Regions
Annual Growth in Real GDP 4% Real (Inflation-Adjusted) Gross Domestic Product Growth 2015-2017 3% 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 2015 2016 2017 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
3.5% 3.2% Labor Force Growth 2017 and Year-to-Date 2018 3.0% 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 2017 2018 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 2018. 28
4.5% Individual Employment Growth 2017 and Year-to-Date 2018 4.0% 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 2017 2018 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 2018. 29
5.0% Unemployment Rate August 2017 and August 2018 4.5% 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
Average Weekly Hours Average Weekly Work Hours August 2017 and August 2018 38 37 36.8 37.5 37.1 36 35 34 34.2 33.3 36.2 35.8 33.8 34.9 36.0 35.5 34.2 34.7 34.9 35.1 35.0 33 32.7 32 31.9 31 30.9 31.1 30 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
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
Change in Average Weekly Earnings 20% Growth in Average Weekly Earnings August 2017 and August 2018 15% 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
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
Labor Force Participation Rates, 2017 35
35.0% 30.0% Recovery in Housing Prices Change in FHFA Housing Price Index, 2010 Q1 2018 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 2017. 36
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