Economic Update: Accelerating Growth and Increasing Risk Professor Robert M. McNab Dragas Center for Economic Analysis and Policy Strome College of Business May 23, 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.
Current and Historical Expansions Expansion Duration In months Annual Employment Growth Annual Real GDP Growth October 1949 July 1953 45 4.35% 6.14% May 1954 August 1957 39 2.51% 3.67% April 1958 April 1960 24 3.58% 4.86% February 1961 December 1969 106 3.23% 4.68% November 1970 November 1973 36 3.38% 4.60% March 1975 January 1980 58 3.51% 4.01% December 1982 July 1990 91 2.81% 3.81% March 1991 March 2001 120 2.01% 3.45% November 2001 December 2007 73 0.88% 2.66% June 2009 Present* 106 1.41% 2.16% 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 Q1 for GDP and March 2018 for Employment. Average annual Real GDP CAGR of previous expansions = 4.21% while average annual employment CAGR from previous expansions = 2.92%. Next update is May 30 th, 2018. 3
Growth in Real Gross Domestic Product United States and Virginia, 2010-2018 Q1 4.0% 3.7% 3.5% 3.0% 2.5% 3.1% 3.2% 2.9% 2.3% 2.0% 1.5% 1.2% 2.8% 2.5% 2.0% 1.0% 0.5% 0.8% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 United States Real GDP Virginia Real GDP Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Real GDP measured in chained 2009 dollars. U.S. 2018 Q1 and Virginia 2017 Q4 are advance estimates. VA 2018 Q1 is our forecast. Quarterly numbers are annualized rates of growth. Next update: US (May 30, 2018) and Virginia (July 24, 2018). 4
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 Thousands of Jobs 150,000 145,000 Total Nonfarm Employment United States, January 2007 April 2018 + 18.70 Million Jobs 148,424 140,000 135,000 130,000 129,726 125,000 120,000 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Data for March and April 2018 are preliminary. Trough was February 2010. Next update: June 1, 2018 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 Thousands of Jobs 4,100 4,000 3,900 3,800 3,700 3,600 3,500 Total Nonfarm Employment Virginia, January 2007 March 2018 3,596 + 391,100 Jobs 3,987 3,400 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Data for March 2018 are preliminary. Trough was February 2010. Next update: May 18, 2018 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 8% 6% 4% 2% 0% -2% -4% -6% Recovery from the Great Recession Measured in Total Jobs Restored, 2008-2018* 7.23% 5.24% -8% United States Virginia Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Peak Pre-Recession Dates are January 2008 (United States) and April 2008 (Virginia). Data for USA through April 2018, Virginia through March 2018. US data preliminary for March and April 2018. Virginia data preliminary for March 2018. Data from Current Employment Statistics. 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 8% 6% 4% 2% 0% -2% -4% -6% Recovery from the Great Recession Measured in Individual Employment, 2007-2018* 4.94% 5.86% -8% United States Virginia Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Peak Pre-Recession Dates are November 2007 (United States) and July 2008 (Virginia). Data for USA through April 2018, Virginia through March 2018. US data preliminary for March and April 2018. Virginia data preliminary for March 2018. Current Population Survey data. 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 12% Headline Unemployment Rate (U3) Virginia and United States, 2007 2018 10% 8% 6% 4.6% 3.9% 4% 2% 0% 2.9% 3.4% Virginia United States Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Seasonally adjusted unemployment rates. Virginia data through March 2018 while US data through April 2018. Next update: US: June 1, 2018 and Virginia: May 18, 2018 9
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Alternative Measure of the Unemployment Rate (U6) Virginia and the United States, 2003 1 st Quarter 2018 16.7% 10.1% 8.3% 8.2% 12.9% 6.8% 7.6% 6.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 United States Virginia Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. 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. Next update: July 27, 2018. 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 March 2018 6.65 5 4 3 2 1 1.12 1.01 0 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Next update: June 5, 2018. 11
Individuals Month-to-Month Change in Labor Force Virginia, January 2017 to March 2018 7,000 6,000 5,986 5,965 5,390 5,248 5,434 5,323 4,942 5,000 4,547 4,000 3,000 3,204 3,788 2,000 1,947 1,000 0-1,000-2,000 73 837 1,452 1,439 Jan-17 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-18 Feb Mar Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Local Area Unemployment Statistics. Seasonally adjusted data. March 2018 data are preliminary. Next update: May 18, 2018 12
Individuals 10,000 Month-to-Month Change in Employment Virginia, January 2017 to March 2018 8,000 8,374 8,776 8,196 7,787 7,724 7,214 6,420 8,023 7,249 6,000 4,437 4,000 2,971 2,000 0 653 882-2,000 1,486 Jan-17 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-18 Feb Mar 966 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Local Area Unemployment Statistics. Seasonally adjusted data. March 2018 data are preliminary. Next update: May 18, 2018 13
1980 1981 1982 1984 1985 1986 1988 1989 1990 1992 1993 1994 1996 1997 1998 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013 2014 2016 2017 80% 77.9% Civilian Labor Force Participation Rate United States, January 1980 April 2018 75% 70% 65% 60% 55% 50% 45% 64.0% 51.6% 69.2% 62.8% 56.7% 40% Overall Men Women Source: Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Next update: June 1, 2018. 14
1976 1977 1978 1979 1981 1982 1983 1984 1986 1987 1988 1989 1991 1992 1993 1994 1996 1997 1998 1999 2001 2002 2003 2004 2006 2007 2008 2009 2011 2012 2013 2014 2016 2017 74% 72% 70% Labor Force Participation Rate Virginia, January 1976 to March 2018 71.5% 69.9% 68% 66% 65.1% 64% 62% 60% Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Seasonally adjusted data. Next update: May 18, 2018. 15
1950 1952 1954 1957 1959 1962 1964 1966 1969 1971 1974 1976 1979 1981 1983 1986 1988 1991 1993 1995 1998 2000 2003 2005 2008 2010 2012 2015 2017 12% 10% Corporate Profits as Percent of GDP United States, 1950-2017 8.51% 8% 6% 6.52% 4% 2% 0% Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Corporate Profits After Tax Without Inventory Adjustment 16
1881 1884 1888 1892 1896 1900 1904 1907 1911 1915 1919 1923 1927 1930 1934 1938 1942 1946 1950 1953 1957 1961 1965 1969 1973 1976 1980 1984 1988 1992 1996 1999 2003 2007 2011 2015 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 May 2018* 32.6 44.2 31.3 16.9 Source: Robert Schiller, Irrational Exuberance. Prices and earnings are in January 2000 dollars. Data as May 1, 2018 market close. For further information: http://www.econ.yale.edu/~shiller/data.htm 17
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 2014 2015 2016 2017 250 200 S&P Case-Shiller Home Price Index United States, January 1987 February 2018 184.55 197.01 150 100 50 0 Source: S&P Dow Jones Indices, LLC. Seasonally adjusted series. January 2000 = 100. 18
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Case-Shiller Home Price Index Change from Pre-Recession Peak to February 2018-11.9% 6.7% 48.1% Source: S&P Dow Jones Indices, LLC. Seasonally adjusted series. January 2000 = 100. 19
January 2000 = 100 160 140 120 100 80 60 40 20 0 New Residential Construction Single Unit and Units in Buildings with 5 Units or More United States, January 2000 March 2018 129.88 68.38 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: May 16, 2018. January 2000 = 100. 20
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 1st Quarter 2018 89% 12% 68% Source: Freddie Mac, Quarterly Refinance Statistics, 1 st 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. 21
Federal Spending
Billions of Nominal Dollars $670 $650 $630 $610 $590 $570 $550 $530 $510 $490 $470 Department of Defense Base Budget FY 2011 FY 2019 $636 $525 2018 CR $651 2019 Request 2018 BBA 2018 Request FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2011 Enacted with Inflation Original BCA Caps Prior BBA Caps Source: BCA2011,Budget Requests for FY 18 and FY 19, CBO Sequestration Update Report, Various Years, and the Old Dominion University Economic Forecasting Project. FY 2011 Actual and FY 2012 Proposed Budget and FYDP. FY 18 and FY 19 are inflated from the FY12 FYDP estimate of FY17. 23
Billions of Nominal Dollars $800 $700 $600 $500 $691 $687 163 159 Department of Defense Discretionary Budget Authority, FY 2010 FY 2023 $645 115 $577 $581 $560 82 85 63 $580 59 $605 82 $655 65.2 $686 $701 $714 $727 $742 20 20 20 20 69 $400 $300 $200 528 528 530 495 496 497 521 523 590 617 681 694 707 722 $100 $0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 DoD Base Budget Overseas Contingency Operations Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. FY 2019 Budget Materials. FY 18 base budget includes $5 billion in missile defense authority. Nominal dollars. 24
FY 18 Approved FY 18 Approved FY 19 Request FY 19 Request Aircraft F-35 Joint Strike Fighter 90 $11.8 77 $10.7 KC-46 Tanker Replacement 15 $3.1 15 $3.0 F/A-18 Super Hornet 24 $1.8 24 $2.0 AH-64E Apache Attack Helicopter 80 $1.4 60 $1.3 P-8A Poseidon 10 $1.7 10 $2.2 CH-53K King Stallion 4 $1.1 8 $1.6 Shipbuilding Virginia Class Submarine 2 $5.5 2 $7.4 DDG-51 Arleigh Burke Class Destroyers 2 $4.0 3 $6.0 Littoral Combat Ships 3 $1.7 1 $1.3 CVN-78 Class Aircraft Carrier 1 $4.6 - $1.8 Fleet Replenishment Oiler 1 $0.5 2 $1.1 Towing, Salvage, and Rescue Ship 1 $0.1 1 $0.1 Expeditionary Sea Base - - 1 $0.7 Source: U.S. Department of Defense. FY 2019 Budget Materials and FY 2018 Appropriations Summaries. Note the US Navy is currently negotiation a two carrier contract (CVN 80 and CVN 81) to possibly be announced in early FY 2019. 25
Good News For Two Years The passage of the Bipartisan Budget Agreement of 2018 reduces the uncertainty of defense appropriations through FY 2019 The authorizing committees support a two-carrier buy and other increases in ship building Increasing geopolitical tension will likely continue pressure to increase DoD spending in the medium-term An opportunity exists to consolidate DoD activities in Hampton Roads even though there is not a Base Realignment and Closure request included in the FY 19 budget request 26
Billions of Dollars $0 Congressional Budget Office: Projected Federal Deficit FY 2018 - FY 2028 -$500 -$1,000 -$1,500 -$805 -$981 -$1,104 -$1,261 -$1,436 -$1,455 -$1,444 -$1,570 -$1,641 -$2,000 -$1,797 -$2,029 -$2,500 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 CBO Baseline CBO Alternative Fiscal Scenario Source: Congressional Budget Office (2018), Budget and Economic Output: 2018 to 2018 and Old Dominion University Economic Forecasting Project. Federal deficits in nominal dollars. The Alternative Fiscal Scenario assumes that many the provisions of the Tax Cuts and Jobs Act of 2017 would be made permanent and many of the Affordable Care Act taxes are repealed, among others. 27
Billions of Dollars 1200 Projected Net Interest United States. FY 2017 FY 2028 1000 800 600 400 $263 $316 $390 $487 $576 $655 $721 $764 $805 $857 $918 $992 200 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 CBO Baseline Alternative Fiscal Scenario Source: Congressional Budget Office (2018), Budget and Economic Output: 2018 to 2018 and Old Dominion University Economic Forecasting Project. Interest expenditures in nominal dollars. The Alternative Fiscal Scenario assumes that many the provisions of the Tax Cuts and Jobs Act of 2017 would be made permanent and many of the Affordable Care Act taxes are repealed, among others. 28
2017 Forecast 2017 Actual 2018 Forecast (Jan) 2018 Forecast (May) U.S. Real Gross Domestic Product 2.2% 2.3% 3.0% 3.1% Civilian Job Growth 1.5% 1.2% 1.1% 1.2% Unemployment Rate 4.7% 4.1% 3.8% 3.6% Consumer Price Index 2.8% 2.2% 2.9% 3.0% Core Consumer Price Index 2.4% 1.7% 2.2% 2.3% 3-month Treasury Bill 1.3% 1.4% 2.0% 2.1% 10-year Treasury Bill 3.2% 2.4% 3.2% 3.3% 30-year Treasury Bill -- 2.8% 3.6% 3.6% 30-year Conventional Mortgage 4.3% 4.0% 5.0% 5.0% Federal Deficit --- -$666 Billion -$850 Billion -$825 Billion Virginia Real GDP* 1.5% 2.0% 2.5% 2.7% Virginia Employment Growth --- 1.4% 1.3% 1.5% Source: 2017 data reflects the annual rate of growth, last month, or day business day of 2017 where appropriate. Data are rounded to nearest tenth. The initial forecast for real GDP for Virginia has increased from 2.2% to 2.7% due to increases in federal spending in FY 2018 and 2019 and revisions to quarterly growth in VA during 2017. 29
Virginia s Metropolitan Regions
Where Does Virginia Rank? A Look at the CNBC Rankings 40 35 30 25 20 15 10 5 0 1 Overall 2011 2012 2013 2014 2015 2016 2017 7 21 Cost of Doing Business 35 10 25 Infrastructure and Transportation 24 Cost of Living 28 Source: CNBC, Various Years. For 2017: https://www.cnbc.com/2017/07/11/americas-top-states-for-business-2017-overall-ranking.html
Contributions to 2015-2016 Real GDP Growth 2016 Best Performing Sector 2016 Contribution 2016 Worst Performing Sector 2016 Contribution Blacksburg Government 0.37% Durable Goods Manufacturing -1.75% Charlottesville Government 0.39% Finance, Insurance, Real Estate -1.34% Hampton Roads Educational Services, Health 0.26% Durable Goods Manufacturing -0.48% Harrisonburg Natural Resources and Mining 0.41% Nondurable Goods Manufacturing -2.34% Kingsport-Bristol Trade 0.34% Nondurable Goods Manufacturing -0.95% Lynchburg Professional Services 0.17% Nondurable Goods Manufacturing -0.62% Richmond Finance, Insurance, Real Estate 1.67% Nondurable Goods Manufacturing -0.70% Roanoke Construction 0.43% Finance, Insurance, Real Estate -0.81% Staunton Natural Resources and Mining 0.19% Nondurable Goods Manufacturing -1.63% Washington DC Professional Services 0.55% Finance, Insurance, Real Estate -0.15% Winchester Natural Resources and Mining 0.10% Nondurable Goods Manufacturing -1.29%
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118 121 124 127 130 133 15% Recovery from the Great Recession Measured in Total Jobs Restored, 2007-2018* 10.98% 12.07% 10.92% 10% 5% 7.05% 8.02% 0% -5% -10% Charlottesville Harrisonburg Richmond Winchester Northern Virginia 33
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118 121 124 127 130 133 1% 0% -1% -2% -3% -4% -5% -6% -7% -8% Recovery from the Great Recession Measured in Total Jobs Restored, 2007-2018* -0.15% -1.94% -1.95% -5.15% -9% Lynchburg Roanoke Staunton Hampton Roads 34
Comparison of Metro Unemployment Rates 9.0% 8.0% 8.5% 7.6% 8.0% 8.2% 7.8% 8.0% 7.0% 6.0% 6.2% 6.3% 6.3% 5.0% 4.0% 3.0% 4.2% 3.2% 3.0% 2.9% 3.6% 3.5% 3.2% 2.9% 4.0% 3.7% 3.5% 3.4% 3.4% 3.3% 3.4% 3.6% 3.2% 3.0% 2.0% 1.0% 0.0% Blacksburg Charlottesville Hampton Roads Harrisonburg Lynchburg Richmond Roanoke Washington DC Winchester December 2009 2000-2007 Average March 2018
Unemployment Rate Virginia Cities and Counties, March 2018 36
4.0% Year-on-Year Growth in Nonfarm Payrolls 3.0% 2.0% 1.0% 0.0% VA Blacksburg Charlottesville Harrisonburg Lynchburg Richmond Roanoke Winchester Hampton Roads -1.0% -2.0% October November December January February March Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. *Data are through March 2018
Change in Average Weekly Wages (2014-2017 in Percent) 12.00% 10.71% 10.00% Virginia 8.00% 6.00% 4.00% 6.47% 6.03% 4.73% 5.08% 5.03% 6.63% 4.03% 7.20% 6.74% Blacksburg Charlottesville Hampton Roads Harrisonburg Lynchburg Richmond Roanoke Washington DC 2.00% Winchestor 0.00%
Recovery in Housing Prices: Changes in FHFA Housing Price Index, 2010-2017 30.00% 26.49% 25.00% 23.09% U.S. Virginia 20.00% Blacksburg Charlottesville 15.00% 12.68% 11.90% 15.07% Hampton Roads Harrisonburg Lynchburg 10.00% 5.00% 7.00% 3.54% 6.38% 6.58% 2.99% 5.21% Richmond Roanoke Winchester Washington 0.00% Source: Federal Housing Finance Agency and Center for Economic Analysis and Policy. *Data compare 4 th quarter 2010 with the 4 th Quarter of 2017.
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