Transcript Slide 1

The Great Recession and
Tennessee’s Revenue
Outlook
Bill Fox and Matt Murray
UT’s Center for Business and Economic Research
October 29, 2009
Nature of the Recession
 Began in December 2007
 NBER dates recessions…peak to trough
 First global downturn since WWII
 The longest recession since the Great Depression
 Records have been shattered
 2008 and 2009 home starts (WWII)
 Will be deepest by some, but not all measures of
economic activity

October 2009
Unemployment rates will not likely rival the back-toback recessions of the 1980s
Fox and Murray, Center for Business and Economic Research, UT Knoxville
2
Sources of a Rebound
 Loose monetary policy and Treasury’s response,
including TARP


Federal Funds target range near zero
Unprecedented forms of Fed intervention
 Fiscal stimulus package, $790 billion
 Adds more than 2 percentage points to GDP over two
years
 Market forces helping to turn the corner
 Low housing prices, starts are rebounding
 Mortgage refinancings create liquidity
 Inventory accumulation in 3rd and 4th quarters
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
3
It Will Take Years to Regain Lost Ground
 Mixed signals now emerging, the bottom of the
current cycle
 Recession is likely to be deemed over in the third
quarter…but this is the trough
 Very strong growth rates may then take place
because economic activity is at such depressed
levels-V, U, W or checkmark?

Take your pick!
 Regardless, levels of economic activity will not be
restored for some time—jobs, home starts, car sales,
tax revenue, etc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Real GDP: 2005 to 2012
14,500
5.0
Level, billions of chained 2005 dollars
14,000
3.0
2.0
13,500
1.0
13,000
0.0
-1.0
12,500
-2.0
Real GDP
12,000
-3.0
Growth
-4.0
11,500
05.1
Percentage change, same quarter last year
4.0
-5.0
06.1
07.1
08.1
09.1
10.1
11.1
12.1
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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U.S. Residential Fixed Investment and Nonresidential
Fixed Investment in Equipment & Software and
Structures: 2005 to 2012
40.0
Percentage change, annual rate
30.0
Equip & Software
Structures
Residential
20.0
10.0
0.0
-10.0
-20.0
Commercial real estate
now spiraling down
-30.0
-40.0
-50.0
2005.1
2006.1
2007.1
2008.1
2009.1
2010.1
2011.1
2012.1
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Housing Starts and Light Vehicle Sales:
2005 to 2012
(millions, annual rate)
Housing Starts
2.5
20.0
Light Vehicle Sales
18.0
2.0
16.0
Housing Starts
1.5
12.0
10.0
1.0
8.0
Light Vehicle Sales
14.0
6.0
0.5
4.0
2.0
0.0
2005.1
0.0
2006.1
2007.1
2008.1
2009.1
2010.1
2011.1
2012.1
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Starts are Picking Up, But Problems in
the Housing Market Continue
9.5
4.5
8.5
3.5
7.5
3.0
2.5
6.5
2.0
5.5
1.5
1.0
4.5
mortgage foreclosure rate (percent)
mortgage delinquency rate (percent)
4.0
0.5
3.5
Mar-82
0.0
Mar-85
Mar-88
Mar-91
Mar-94
US Mortgage Delinquency Rate: % ( L )
October 2009
Mar-97
Mar-00
Mar-03
Mar-06
Mar-09
US Mortgage Foreclosure Rate: % ( R )
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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FHFA Housing Price Index: 2005 to 2012
Percentage change, same qtr last yr
15.0
10.0
5.0
0.0
-5.0
-10.0
2005.1
2006.1
2007.1
2008.1
2009.1
2010.1
2011.1
2012.1
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Tennessee Building Permits:
Jan-2005 to Aug-2009
5,000
Total
Single-family
4,500
4,000
Number of units
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May05
05
05
06
06
06
07
07
07
08
08
08
09
09
Source: U.S. Census Bureau, Building Permits Survey (as reported in the State of the Cities Data System [SOCDS] database).
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Federal Funds Rate: 2005.1 to 2012.4
6.0
The Fed’s Exit Strategy?
Percent per annum
5.0
4.0
3.0
2.0
1.0
0.0
2005
2006
2007
2008
2009
2010
2011
2012
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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U.S. Payroll Employment: Jan-08 to Sept-09
(seasonally adjusted)
0.0
Monthly change (thousands)
-100.0
-200.0
-300.0
-400.0
-500.0
-600.0
-700.0
-800.0
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Source: Bureau of Labor Statistics.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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140
3.0
138
2.0
1.0
136
0.0
134
-1.0
132
Level
-2.0
Growth
130
-3.0
128
-4.0
126
05.1
-5.0
06.1
07.1
08.1
09.1
10.1
11.1
Percentage change, same quarter last year
Employment (millions)
U.S. Nonfarm Employment: 2005 to 2012
12.1
Source: IHS Global Insight, Inc.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Change in U.S. Employment*
August 2008 vs. August 2009
State
→
Private State & Local
Mi chi ga n
Ari zona
Neva da
Oregon
Ida ho
Georgi a
North Ca rol i na
Indi a na
Al a ba ma
Il l i noi s
Ca l i forni a
Col ora do
Ohi o
Fl ori da
Utah
Kentucky
Tennes s ee
Del a wa re
Wyomi ng
Mi nnes ota
New Mexi co
Wi s cons i n
South Ca rol i na
Vermont
Ka ns a s
(9.39)
(8.33)
(7.30)
(6.97)
(6.47)
(6.42)
(6.28)
(6.09)
(5.99)
(5.88)
(5.79)
(5.73)
(5.63)
(5.51)
(5.46)
(5.43)
(5.41)
(5.21)
(5.11)
(5.06)
(4.88)
(4.82)
(4.75)
(4.72)
(4.68)
(1.49)
(4.18)
(2.74)
(0.76)
(0.50)
(3.32)
0.36
(2.57)
(0.96)
(0.40)
(0.85)
1.45
(1.43)
(0.74)
1.09
(1.84)
2.02
(5.38)
1.78
0.23
0.38
2.42
(1.60)
2.09
1.62
State
Wa s hi ngton
Mi s s i s s i ppi
Ha wa i i
Connecticut
Okl a homa
Wes t Vi rgi ni a
Texa s
Iowa
Vi rgi ni a
Rhode Is l a nd
Penns yl va ni a
Ma i ne
Mi s s ouri
Ma s s a chus etts
New Jers ey
New Ha mps hi re
Arka ns a s
Ma ryl a nd
New York
Nebra s ka
South Da kota
Loui s i a na
Montana
Al a s ka
North Da kota
Private State & Local
(4.60)
(4.44)
(4.44)
(4.26)
(4.16)
(4.01)
(3.87)
(3.85)
(3.85)
(3.80)
(3.72)
(3.68)
(3.66)
(3.34)
(3.22)
(3.16)
(3.12)
(3.04)
(2.83)
(2.76)
(2.25)
(2.25)
(2.13)
(0.68)
(0.34)
(0.52)
2.99
(2.05)
(2.54)
2.06
(0.50)
3.02
0.24
(0.32)
(5.04)
0.19
(2.20)
0.65
(2.26)
(1.29)
1.58
3.03
(1.14)
3.17
4.45
1.13
0.99
5.21
1.62 *not seasonally adjusted
2.62
Source: Bureau of Labor Statistics.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
14
TN Nonfarm Employment: Jan-08 to Aug-09
(seasonally adjusted)
20.0
Monthly change (thousands)
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
-20.0
-25.0
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Source: Bureau of Labor Statistics.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
15
Tennessee Nonfarm Employment:
2006 to 2011
(seasonally adjusted)
2850.0
3.0
Employment (thousands)
1.0
2750.0
2700.0
0.0
-1.0
Level
Growth
-2.0
2650.0
-3.0
2600.0
2550.0
2006.1
-4.0
Percentage change, same quarter last year
2.0
2800.0
-5.0
2007.1
2008.1
2009.1
2010.1
2011.1
Source: Bureau of Labor Statistics and CBER-UT.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
16
Tennessee Monthly Total Nonfarm
Employment Indexed to Beginning of Recession
108.0
1973 Nov
1980 Jan
1990 Jul
2001 Mar
2007 Dec
Forecast
106.0
Index, month #1 = 100.0
104.0
102.0
100.0
98.0
96.0
94.0
92.0
90.0
88.0
86.0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
Number of months from recession start month
Note: Employment data are seasonally adjusted.
Source: Calculated by CBER using data from the Bureau of Labor Statistics.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
17
Tennessee Monthly SA Unemployment Rate
Indexed to Beginning of Recession
Difference from initial rate (points)
7.0
1980 Jan
1990 Jul
2001 Mar
2007 Dec
Forecast
6.0
5.0
4.0
3.0
2.0
1.0
0.0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
Number of months from recession start month
Note: Unemployment rate data are seasonally adjusted.
Source: Calculated by CBER using data from the Bureau of Labor Statistics.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
18
TN Initial Unemployment Insurance Claims
and Benefits Paid: Jan-07 to Sept-09
September’s drop in the unemployment rate
may save the UI trust fund
Percentage change, same month last year
200.0
Claims
Benefits
150.0
100.0
50.0
0.0
-50.0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Source: U.S. Department of Labor.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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Unemployment Rate, August 2009
Tennessee 10.7%
United States 9.6%*
Less than 10.0%
10.0% to 12.9%
13.0% to 15.9%
16.0% or higher
Note: County data are not seasonally adjusted.
Source: Bureau of Labor Statistics.
September rates:
TN 10.3%
US 9.5%
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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21
11/12/2009
Growth in Total Tax Revenue Collections, FY2008-2009
U.S. = -8.2 %
Less than -10.0%
--14--
-10.0% to -5.7%
--18--
Greater than -5.7%
--18--
21
TN Tax Collections, Total and Sales & Use:
Jan-07 to Sept-09
Percentage change, same month last year
20.0
Total
Sales & Use
15.0
Stimulus package will help
sustain spending thru FY 11/12
10.0
5.0
0.0
-5.0
-10.0
-15.0
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Source: Tennessee Department of Revenue, Revenue Collections, monthly.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
22
Tennessee Monthly Sales & Use Tax Revenue
Indexed to Beginning of Recession
180.0
160.0
Index, month #1 = 100.0
140.0
120.0
100.0
80.0
1973 Nov
1980 Jan
1990 Jul
2001 Mar
2007 Dec
60.0
40.0
20.0
0.0
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
34
36
Number of months from recession start month
Source: Calculated by CBER using data from the Tennessee Department of Revenue.
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
23
TN Long-Term Revenue Forecast
(millions of dollars)
Long-Term Forecast, Revenue Collections (Millions of Dollars)
Actual
Tax
Sales and Use
2008
2009
2010
2011
2012
6,815.4
6,851.2
6,331.3
6,352.0
6,733.1
7,103.4
Gasoline
612.3
617.1
601.3
595.0
601.0
607.0
Motor Fuel
185.9
182.9
154.8
161.6
169.7
176.5
65.3
65.2
61.6
61.5
62.8
64.4
Motor Vehicle Registration
257.4
251.3
241.3
251.3
261.4
267.4
Income
247.6
292.0
221.2
168.0
201.6
231.8
Privilege
313.8
279.0
255.6
244.8
274.2
301.6
Gross Receipts
277.6
291.0
315.1
310.7
322.6
335.0
Gross Receipts - TVA
250.2
271.2
289.7
301.3
313.3
Gross Receipts - Other
27.4
19.8
21.0
21.3
21.7
Beer
18.0
17.9
18.2
18.7
19.0
19.3
Alcoholic Beverage
41.0
42.6
45.0
46.6
48.5
50.4
Franchise & Excise
1,766.1
1,619.5
1,368.7
1,259.3
1,410.4
1,551.5
Inheritance & Estate
112.4
112.8
82.8
90.0
93.5
97.8
Tobacco
138.0
286.0
299.2
300.0
301.5
303.0
Motor Vehicle Title
11.1
11.4
10.0
11.3
11.6
12.0
Mixed Drink
53.7
54.9
54.0
55.0
56.7
58.9
133.8
138.2
135.8
131.2
137.5
145.4
Severance
1.5
2.6
2.3
2.0
2.0
1.9
Coin Amusement
0.3
0.3
0.4
1.7
1.1
0.3
1.9
0.2
1.9
0.2
1.9
11,052.7
11,117.6
10,199.7
10,059.3
10,709.0
11,329.3
Gasoline Inspection
Business
Unauthorized Substance
Total
October 2009
Estimate
2007
Fox and Murray, Center for Business and Economic Research, UT Knoxville
+$211.7 m
24
Highlights
 The economy is starting to turn the corner, but the recovery will
take years
 State/local sales tax revenues will not recover until 2012, with
new pressures emerging for the local property tax
 Federal pressures on the states
 State pressures on local governments
 Pent-up funding needs like the BEP
 Mid-term growth will trail historical growth due to demographics
and need to save, together weakening consumption spending

Some are calling this the “new normal”
 Near-term risks—shocks, inflation, double-dip recession after
current inventory cycle—outweigh upside growth potential
 The good news is the recession is over!
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
25
Center for Business & Economic Research
College of Business Administration
The University of Tennessee, Knoxville
716 Stokely Management Center
916 Volunteer Boulevard
Knoxville, Tennessee 37996-0570
phone: 865.974.5441
fax: 865.974.3100
http://cber.bus.utk.edu
October 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville
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