NH Business Growth SectorsHouse and Senate Finance and Ways & Means Committees

Dennis DelayDeputy Director,New Hampshire Center for Public Policy Studies1/9/2007

2

Anecdotal evidence from the Fed Bank of Boston, November 29, 2006

• Business contacts in the First District are fairly upbeat, with the exception of most retail respondents.

• Double-digit revenue increases for software and information technology services firms and also for staffing firms.

• Commercial real estate markets continue to strengthen.• While tourism-related businesses are doing well, most

contacted retailers say sales have softened.• Manufacturers report that orders or sales of products

related to housing have weakened.• High end of the labor market continues to tighten. • Energy-related cost pressures have eased but selected

other input and vendor prices are rising.

3

Even Though Mfg is Large, It’s Contribution to Earnings Growth Has Lagged, Healthcare Increases

Nonfarm Earnings in NH

5.9%

1.6%

7.1%8.6%

7.3%8.6%

14.7% 15.0%

12.1%

3.8%

6.6%

9.5%

6.6%8.6%

10.9%12.1%

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%

% of Change since 2001:3 % of 2006:3

Source: Bureau of Economic Analysis

4

New Hampshire Growing Faster than US or Region Since 2001

Real Gross State ProductIndex to 2001=100

80.00

85.00

90.00

95.00

100.00

105.00

110.00

115.00

1997 1998 1999 2000 2001 2002 2003 2004 2005

US NEW ENGLAND New Hampshire

New HampshireUS

New England

Source: Bureau of Economic Analysis

5

Fastest Growing GDP Contributors are Not (Necessarily) the Largest

Growth 2001 to 2005

Private Industry NH GDP, Ranked by 2001 to 2005 Growth 2001 2005 Change Percent

Educational services 669 960 291 43.5%

Utilities 1,297 1,791 494 38.1%

Information 1,420 1,942 522 36.8%

Health care and social assistance 3,366 4,547 1,181 35.1%

Real estate, rental, and leasing 6,236 8,322 2,086 33.5%

Administrative and waste services 1,095 1,430 335 30.6%

Construction 2,122 2,754 632 29.8%

Management of companies and enterprises 604 781 177 29.3%

Retail trade 3,723 4,658 935 25.1%

Accommodation and food services 1,317 1,640 323 24.5%

Transportation and warehousing 735 885 150 20.4%

Wholesale trade 2,935 3,523 588 20.0%

Other services, except government 1,099 1,308 209 19.0%

Finance and insurance 4,040 4,785 745 18.4%

Professional and technical services 2,873 3,349 476 16.6%

Arts, entertainment, and recreation 398 461 63 15.8%

Mfg Durable goods 4,443 5,043 600 13.5%

Mfg Nondurable goods 1,745 1,557 -188 -10.8%

6

Real Estate Eclipses Manufacturing in Contribution to

GDPNH GDP by Selected Components

(Millions of Current Dollars)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Manufacturing

Real Estate, Rental and Leasing

FIRE

Retail

Health Care

Construction

Education

Source: Bureau of Economic Analysis

7

Most Important Industries in New Hampshire

2005 Gross Domestic Product by State (millions of current dollars) New Hampshire United States

Industry LQ Numeric Percent Numeric Percent

Total Gross Domestic Product 1.00 55,061 100.0% 12,409,555 100.0%

Educational services 1.91 960 1.7% 113,082 0.9%

Utilities 1.69 1,791 3.3% 238,908 1.9%

Durable goods Manufacturing 1.31 5,043 9.2% 868,438 7.0%

Retail trade 1.27 4,658 8.5% 828,634 6.7%

Real estate, rental, and leasing 1.20 8,322 15.1% 1,562,863 12.6%

Health care and social assistance 1.19 4,547 8.3% 864,355 7.0%

Accommodation and food services 1.09 1,640 3.0% 337,957 2.7%

Wholesale trade 1.08 3,523 6.4% 733,090 5.9%

Finance and insurance 1.07 4,785 8.7% 1,011,548 8.2%

Construction 1.05 2,754 5.0% 593,535 4.8%

Source: Bureau of Economic Analysis

8

Percent Growth Over 10 Years1997-2007

69.2%72.9%

54.1% 55.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Gross StateProduct

Personal Income CPI & PopulationCombined

General FundAppropriations

Per

cent

Inc

rea

se

General Fund Appropriations growing only slightly more quickly than the state

9

Business Enterprise Tax

9%

Meals & Rooms Tax

14%

"Medicaid Enhancement"

14%

Utility Tax0%

Dog & Horse Racing

0%

Estate & Legacy Tax

1%

Dog & Horse Racing0%

Park Revenue0%

Board and Care Fees

1%

Interest & Dividends Tax

5%

SecuritiesRevenue

2%

Court Fines & Fees2%

Business Profits Tax

15%

Communications Tax5%

Tobacco Tax5%

Other6%

Insurance Tax6% Real Estate

Transfer Tax8%

Liquor Sales8%

Total:$1,391.6 million

General Fund Revenue by Source FY 2005

10

Corporate Income Taxes in New England have Been Strong.

Percent change in state revenue, June 2005-06

9.55.1

8.22.7 3.4

7.4

15.7

38.432.5

21

43.5

25.7

0

10

20

30

40

50

CT ME MA NH RI VT

Total Rev/taxes Corp/Bus Tax

Source: New England Public Policy Center

11

..in part because US Corporate Profits are at Record Levels

US Corporate Profits w/IVA & CCA

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

1800.0

Jan-

91

Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Source: Bureau of Economic Analysis

12

..but the Congressional Budget Office Forecast Says Slowdown

US Corporate Book (before tax) Profits (CBO 8/06 Forecast)

$500.0

$700.0

$900.0

$1,100.0

$1,300.0

$1,500.0

$1,700.0

$1,900.0

$2,100.0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Congressional Budget Office

13

The “Other Income” Portion of NH Personal Income Increasing Since 2003 (Matching Corporate Profits)NH Dividends, Interest, and Rent (PY)

5800

6000

6200

6400

6600

6800

7000

7200

7400

7600

2000 2000 2001 2002 2003 2003 2004 2005 2006

Source: Bureau of Economic Analysis

14

Southern New Hampshire Accounts for Most of Rooms and Meals Sales

Rooms and Meals Sales to Travelers 2004

$509.8

$256.2

$210.9$190.1

$90.9$67.4

$31.9

0

100

200

300

400

500

600

MerrimackValley

Seacoast White Mountain Lakes Monadnock Dart.-LakeSunapee

Great NorthWoods

To

tal

Rec

eip

ts

Source: Institute for New Hampshire Studies

15

..but Tourism is Most Important to the White Mountains

Rooms and Meals Sales to Travelers, Per Resident 2004

$1,137

$676$708$1,029

$4,452

$1,183$873

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

MerrimackValley

Seacoast White Mountain Lakes Monadnock Dart.-LakeSunapee

Great NorthWoods

Sp

en

din

g p

er

pe

rso

n fo

r a

rea

Source: Institute for New Hampshire Studies

16

New Hampshire affordability better than the 1980’s.

Critical Ratio of Housing Prices to Income

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1960 1970 1980 1989 1990 2000 2003 2004 2005 2006

United States New Hampshire

Sources: Census Bureau and Bureau of Economic Analysis

17

Real Estate Overvaluation is Coastal

Source: National City Bank

18

Northern New England Scores Well

Northern New England Economic Scoreboard for 2006Ranking among the 50 states(Rank of '1' is best; for example 1 is lowest tax rate, highest income, etc.)

ME NH VTCategories Rank Rank RankFavorable State and Local Tax Climate (low burden on income 2004) 43 1 39Standard of Living (by poverty rate) 27 1 3Most Livable State (Morgan Quitno, 2006) 17 1 4Child and Family Well Being (Annie E. Casey Foundation, 2005) 7 1 2Healthiest State (Morgan Quitno, 2006) 4 2 1Safest State (Morgan Quitno, 2006) 2 4 3Education – College Degree or better (2004) 40 4 8Education – High School Degree or better (2004) 27 6 7Per Capita Income (2005) 37 6 25Smartest State (Morgan Quitno, 2005-6) 5 15 1

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More Information?

• WWW.NHPOLICY.ORG– State Budget– Demographic Trends (What is NH?)– Corrections – Health Care Finance