the great recession and tennessee’s revenue outlook bill fox and matt murray ut’s center for...
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The Great Recession and Tennessee’s Revenue Outlook
Bill Fox and Matt MurrayUT’s Center for Business and Economic Research
October 29, 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville 2October 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 Unemployment rates will not likely rival the back-to-
back recessions of the 1980s
Fox and Murray, Center for Business and Economic Research, UT Knoxville 3October 2009
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
Fox and Murray, Center for Business and Economic Research, UT Knoxville 4October 2009
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.
Fox and Murray, Center for Business and Economic Research, UT Knoxville 5October 2009
Source: IHS Global Insight, Inc.
Real GDP: 2005 to 2012
11,500
12,000
12,500
13,000
13,500
14,000
14,500
05.1 06.1 07.1 08.1 09.1 10.1 11.1 12.1
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Real GDP
Growth
Le
vel,
bill
ion
s o
f ch
ain
ed
20
05
do
llars
Pe
rcen
tag
e ch
an
ge
, sam
e q
ua
rter la
st yea
r
Fox and Murray, Center for Business and Economic Research, UT Knoxville 6October 2009
U.S. Residential Fixed Investment and Nonresidential Fixed Investment in Equipment & Software and
Structures: 2005 to 2012
-50.0
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1
Equip & SoftwareStructuresResidential
Pe
rce
nta
ge
ch
an
ge
, an
nu
al r
ate
Source: IHS Global Insight, Inc.
Commercial real estatenow spiraling down
Fox and Murray, Center for Business and Economic Research, UT Knoxville 7October 2009
Housing Starts and Light Vehicle Sales:2005 to 2012
0.0
0.5
1.0
1.5
2.0
2.5
2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0Housing Starts
Light Vehicle Sales
Ho
usi
ng
Sta
rts
Lig
ht V
eh
icle S
ale
s
Source: IHS Global Insight, Inc.
(millions, annual rate)
Fox and Murray, Center for Business and Economic Research, UT Knoxville 8October 2009
Starts are Picking Up, But Problems in the Housing Market Continue
3.5
4.5
5.5
6.5
7.5
8.5
9.5
Mar-82 Mar-85 Mar-88 Mar-91 Mar-94 Mar-97 Mar-00 Mar-03 Mar-06 Mar-090.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
US Mortgage Delinquency Rate: % ( L ) US Mortgage Foreclosure Rate: % ( R )
mo
rtga
ge
fore
closu
re ra
te (p
erce
nt)m
ort
ga
ge
de
linq
ue
ncy
ra
te (
pe
rce
nt)
Fox and Murray, Center for Business and Economic Research, UT Knoxville 9October 2009
FHFA Housing Price Index: 2005 to 2012
-10.0
-5.0
0.0
5.0
10.0
15.0
2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1
Pe
rce
nta
ge
ch
an
ge
, sa
me
qtr
last
yr
Source: IHS Global Insight, Inc.
Fox and Murray, Center for Business and Economic Research, UT Knoxville 10October 2009
Tennessee Building Permits:Jan-2005 to Aug-2009
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
TotalSingle-family
Num
ber
of u
nits
Source: U.S. Census Bureau, Building Permits Survey (as reported in the State of the Cities Data System [SOCDS] database).
Fox and Murray, Center for Business and Economic Research, UT Knoxville 11October 2009
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2005 2006 2007 2008 2009 2010 2011 2012
Per
cent
per
ann
um
Source: IHS Global Insight, Inc.
Federal Funds Rate: 2005.1 to 2012.4
The Fed’s Exit Strategy?
Fox and Murray, Center for Business and Economic Research, UT Knoxville 12October 2009
Source: Bureau of Labor Statistics.
U.S. Payroll Employment: Jan-08 to Sept-09
-800.0
-700.0
-600.0
-500.0
-400.0
-300.0
-200.0
-100.0
0.0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
M
on
thly
ch
an
ge
(th
ou
san
ds)
(seasonally adjusted)
Fox and Murray, Center for Business and Economic Research, UT Knoxville 13October 2009
Source: IHS Global Insight, Inc.
U.S. Nonfarm Employment: 2005 to 2012
126
128
130
132
134
136
138
140
05.1 06.1 07.1 08.1 09.1 10.1 11.1 12.1
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Level
GrowthEm
plo
yme
nt (
mill
ion
s)
Pe
rcen
tag
e ch
an
ge
, sam
e q
ua
rter la
st yea
r
Fox and Murray, Center for Business and Economic Research, UT Knoxville 14October 2009
Source: Bureau of Labor Statistics.
*not seasonally adjusted
→
State Private State & Local State Private State & Local
Michigan (9.39) (1.49) Washington (4.60) (0.52)Arizona (8.33) (4.18) Miss iss ippi (4.44) 2.99Nevada (7.30) (2.74) Hawai i (4.44) (2.05)Oregon (6.97) (0.76) Connecticut (4.26) (2.54)Idaho (6.47) (0.50) Oklahoma (4.16) 2.06Georgia (6.42) (3.32) West Vi rginia (4.01) (0.50)North Carol ina (6.28) 0.36 Texas (3.87) 3.02Indiana (6.09) (2.57) Iowa (3.85) 0.24Alabama (5.99) (0.96) Virginia (3.85) (0.32)I l l inois (5.88) (0.40) Rhode Is land (3.80) (5.04)Cal i fornia (5.79) (0.85) Pennsylvania (3.72) 0.19Colorado (5.73) 1.45 Maine (3.68) (2.20)Ohio (5.63) (1.43) Missouri (3.66) 0.65Florida (5.51) (0.74) Massachusetts (3.34) (2.26)Utah (5.46) 1.09 New Jersey (3.22) (1.29)Kentucky (5.43) (1.84) New Hampshire (3.16) 1.58Tennessee (5.41) 2.02 Arkansas (3.12) 3.03Delaware (5.21) (5.38) Maryland (3.04) (1.14)Wyoming (5.11) 1.78 New York (2.83) 3.17Minnesota (5.06) 0.23 Nebraska (2.76) 4.45New Mexico (4.88) 0.38 South Dakota (2.25) 1.13Wiscons in (4.82) 2.42 Louis iana (2.25) 0.99South Carol ina (4.75) (1.60) Montana (2.13) 5.21Vermont (4.72) 2.09 Alaska (0.68) 1.62Kansas (4.68) 1.62 North Dakota (0.34) 2.62
Change in U.S. Employment*August 2008 vs. August 2009
Fox and Murray, Center for Business and Economic Research, UT Knoxville 15October 2009
Source: Bureau of Labor Statistics.
TN Nonfarm Employment: Jan-08 to Aug-09
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
M
on
thly
ch
an
ge
(th
ou
san
ds)
(seasonally adjusted)
Fox and Murray, Center for Business and Economic Research, UT Knoxville 16October 2009
2550.0
2600.0
2650.0
2700.0
2750.0
2800.0
2850.0
2006.1 2007.1 2008.1 2009.1 2010.1 2011.1
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
LevelGrowth
Em
ploy
men
t (t
hous
ands
)
Percentage change, sam
e quarter last year
Source: Bureau of Labor Statistics and CBER-UT.
(seasonally adjusted)
Tennessee Nonfarm Employment:2006 to 2011
Fox and Murray, Center for Business and Economic Research, UT Knoxville 17October 2009
Tennessee Monthly Total Nonfarm Employment Indexed to Beginning of Recession
86.0
88.0
90.0
92.0
94.0
96.0
98.0
100.0
102.0
104.0
106.0
108.0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
1973 Nov1980 Jan1990 Jul2001 Mar2007 DecForecast
Ind
ex,
mo
nth
#1
= 1
00
.0
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.
Fox and Murray, Center for Business and Economic Research, UT Knoxville 18October 2009
Tennessee Monthly SA Unemployment Rate Indexed to Beginning of Recession
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
1980 Jan1990 Jul2001 Mar2007 DecForecast
Diff
ere
nce
fro
m in
itia
l ra
te (
po
ints
)
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.
Fox and Murray, Center for Business and Economic Research, UT Knoxville 19October 2009
TN Initial Unemployment Insurance Claims and Benefits Paid: Jan-07 to Sept-09
-50.0
0.0
50.0
100.0
150.0
200.0
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09
ClaimsBenefits
Per
cent
age
chan
ge,
sam
e m
onth
last
yea
r
Source: U.S. Department of Labor.
September’s drop in the unemployment ratemay save the UI trust fund
Fox and Murray, Center for Business and Economic Research, UT Knoxville 20October 2009
Less than 10.0%10.0% to 12.9%
Note: County data are not seasonally adjusted.
Source: Bureau of Labor Statistics.
13.0% to 15.9%16.0% or higher
Unemployment Rate, August 2009
Tennessee 10.7%United States 9.6%*
September rates: TN 10.3% US 9.5%
21
Growth in Total Tax Revenue Collections, FY2008-200911/12/2009
21
Greater than -5.7% --18--
-10.0% to -5.7% --18--
Less than -10.0% --14--
U.S. = -8.2 %
Fox and Murray, Center for Business and Economic Research, UT Knoxville 22October 2009
TN Tax Collections, Total and Sales & Use:Jan-07 to Sept-09
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09
TotalSales & Use
Per
cent
age
chan
ge,
sam
e m
onth
last
yea
r
Source: Tennessee Department of Revenue, Revenue Collections, monthly.
Stimulus package will helpsustain spending thru FY 11/12
Fox and Murray, Center for Business and Economic Research, UT Knoxville 23October 2009
Tennessee Monthly Sales & Use Tax Revenue Indexed to Beginning of Recession
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36
1973 Nov1980 Jan1990 Jul2001 Mar2007 Dec
Ind
ex,
mo
nth
#1
= 1
00
.0
Number of months from recession start month
Source: Calculated by CBER using data from the Tennessee Department of Revenue.
Fox and Murray, Center for Business and Economic Research, UT Knoxville 24October 2009
TN Long-Term Revenue Forecast(millions of dollars)
Tax 2007 2008 2009 2010 2011 2012Sales and Use 6,815.4 6,851.2 6,331.3 6,352.0 6,733.1 7,103.4Gasoline 612.3 617.1 601.3 595.0 601.0 607.0Motor Fuel 185.9 182.9 154.8 161.6 169.7 176.5Gasoline Inspection 65.3 65.2 61.6 61.5 62.8 64.4Motor Vehicle Registration 257.4 251.3 241.3 251.3 261.4 267.4Income 247.6 292.0 221.2 168.0 201.6 231.8Privilege 313.8 279.0 255.6 244.8 274.2 301.6Gross Receipts 277.6 291.0 315.1 310.7 322.6 335.0Gross Receipts - TVA 250.2 271.2 289.7 301.3 313.3Gross Receipts - Other 27.4 19.8 21.0 21.3 21.7Beer 18.0 17.9 18.2 18.7 19.0 19.3Alcoholic Beverage 41.0 42.6 45.0 46.6 48.5 50.4Franchise & Excise 1,766.1 1,619.5 1,368.7 1,259.3 1,410.4 1,551.5Inheritance & Estate 112.4 112.8 82.8 90.0 93.5 97.8Tobacco 138.0 286.0 299.2 300.0 301.5 303.0Motor Vehicle Title 11.1 11.4 10.0 11.3 11.6 12.0Mixed Drink 53.7 54.9 54.0 55.0 56.7 58.9Business 133.8 138.2 135.8 131.2 137.5 145.4Severance 1.5 2.6 2.3 2.0 2.0 1.9Coin Amusement 0.3 0.3 0.4 0.3 0.2 0.2Unauthorized Substance 1.7 1.1 1.9 1.9 1.9
Total 11,052.7 11,117.6 10,199.7 10,059.3 10,709.0 11,329.3
Long-Term Forecast, Revenue Collections (Millions of Dollars)EstimateActual
+$211.7 m
Fox and Murray, Center for Business and Economic Research, UT Knoxville 25October 2009
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!
Fox and Murray, Center for Business and Economic Research, UT Knoxville 26October 2009
Center for Business & Economic Research
College of Business AdministrationThe University of Tennessee, Knoxville
716 Stokely Management Center916 Volunteer Boulevard
Knoxville, Tennessee 37996-0570
phone: 865.974.5441fax: 865.974.3100
http://cber.bus.utk.edu