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Outlook for Tennessee Tennessee Gas Association June 14, 2010. David A Penn, Director and Associate Professor Business and Economic Research Center Jones College of Business Middle Tennessee State University dpenn@mtsu.edu www.mtsu.edu/BERC. Tennessee Outlook.

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outlook for tennessee tennessee gas association june 14 2010

Outlook for TennesseeTennessee Gas AssociationJune 14, 2010

David A Penn, Director and Associate Professor

Business and Economic Research Center

Jones College of Business

Middle Tennessee State University

dpenn@mtsu.edu

www.mtsu.edu/BERC

tennessee outlook
Tennessee Outlook
  • The worst is behind us (probably!)
  • Number of layoffs is much lower, consistent with job growth.
  • The economy will improve, but not smoothly.
  • Improvement in Tennessee depends on sustained growth of United States economy.
  • Significant risks remain.
tennessee energy consumption overview
Tennessee Energy Consumption Overview
  • Energy consumption per capita ranks 18th (379 million Btu 2007).
  • Rank of total energy consumption:
    • Petroleum – 16th
    • Coal – 14th
    • Retail electricity – 13th
    • Natural gas – 33rd
tennessee natural gas consumption by sector 2009
Tennessee natural gas consumption by sector, 2009

Source: Energy Information Administration, DOE

major economic indicators
Major economic indicators
  • Nonfarm employment
  • Initial claims for unemployment insurance
  • Single-family home construction
  • Sales tax collections
  • Unemployment rate
nonfarm employment
Nonfarm employment
  • Reliable measure of employment based on a survey of employers.
  • Tennessee lost 212,000 nonfarm jobs 2008.1-2009.4 (-7.8%).
  • Hit bottom December 2009.
  • Now growing, gained 18,000 Dec-April (+0.7%).
are we improving
Are we improving?
  • Convincing signs of stability.
  • But the distribution of activity varies greatly.

In recovery

Less pain

Still hurting

nonfarm employment10
Nonfarm employment
  • April 2010 back to about the same as July 2009.
  • Stabilized at the lowest level since Nov 1997.
regional differences nonfarm employment growth yty
Regional Differences Nonfarm Employment Growth (YTY)
  • In recovery
    • Chattanooga (+0.4%)
    • Clarksville (+0.4%)
    • Knoxville (-0.4%)
regional differences nonfarm employment growth yty12
Regional Differences Nonfarm Employment Growth (YTY)
  • Less pain
    • Tennessee (-1.0%)
    • Cleveland (-1.3%)
    • Nashville (-1.4%)
    • Johnson City (-1.7%)
    • Jackson (-1.9%)
regional differences nonfarm employment growth yty13
Regional Differences Nonfarm Employment Growth (YTY)
  • Still hurting
    • Morristown (-3.7%)
    • Memphis (-3.0%)
    • Kingsport-Bristol (-2.6%)
housing construction
Housing construction
  • Began improving early 2009.
  • Boosted by tax credits late 2009 early 2010.
  • Rate of growth has diminished recently.
  • Headwinds: falling prices, foreclosures, falling incomes, expiration of tax credits.
housing construction15
Housing construction
  • Gains of early 2009 have diminished.
  • Activity may grind to a halt post-tax credit.
  • Prices falling in Tennessee.
repeat sales purchase only index fhfa
Repeat sales purchase-only index (FHFA)
  • Sharp decline in the first quarter.
  • Improvement not in sight.
  • Moderately rising prices necessary condition for stability.
housing loans first quarter 2010
Housing loans first quarter 2010

Source: Mortgage Bankers Association

sales tax collections
Sales tax collections
  • Stabilized at a low level.
  • About even with last April.
  • Expect modest growth this year.
unemployment rates april
Unemployment rates (April)
  • Convincing signs of stability.
  • But the distribution of activity varies greatly.

9.6%

10.7%

13.5%

9.7%

9.6%

8.8%

11.2%

11.2%

10.1%

9.4%

tracking tennessee s economic recovery
Tracking Tennessee’s Economic Recovery
  • Economic recovery website for the Tennessee Advisory Commission on Intgergovernmental Relations (TACIR).
  • http://www.state.tn.us/tacir/
  • Up-to-date economic indicators for Tennessee and all ten metropolitan areas
national economic context
National economic context
  • Manufacturing expanding
    • ISM Index: manufacturing
  • Exports rising, despite troubles in Europe
  • Policy is shifting away from expansion.
shape of recovery
Shape of recovery
  • Check mark
    • Rapid decline followed by slow growth.
    • Most likely scenario.
  • W
    • Double-dip recession.
    • Less probable, but likelihood rising.
national economic context24
National economic context
  • Manufacturing is expanding
    • ISM Index: in its tenth month of expansion.
    • Some commodity prices are on the rise due to diminished capacity.
    • Rate of increase has slowed.
manufacturing
Manufacturing
  • U.S. manufacturing employment up 126,000 since December (+1.1%)
  • Manufacturing job growth is rare; Dec-April is the largest five-month increase since 1998.
  • Some manufacturers are discovering foreign plants are not the cost savers they once were (labor strike in China, quality control problems, intellectual property rights, transportation costs).
manufacturing26
Manufacturing
  • Auto manufacturing doing better.
  • Tennessee dependent on auto manufacturing, particularly auto parts.
  • Manufacturing employment in Tennessee has stabilized; not much different from last fall.
  • Nissan expansion, parts maker LKQ announced expansion.
tennessee motor vehicle manufacturing
Tennessee motor vehicle manufacturing
  • 40,000 jobs in transportation equipment manufacturing (2008), including vehicles and aircraft.
  • 32,000 of these jobs are in auto parts manufacturing,
    • Some supply Nissan, formerly GM.
    • Many supply manufacturing plants in other states.
expectations for tennessee
Expectations for Tennessee
  • Recovery will not occur soon
  • Big hole to climb out
  • Unemployment rate will be very slow to decline
possible recovery scenario for nonfarm employment
Possible recovery scenario for nonfarm employment
  • Lost jobs won’t be recovered until Sept 2013, at present rate of growth.
  • Is the current job growth rate (2.1%) sustainable?
likelihood of 2 1 job growth
Likelihood of 2.1% job growth
  • Will recovery job growth look more like the 1990s or the 2000s?
  • Months with growth of 2.1% or more:
    • 1990s: 56%
    • 2000s: 5%
initial claims for unemployment insurance
Initial claims for unemployment insurance
  • Good predictor of unemployment.
  • Triggers hiring when level is low.
  • Substantially lower after peaking early in 2009.
  • Even in good times, we experience claims for unemployment insurance.
  • Current level of claims is consistent with employment growth.
  • June will show spikes related to jobs lost due to flooding
going forward
Going Forward
  • Deflation much bigger worry than inflation.
  • Consequences of deflation:
    • Consumers put off purchases, expecting prices to fall further.
    • Borrowers must work harder to make loan payments.
    • Monetary policy becomes powerless.
    • Lending and spending spiral lower and lower as unemployment rises.
    • Japan’s lost decade.
where will growth come from
Where will growth come from?
  • Consumption spending
    • Much recent spending growth from high-income households; middle class still not spending much.
    • Consumer confidence improving.
    • Spending for durables strong in first quarter.
    • If consumers get spooked, double-dip a reality.
where will growth come from40
Where will growth come from?
  • Capital spending
    • Headwinds of loan scarcity, overcapacity.
    • Businesses spending more for equipment and software.
    • Less spending for structures.
  • Exports
    • Three quarters of strong growth.
    • Trade with Europe likely will slow due to fiscal problems.
where will growth come from41
Where will growth come from?
  • Government spending
    • Net drag on GDP growth last two quarters.
    • Negative contribution due to cuts in state and local government spending.
    • Federal stimulus unwinding next year.
    • State and local cuts will be large this summer; more than 200,000 teachers could be laid off.
going forward 12 months
Going Forward 12 Months
  • National economy (WSJ board of forecasters)
    • Job growth 179,000 monthly (1.9% annual growth)
    • Unemployment rate 9% (9.7% now)
    • GDP growth 3% (3% now)
    • Home prices up 2.3% (-3% now)
    • CPI up 1.9% (2.2% now)
    • 10 year Treasury bond 4.2% (3.4% now)
going forward 12 months43
Going Forward 12 Months
  • Tennessee economy (BERC)
    • Job growth 4,200 monthly (1.9% annualized growth)
    • Unemployment rate 9.6% (10.5% now)
    • Housing construction growth quesionable
    • Home prices zero change
going forward44
Going Forward
  • Easing up on stimulus too soon may shove the economy back into recession (1937-1938 experience).
  • In the short-term, must continue expansionary policy, else risk a lost decade for our young people.
  • In the long-term, need a credible deficit reduction plan, including a plan to reduce long-term liabilities.
  • We also need an aggressive job training program for the long-term.
going forward45
Going Forward
  • Both these tasks will require sacrifice, compromise, and statesmanship.
  • We are perfectly capable of tackling both simultaneously.
summary
Summary
  • The patient has stabilized, but condition is guarded.
  • Due to severity of trauma, a long period of recovery will be needed.
  • Should guard against removing support systems too soon.
business and economic research center
Business and Economic Research Center
  • Current and recent research contracts
    • TACIR economic recovery website
    • Estimating medical care costs for southern and eastern Indian tribes
    • Economic impact of the arts in Nashville
    • Quarterly report on Tennessee housing market (THDA)
    • Estimating underemployment for south central Tennessee
business and economic research center48
Business and Economic Research Center
  • Current and recent research contracts
    • Economic impact of a prison industry in Bledsoe County, Tennessee
    • Estimating the economic impact of a new port in northwest Tennessee
    • Impact of graduate education in Tennessee
    • Job occupations needed for new green jobs in Tennessee