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  1. Vermont Jeffrey B. Carr Kerry G. Mayo Economic & Policy Resources, Inc. 400 Cornerstone Drive, Suite 310 P.O. Box 1660 Williston, VT 05495 (802) 878-0346 www.epreconomics.com

  2. Vermont Situation • Against that U.S. economic background, the Vermont upturn continues this Spring…but rather meekly… • The housing market correction is now well underway with slowing price appreciation (now at a single-digit pace yr-over-yr.--OFHEO) and construction has slowed considerably (e.g. for 2nd homes) • GSP growth has slowed to the +2.5% to +3.0% range, • Resort based real estate and amenity development continues but at a fraction of its prior pace, • Jobs in the state’s Factory sector have gotten a positive push from the weakening U.S dollar, and IBM seems to be doing well… • BUT the still relatively “high” level of energy prices and the poor first half Winter weather once again were “not helpful” to either the 1st Q of 2007 or the state’s Winter tourism season.

  3. Vermont Situation • The positive push from lower energy prices has now dissipated...and prices are rising once again…

  4. Vermont Situation • The state’s labor market recovery-expansion continues, but the Spring 2006 re-benchmark was negative again…less than last year...but now 3 years in a row!

  5. Vermont Situation • This underscores the restrained pace of the labor market expansion in the state…especially vs. last year

  6. Vermont Situation • But the revisions did not alter the sector-by-sector view of the current labor market recovery-expansion...

  7. Vermont Situation • The revisions also again appear to put job growth out-of-sync with other data...such as PI Withholding...

  8. Vermont Outlook • The “consensus” forecast is that the state gets through the housing market correction and the increasing economic threats. • If so, the Vermont economic and labor market recovery-expansion will continue through calendar 2011… • But at a noticeably restrained pace—slower than U.S., but on par with NE. • There will be plenty of opportunities for the economy to hit bumps—including falling into a full-fledged downturn—along the recovery-expansionary road. These include: • High and volatile energy prices (where small things have been magnified by how close to the edge we are), • The still unfolding housing market correction—and the threat of it widening, • The potential for rising interest rates (Will the Fed over-react to the threat of inflation?), and • Continued “sharp and ruthless” global competition—which a reflection of the realities today’s “new more competitive world” for business.

  9. Conference Theme--Subprime • So far to this point, Vermont has been able to cope with the combined impacts of the housing market correction, rising affordability problems, and a higher than average level of subprime lending. • There is some discussion about varying data sources (Mortgage Bankers Association vs. Moody’s Economy.com-Equifax), • Coverage differences—Moody’s E.com-Equifax seems more encompassing. • The key is Vermont has been able to avoid the potentially troubling combination of falling housing prices and rising foreclosures. • Housing prices are still rising, but at single digit rates. • Vermont’s foreclosure rate is among the lowest in the 50 states.

  10. Conference Theme-Subprime

  11. Conference Theme-Subprime • But Vermont is expected to face a period where housing price change goes negative on a year-over-year basis…

  12. Conference Theme-Subprime • Vermont’s—like other NE states’—largest source of forecast risk through 2011 is how the subprime issue-housing market correction will play out… • The critical time for VT will be the period when housing prices go “negative”… • May have a larger impact in VT because of the disproportionately large positive impact the housing market boom had on the VT economy (28.4% of total job growth 2003-06 v. 12.2% for NE and 16.5% for U.S. for the same 4 year period). • Given the dynamics of the housing market correction, it is difficult to envision a turnaround much before mid-calendar 2008. • Second homes impact in VT is a big “wild card.” • Anecdotal reports from resorts indicate replay of the mid-1990s dynamic is currently underway.