Whither the U.S. and Massachusetts Economy?
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Transcript of Whither the U.S. and Massachusetts Economy?
Whither the U.S. and Massachusetts Economy?
John LaWare ForumMarch 24, 2009Federal Reserve Bank of Boston
Barry BluestoneDean, School of Social Science, Urban Affairs, and Public Policy
The U.S. Economy
3.6%
3.1%2.9%
2.2%
0.0%
-0.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2004 2005 2006 2007 2008:I 2009 (est)
Real GDP Growth Rate 2004-2009
U.S. Personal Savings Rate (1998-2008:I)
4.3%
2.3%2.1%
0.4%0.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1998 2000 2004 2007 2008:I
Personal Savings Rates Plummeting
U.S. Federal Debt (in $billions)(1940-2009)
$50.7$260.1 $290.5 $380.9
$909.0
$4,001.8
$5,628.7
$7,905.3
$8,950.7
$10,413.4
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
$12,000.0
1940 1945 1960 '1970 1980 1992 2000 2005 2007 2009 (Est.)
Federal Debt nearly double since 2000
$50,782
$52,173
$53,349
$54,127
$55,823
$57,734
$59,088$59,398
$58,545$57,920 $57,751 $57,705
$58,036$58,407
$57,648
$46,000
$48,000
$50,000
$52,000
$54,000
$56,000
$58,000
$60,000
$62,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real Median Family Income ($2006)
5,481,000
9,266,000
6,688,000
12,467,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000Ja
n
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
May
Sep
Jan
Civilian Unemployment (1998-2009) (in 000s)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2009
Highest Unemployment Rate in 26 years (December 1983)
February 2009: 8.1%
Loss in Employment (December 2007-December 2008)
Change in Employment
Percentage Change
Construction -632,000 -8.5%
Manufacturing -791,000 -5.7%
Retail Trade -522,000 -3.4%
Financial Services -148,000 -1.8%
Temp Services -490,000 -19.0%
4.8%
8.1%
0.8%
1.5%
3.1%
5.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2007 2008 2009
Labor Underutilization Rate (December 2007 vs. December 2008)
8.7%
14.8%
Official Unemployment Rate
Discouraged
Involuntary Part-time
U.S. Economy The fundamentals of the U.S. economy
began to deteriorate years ago The credit market collapse has had such
devastating consequences because the economic fundamentals were not sound
We are now seeing the result in a hard credit freeze, sharply declining GDP, and soaring unemployment
The Massachusetts Challenge
People and Jobs
• Between 2000 and 2007, the population of Massachusetts increased by less than 87,000 (1.4%) – the second slowest increase in New England (after Rhode Island) … and 1/5 the rate in the U.S.
• Much of this is due to a very low birth rate … but
• Since 2000, Massachusetts has suffered a net domestic out-migration of over 305,000 residents.
• This outflow of people has been softened only somewhat by the arrival of 206,000 foreign immigrants.
Population Trends
Massachusetts Population
5737.0
6016.4
6363.2 6407.6 6431.8 6438.5 6433.7 6429.1 6434.4 6449.8
5000.0
5200.0
5400.0
5600.0
5800.0
6000.0
6200.0
6400.0
6600.0
1980 1990 2000 2001 2002 2003 2004 2005 2006 2007
Popu
latio
n (in
thou
sand
s)
U.S. Bureau of the Census
Population Trends in New England
Population Growth, 2000-2007
1.36%
0.67%
1.86%
2.65%3.13%
6.08%
6.88%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
MA RI VT CT ME NH US
33,292 33,347 31,785 29,041 26,51530,285
27,014
-22,892
-39,506
-48,514
-61,980 -60,053
-49,528
-35,121
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Foreign Migration Internal Migration
Immigration & Net Domestic Migration:
MassachusettsMassachusetts Domestic Net-Migration and Foreign Immigration
-15
-10
-5
0
5
10
15
20
25
30
35
Under 5 5-19 20-24 25-34 35-54 55-64 65+
Massachusetts US
Percent Change in Population by Age Cohort, Massachusetts v. U.S., 2000-2006
Who’s Leaving Massachusetts?
Net Domestic Migration (2000-2006) by Housing Cost Decile
0.38% 0.48%
2.95%
2.01%
3.56%
4.94% 5.07%
5.66%
-0.70%
-2.86%
-6.65%
-0.31%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile Next 15 Next 10 Top 10
Greater Boston MSA –6.0%X
Of the 10 most expensive MSAs in the nation,All 10 had net outmigration between 2000 & 2006
Housing Cost – Top 10 MSAsHonolulu, HI
San Francisco-Oakland-Fremont, CA
Santa Cruz-Watsonville, CA
Oxnard-Thousand Oaks-Ventura, CA
San Diego-Carlsbad-San Marcos, CA
Boston-Cambridge-Quincy, MA-NH
Santa Barbara-Santa Maria-Goleta, CA
Washington-Arlington-Alexandria, DC-VA-MD-WV
New York-Northern New Jersey-Long Island, NY-NJ-PA
Los Angeles-Long Beach-Santa Ana, CA
Projected Percent Change in Households by Age Cohort, 2006-2017
The Future Demographics of Massachusetts
Change in Number of Households by Age Cohort: 2006-2017 Massachusetts
40
37,681
-82,548
111,437118,566
14,614
-6,326
-100,000
-50,000
0
50,000
100,000
150,000
18-24 25-34 35-44 45-54 55-64 65-74 75+
Source: U.S. Census Demographic Projections
Of a net increase of 193,500 households, 244,600 are projected to be age 55 +
The Mass Employment Situation
Total Unemployment – Massachusetts January 1999-January 2009
December 2007-December 2008Employment Change: -74,000
Unemployment increased by 96,000 Between January 2008 and January 2009
Massachusetts Unemployment RateJanuary 1999 – January 2009
Unemployment rate increased from 4.6% to 7.4% between January 2008 and January 2009
-3.0%
0.6%
1.5%1.8%
2.3%
3.8%
4.2%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
MA CT ME VT NH RI U.S.
-100,600 jobs
+5,609,000 jobs
Source: U.S. Bureau of Labor
Massachusetts Change in Total Non-Farm Employment (Seasonally Adjusted) (January 2001 - December 2007)
Massachusetts Change in Total Non-Farm Employment (Seasonally Adjusted) (December 2007 - December 2008)
-4.4%
-2.2%
-1.9% -1.9%-1.7%
-1.3%-1.1%
-5.0%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
RI U.S. ME VT CT MA NH
Employment Growth (2000-2006) by Housing Cost Decile
3.56% 3.67%
5.65%5.30%
4.07%
5.54%
9.89%
8.96%
11.84%
10.30%
8.80%
5.20%
0%
2%
4%
6%
8%
10%
12%
14%
1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile Next 15 Next 10 Top 10
Greater Boston MSA –2.0% X
But some good economic news Despite endowment problems, our
universities and hospitals continue to expand, providing a strong base to the economy
Our manufacturing sector has turned the corner … increasing its share of gross state product and is poised to provide jobs for 100,000 young workers over the next decade
Massachusetts State & Local Government in Trouble
Facing a continuing budget crisis
Price Increases: Total Economy vs. Cost of State and Local Services
2000-2008:I
21.3%
26.8%
40.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Total Economy Private Services State & Local Services
Price of State & Local Services risingtwice as fast as overall prices
Debt Service, Public Pensions, & Medicaid Payments as % of Massachusetts State Budget (2001-2027)
32.8% 33.5% 35.6% 37.1% 38.8% 40.1% 40.9%45.0% 46.0%
64.4%
90.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2018 2027
Debt Service, Public Pensions, and Medicaidwill devour most of the Mass State Budget
The Massachusetts Problem
Despite our lead in biotech and nanotech …
Despite our rich array of (once) well-endowed universities and hospitals …
Despite the beauty of Cape Cod, the Berkshires …
Despite our marvelous array of cultural attractions and amenities
The Massachusetts Problem We are #1 in cost of living in the nation We suffer from being cold … and getting
old We have a growing structural budget deficit
in the Commonwealth that will soon sink our ability to maintain the education system we need, the public social services we morally should supply, and the public infrastructure we must maintain to retain and attract the private investment
But there’s hope on the way …
What Really Needs to be Done? – National Economy
Phase I – Instant Stimulus “Uncle Sam” Debit Card Home Price Insurance System
Phase II – Short-term Stimulus Massive General State and Local
Revenue Sharing Extended Unemployment Benefits
Phase III – Longer-term Stimulus Public Infrastructure Investment
What’s to be Done? - Massachusetts
Local Option Tax, but with State meals tax and continued redistribution of state aid to older industrial cities
Capital Gains Tax Holding Tank and larger future rainy day fund
Continued investment in education and training Continued support for Chapter 40R & 40S to assure
adequate supply of housing to moderate housing cost appreciation when economy recovers
New “Grand Bargain” with public employee unions
We will get through this because …
We have smart, competent leadership in the White House
We have smart, competent leadership in the State House
We have a broad range of corporations and civic institutions that are willing to pitch in to keep Massachusetts strong and vibrant