Economic Update: Maine, New England, and US

Presented to the Maine Consensus Economic Forecasting Commission June 22, 2020

Bo Zhao Senior Economist New England Public Policy Center Federal Reserve Bank of Boston

Disclaimer: The views expressed here are those of the speaker and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System. Non-Agricultural Employment

1.05

1.00 Recession US NE CT ME 0.95 MA NH RI VT 0.90 recession Peak = 1) = Peak recession - US, 0.87 0.85 ME, 0.86

Index (Pre Index NE, CT, and NH, 0.84 MA and RI, 0.83 VT, 0.82 0.80

0.75 May-06 May-08 May-10 May-12 May-14 May-16 May-18 May-20

Source: Bureau of Labor Statistics, NBER, Haver Analytics Note: Peak values are determined after the recession of 2008-2009; they may differ for each region.

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 2 Employment Growth by Industry Percent Change, May 2019 - May 2020

-5.7 Construction -16.6 -0.7

-1.5 Finance -2.5 -3.0

-8.8 Manufacturing -7.4 -7.0

-6.0 Government -9.0 -8.9

-10.0 Trade, Transportation, and Utilities -16.5 -9.2 US -8.7 Professional & Business Services -7.9 NE -9.3 ME -7.6 Education & Health -11.2 -13.1

-17.6 Other Services -28.5 -14.3

-9.6 Information -5.6 -22.2

-40.6 Leisure & Hospitality -55.7 -50.4

-60 -50 -40 -30 -20 -10 0 Percentage Source: Bureau of Labor Statistics, Haver Analytics

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 3 Unemployment Rates

20

18

16 MA and RI, 16.3

NH, 14.5 14 US, 13.3 VT, 12.7 12

10 CT, 9.4 ME, 9.3 Percentage 8 Recession US 6 CT ME 4 MA NH 2 RI

0 VT May-06 May-08 May-10 May-12 May-14 May-16 May-18 May-20

Source: Bureau of Labor Statistics, NBER, Haver Analytics Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 4 House Price Changes

Percent Change, Q1 2019 - Q1 2020

United States 5.8

New England 5.5

Connecticut 3.1

Maine 8.3

FHFA Purchase-Only Massachusetts 5.1

New Hampshire 7.3

Rhode Island 6.4

Vermont 6.0

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

Source: FHFA, S&P/Case-Shiller, Haver Analytics

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 5 Foreclosures Started

1.8

1.6

1.4 Recession 1.2 US NE 1.0 CT ME 0.8 MA

Percent of Percent of Mortgages NH 0.6 RI 0.4 VT

0.2

0.0 Q1-06 Q1-08 Q1-10 Q1-12 Q1-14 Q1-16 Q1-18 Q1-20

Source: Mortgage Bankers Association, NBER, Haver Analytics

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 6 Consumer Confidence

160

140

120

100

80

Index 1985=100) (US 60 Recession US 40 NE

20

0 May-06 May-08 May-10 May-12 May-14 May-16 May-18 May-20

Source: The Conference Board, Haver Analytics

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 7 Consumer Confidence

180

160

140

120

100

May-19 80 May-20 60

40

20

0 US NE US NE US NE Consumer Confidence Present Situation Future Expectations

Source: The Conference Board, Haver Analytics

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 8 Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents June 2020

Median Projections (Percent) Variable 2020 2021 2022 Longer run

Change in real GDP -6.5 5.0 3.5 1.8

Unemployment rate 9.3 6.5 5.5 4.1

Source: FOMC June 2020 Meeting

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 9 CBO’s Economic Projections for 2020 and 2021

2020 Annual Rate Variable Actual, Q1 Q2 Q3 Q4 2020 2021 Growth of real GDP -4.8 -37.7 21.5 10.4 -5.6 4.2 (annual rate)

Unemployment rate 3.8 15.1 15.8 11.5 11.5 9.3

Source: Congressional Budget Office Note: The value of the unemployment rate for the fourth quarter of 2021 is projected to be 8.6 percent.

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 10 Concluding Observations

▶COVID-19 pandemic has induced a sharp decline in employment and a surge in

job losses

▶Industries requiring in-person contact have been negatively impacted most

▶While home prices are higher than a year ago and foreclosure rates are low, it is

too early to tell the impact of the pandemic on the housing market

▶There is high uncertainty ahead, with future path largely depending on the public

health situation

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2019 11 Employment Growth Rates

Annual Long-term Trend Last 12 months Since Peak Percent Percent Number Percent Number United States 1.4 -11.7 -17,665,000 -12.8 -19,551,000 New England 0.9 -15.7 -1,177,600 -16.3 -1,231,800 Connecticut 0.4 -14.9 -251,400 -15.6 -265,500 Maine 1.1 -13.8 -87,300 -14.4 -92,000 Massachusetts 0.9 -16.4 -605,000 -17.0 -631,900 New Hampshire 1.5 -14.6 -99,900 -15.5 -107,400 Rhode Island 0.7 -15.9 -79,900 -16.7 -85,000 Vermont 1.2 -17.1 -54,100 -18.0 -57,300

Source: Bureau of Labor Statistics, Haver Analytics Note: Peak values are determined after the recession of 2008-2009; they may differ for each region.

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2020 12 Labor Force Participation Rate

74.0

Recession US 72.0 CT ME MA 70.0 NH RI VT 68.0

66.0 VT, 66.1 Percent

NH, 64.4 64.0

MA, 62.4 62.0 CT, 61.4 US, 60.8 RI, 60.3 60.0 ME, 59.6

58.0 May-06 May-08 May-10 May-12 May-14 May-16 May-18 May-20

Source: Bureau of Labor Statistics, Haver Analytics Note: Data are seasonally adjusted.

Federal Reserve Bank of Boston | bostonfed.org | June 22, 2019 13 Predicted State Tax Revenue Decline for the New England States in FY2021 Compared with FY2020

Low-unemployment Scenario High-unemployment Scenario FY2021 FY2021 Percentage Change in Real Percentage Change in Real Unemployment Unemployment State Tax Revenue per Capita State Tax Revenue per Capita Rate Rate (%) (%) (%) (%)

Connecticut 9.5 -1.13 22.2 -25.05

Maine 7.8 -2.99 18.4 -30.56

Massachusetts 7.7 -2.87 18.0 -41.70

New Hampshire 6.1 -2.59 14.4 -29.84

Rhode Island 9.1 -3.34 21.5 -34.63

Vermont 5.9 0.13 13.8 -21.28

Source: Zhao, Bo. 2020. “Forecasting the New England States’ Tax Revenues in the Time of the COVID-19 Pandemic.” Notes: (1) Each state’s unemployment rate for FY2021 under the low- and high-unemployment scenario is estimated by scaling an estimated 9.25% and 21.75% US FY2021 unemployment rate, respectively, with a ratio of FY2019 state unemployment rate to FY2019 US unemployment rate. (2) The predicted FY2020 and 2021 real state tax revenue per capita for CT, MA, and VT is estimated based on the linear time trend model. The predicted FY2020 and 2021 real state tax revenue per capita for ME, NH, and RI is estimated based on the quadratic time trend model. Federal Reserve Bank of Boston | bostonfed.org | June 22, 2019 14