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Outlook for Tennessee Tennessee Gas Association June 14, 2010

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

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  1. 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

  2. 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.

  3. Comparative Overview of Tennessee (April 2010)

  4. 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

  5. Tennessee natural gas consumption by sector, 2009 Source: Energy Information Administration, DOE

  6. Natural gas consumption trends

  7. Major economic indicators • Nonfarm employment • Initial claims for unemployment insurance • Single-family home construction • Sales tax collections • Unemployment rate

  8. 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%).

  9. Are we improving? • Convincing signs of stability. • But the distribution of activity varies greatly. In recovery Less pain Still hurting

  10. Nonfarm employment • April 2010 back to about the same as July 2009. • Stabilized at the lowest level since Nov 1997.

  11. Regional Differences Nonfarm Employment Growth (YTY) • In recovery • Chattanooga (+0.4%) • Clarksville (+0.4%) • Knoxville (-0.4%)

  12. Regional Differences Nonfarm Employment Growth (YTY) • Less pain • Tennessee (-1.0%) • Cleveland (-1.3%) • Nashville (-1.4%) • Johnson City (-1.7%) • Jackson (-1.9%)

  13. Regional Differences Nonfarm Employment Growth (YTY) • Still hurting • Morristown (-3.7%) • Memphis (-3.0%) • Kingsport-Bristol (-2.6%)

  14. 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.

  15. Housing construction • Gains of early 2009 have diminished. • Activity may grind to a halt post-tax credit. • Prices falling in Tennessee.

  16. Repeat sales purchase-only index (FHFA) • Sharp decline in the first quarter. • Improvement not in sight. • Moderately rising prices necessary condition for stability.

  17. Housing loans first quarter 2010 Source: Mortgage Bankers Association

  18. Sales tax collections • Stabilized at a low level. • About even with last April. • Expect modest growth this year.

  19. Tennessee unemployment rate

  20. 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%

  21. 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

  22. National economic context • Manufacturing expanding • ISM Index: manufacturing • Exports rising, despite troubles in Europe • Policy is shifting away from expansion.

  23. Shape of recovery • Check mark • Rapid decline followed by slow growth. • Most likely scenario. • W • Double-dip recession. • Less probable, but likelihood rising.

  24. 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.

  25. 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).

  26. 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.

  27. Auto manufacturing

  28. 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.

  29. Tennessee manufacturing jobs

  30. Tennessee jobs in non-durable goods

  31. Expectations for Tennessee • Recovery will not occur soon • Big hole to climb out • Unemployment rate will be very slow to decline

  32. Unemployment will be slow to decline

  33. 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?

  34. 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%

  35. Slower growth will mean longer recovery for nonfarm jobs

  36. 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

  37. Tennessee initial unemployment claims (weekly)

  38. 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.

  39. 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.

  40. 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.

  41. 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.

  42. 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)

  43. 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

  44. 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.

  45. Going Forward • Both these tasks will require sacrifice, compromise, and statesmanship. • We are perfectly capable of tackling both simultaneously.

  46. 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.

  47. 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

  48. 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

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