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The Great Recession and Tennessee’s Revenue Outlook

The Great Recession and Tennessee’s Revenue Outlook. Bill Fox and Matt Murray UT’s Center for Business and Economic Research October 29, 2009. Nature of the Recession. Began in December 2007 NBER dates recessions…peak to trough First global downturn since WWII

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The Great Recession and Tennessee’s Revenue Outlook

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  1. The Great Recession and Tennessee’s Revenue Outlook Bill Fox and Matt Murray UT’s Center for Business and Economic Research October 29, 2009

  2. Nature of the Recession • Began in December 2007 • NBER dates recessions…peak to trough • First global downturn since WWII • The longest recession since the Great Depression • Records have been shattered • 2008 and 2009 home starts (WWII) • Will be deepest by some, but not all measures of economic activity • Unemployment rates will not likely rival the back-to-back recessions of the 1980s Fox and Murray, Center for Business and Economic Research, UT Knoxville

  3. Sources of a Rebound • Loose monetary policy and Treasury’s response, including TARP • Federal Funds target range near zero • Unprecedented forms of Fed intervention • Fiscal stimulus package, $790 billion • Adds more than 2 percentage points to GDP over two years • Market forces helping to turn the corner • Low housing prices, starts are rebounding • Mortgage refinancings create liquidity • Inventory accumulation in 3rd and 4th quarters Fox and Murray, Center for Business and Economic Research, UT Knoxville

  4. It Will Take Years to Regain Lost Ground • Mixed signals now emerging, the bottom of the current cycle • Recession is likely to be deemed over in the third quarter…but this is the trough • Very strong growth rates may then take place because economic activity is at such depressed levels-V, U, W or checkmark? • Take your pick! • Regardless, levels of economic activity will not be restored for some time—jobs, home starts, car sales, tax revenue, etc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  5. Real GDP: 2005 to 2012 Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  6. U.S. Residential Fixed Investment and Nonresidential Fixed Investment in Equipment & Software and Structures: 2005 to 2012 Commercial real estate now spiraling down Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  7. Housing Starts and Light Vehicle Sales:2005 to 2012 (millions, annual rate) Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  8. mortgage delinquency rate (percent) mortgage foreclosure rate (percent) Starts are Picking Up, But Problems in the Housing Market Continue Fox and Murray, Center for Business and Economic Research, UT Knoxville

  9. FHFA Housing Price Index: 2005 to 2012 Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  10. Tennessee Building Permits:Jan-2005 to Aug-2009 Source: U.S. Census Bureau, Building Permits Survey (as reported in the State of the Cities Data System [SOCDS] database). Fox and Murray, Center for Business and Economic Research, UT Knoxville

  11. Federal Funds Rate: 2005.1 to 2012.4 The Fed’s Exit Strategy? Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  12. U.S. Payroll Employment: Jan-08 to Sept-09 (seasonally adjusted) Source: Bureau of Labor Statistics. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  13. U.S. Nonfarm Employment: 2005 to 2012 Source: IHS Global Insight, Inc. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  14. Change in U.S. Employment*August 2008 vs. August 2009 → *not seasonally adjusted Source: Bureau of Labor Statistics. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  15. TN Nonfarm Employment: Jan-08 to Aug-09 (seasonally adjusted) Source: Bureau of Labor Statistics. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  16. Tennessee Nonfarm Employment:2006 to 2011 (seasonally adjusted) Source: Bureau of Labor Statistics and CBER-UT. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  17. Tennessee Monthly Total Nonfarm Employment Indexed to Beginning of Recession Note: Employment data are seasonally adjusted. Source: Calculated by CBER using data from the Bureau of Labor Statistics. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  18. Tennessee Monthly SA Unemployment Rate Indexed to Beginning of Recession Note: Unemployment rate data are seasonally adjusted. Source: Calculated by CBER using data from the Bureau of Labor Statistics. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  19. TN Initial Unemployment Insurance Claims and Benefits Paid: Jan-07 to Sept-09 September’s drop in the unemployment rate may save the UI trust fund Source: U.S. Department of Labor. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  20. Unemployment Rate, August 2009 Tennessee 10.7%United States 9.6%* Less than 10.0% 10.0% to 12.9% 13.0% to 15.9% 16.0% or higher Note: County data are not seasonally adjusted. Source: Bureau of Labor Statistics. September rates: TN 10.3% US 9.5% Fox and Murray, Center for Business and Economic Research, UT Knoxville

  21. Growth in Total Tax Revenue Collections, FY2008-2009 21 11/12/2009 U.S. = -8.2 % Greater than -5.7% --18-- Less than -10.0% --14-- -10.0% to -5.7% --18--

  22. TN Tax Collections, Total and Sales & Use:Jan-07 to Sept-09 Stimulus package will help sustain spending thru FY 11/12 Source: Tennessee Department of Revenue, Revenue Collections, monthly. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  23. Tennessee Monthly Sales & Use Tax Revenue Indexed to Beginning of Recession Source: Calculated by CBER using data from the Tennessee Department of Revenue. Fox and Murray, Center for Business and Economic Research, UT Knoxville

  24. TN Long-Term Revenue Forecast(millions of dollars) +$211.7 m Fox and Murray, Center for Business and Economic Research, UT Knoxville

  25. Highlights • The economy is starting to turn the corner, but the recovery will take years • State/local sales tax revenues will not recover until 2012, with new pressures emerging for the local property tax • Federal pressures on the states • State pressures on local governments • Pent-up funding needs like the BEP • Mid-term growth will trail historical growth due to demographics and need to save, together weakening consumption spending • Some are calling this the “new normal” • Near-term risks—shocks, inflation, double-dip recession after current inventory cycle—outweigh upside growth potential • The good news is the recession is over! Fox and Murray, Center for Business and Economic Research, UT Knoxville

  26. Center for Business & Economic Research College of Business AdministrationThe University of Tennessee, Knoxville716 Stokely Management Center916 Volunteer BoulevardKnoxville, Tennessee 37996-0570 phone: 865.974.5441fax: 865.974.3100http://cber.bus.utk.edu Fox and Murray, Center for Business and Economic Research, UT Knoxville

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