Economic Forecast OUTPUT AND EMPLOYMENT WHAT THE TABLE SHOWS:

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2 Economic Forecast OUTPUT AND EMPLOYMENT United States Real GDP $ billions (fourth quarter) $1,996 $1,575 $1,5 $1,9 $15, $15,5 $15,9 $16,51 $17,1 % change over the four quarters 1.9% -.8% -.%.8%.%.%.6% 3.5% 3.8% Nonfarm employment Job count (fourth quarter) 138,6, 135,93,667 19,877,667 13,65, 13,6,667 13,853, ,7, ,69,88 11,679,6 % change over the four quarters.9% -.% -.1%.6% 1.5% 1.7% 1.8% 1.8% 1.% Average monthly change 11,667-9,361-68, 6,58 165,889 18,5 199,5 3,93 3,93 Real GDP $ billions (fourth quarter) $37 $35 $33 $31 $318 $38 $337 $35 $36 % change over the four quarters 3.5% -.% -.7%.%.6% 3.%.8% 3.6%.1% Nonfarm employment Job count (fourth quarter),991,1,96,67,87,967,88,33,88,3,97,133 3,5,9 3,71,76 3,1,79 % change over the four quarters.6% -1.% -.5%.7% 1.3%.%.%.% 1.6% Average monthly change 6,56 -,553-11, 1,67 3, 5,36,897 5,89,86 WHAT THE TABLE SHOWS: s GDP forecast is derived from the national forecast by allocating output to each of the 5 states based on employment shares. So, forecast misses reflect surprises in the aggregate forecast as well as deviations in the state s GDP share from the employment share. s economy matched the pace of the national recovery in 13. s economy is forecast to pick up speed over the balance of 1 and 15, in line with the rebound in the national economy. Note: GDP figures are based on quarterly values that are interpolated from annual GDP estimates using quarterly employment changes. Unbolded figures are reported actual values and bold figures represent forecasts. Sources: US Department of Commerce; US Department of Labor. Regional Perspectives: Economic Outlook Commercial Banking

3 Agriculture Mining Utilities Construction Durable manufacturing Nondudrable manufacturing Wholesale trade Retail trade Transportation Information Finance and insurance Real estate Professional and technical services Management of companies Administrative and waste management services Educational services Health care and social assistance Arts, entertainment, and recreation Hotel and food service Other services Government May 6, 1 The Economy s Structure PERCENT OF TOTAL GDP DERIVED FROM SELECTED INDUSTRIES The figure compares the relative importance US industry mix industry mix of selected industries to the state s economy with the national footprint of each industry (state and national figures reflect the value added of each industry as a percent of aggregate state or US nominal GDP, respectively). Information technology (representing Microsoft s influence) contributes more to the state s economy than it does for the national economy. Information technology will be an important driver for the state, once drags related to the housing bust pass. Source: US Department of Commerce. Updated through 11. Regional Perspectives: Economic Outlook Commercial Banking 3

4 Bankruptcies RATIO OF BANKRUPTCY FILINGS TO THE 7 Q NUMBER The figure illustrates trends in bankruptcy 5 5 filings by businesses and persons relative to the number of filings in 7 Q, prior to the Business bankruptcy filings Nonbusiness bankruptcy filings recession. Bankruptcy filings are slowly falling back, as commercial real estate conditions improve. 3 All US bankruptcy filings (shaded area) 3 Indicators of financial stress are a useful coincident indication of economic distress. Bankruptcy filings have climbed to an abovenormal pace, but are below levels reached in the 199s. 1 1 Source: Administrative Office of the U.S. Courts; Updated through March Regional Perspectives: Economic Outlook Commercial Banking

5 FRB SF Business Survey REAL GDP (% CHANGE 1 MONTHS EARLIER) DIFFUSION INDEXES ( = NO CHANGE) real GDP (left scale) FRB-San Francisco tech impulse index (right scale) Forecast The San Francisco Federal Reserve Bank survey of local businesses has recovered from last summer s lull, and that is a positive omen for the economy s future. The index readings represent the net difference in the percent expecting improving conditions and those expecting worsening conditions. The survey points to moderate growth in the quarters ahead. The business outlook remains positive in. Sources: Federal Reserve Bank of San Francisco; US Department of Commerce. Updated through April 1 (surveys) and 1 Q1 (GDP). Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity. Regional Perspectives: Economic Outlook Commercial Banking 5

6 Private Business Surveys REAL GDP (% CHANGE 1 MONTHS EARLIER) DIFFUSION INDEXES (5 = NO CHANGE) GDP growth in state and the 1 8 real GDP (left scale) Forecast Western survey of purchasing managers. The survey of purchasing managers in the western regions remains solid. 6 Western NAPM index (right scale) 6 55 The leading indicators are in positive 5 territory. 5 Sources: Institute of Supply Management; US Department of Commerce. Updated through April 1 (survey) and 1 Q1 (GDP) Note: diffusion indexes represent the percentage of respondents seeing an increase in activity plus one half of the percentage reporting no change in activity. Regional Perspectives: Economic Outlook Commercial Banking 6

7 Initial Jobless Claims RATIO OF INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE TO THE 7 Q LEVEL.5. US (solid area).5. The figure tracks layoffs in and the national level of claims. Weekly layoffs, both the state and national tallies, are illustrated in the figure as a ratio to the level of layoffs in the fourth quarter of , prior to the recession. Layoffs are back to pre-recession levels Layoffs, because they are reported so promptly, are a useful indicator of changing economic trends Underlying layoff trends point to a gradual improvement in Source: US Department of Labor. Updated through May 17, 1 (state) and May, 1 (US). Regional Perspectives: Economic Outlook Commercial Banking 7

8 Economic Growth REAL GDP GROWTH (PERCENT CHANGE FROM FOUR QUARTERS EARLIER) US Forecast Real GDP growth in (the line in the figure) is superimposed on top of US real GDP growth (bars in the figure). s economy did not contract as sharply as the national economy in the recession, but again is expanding in line with national output growth. Growth in is forecast to pick up speed in 1 and 15. Source: US Department of Commerce. Updated through 1 (state) and 1 Q1 (US). Quarterly estimates for states after 1 are interpolated from employment figures (through April 1), based on the historical correlation of state and national employment changes. Regional Perspectives: Economic Outlook Commercial Banking 8

9 Economic Output REAL GDP LEVEL (RATIO TO Q) The figure illustrates the evolution of real Forecast GDP of the state and the overall US economy since the fourth quarter of, the peak of the previous business cycle that is, at any point in time the lines trace the ratio of real GDP to its level in Q. didn t stumble as badly as the national economy during the recession and so is recovering from a higher elevation than the national economy s economy appears to be on the 1.5 US 1.5 mend Source: US Department of Commerce. Updated through 1 (state) and 1 Q1 (US). Quarterly estimates for states after 1 are interpolated from employment figures (through April 1), based on the historical correlation of state and national employment changes. Regional Perspectives: Economic Outlook Commercial Banking 9

10 Employment Growth NONFARM PAYROLL EMPLOYMENT (PERCENT CHANGE FROM 1 MONTHS EARLIER) The illustration above compares 5 3 US (shaded) Forecast 5 3 s employment trend with the nation s. Employment is expanding at a robust pace The state s job market is expected to continue to expand at a respectable pace. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US) Regional Perspectives: Economic Outlook Commercial Banking 1

11 Employment in Relative Terms NONFARM PAYROLL EMPLOYMENT (RATIO TO THE Q LEVEL) Forecast US The figure illustrates the evolution of employment in the state compared with the nation since Q, the peak of the previous business cycle. The lines trace out the ratio of employment at the time to employment in Q. s job market is performing well, and the state s employment base now is well above the peak of the previous business cycle. The employment picture is fairly positive. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US). Regional Perspectives: Economic Outlook Commercial Banking 11

12 Employment in Absolute Terms NONFARM PAYROLL EMPLOYMENT (THOUSANDS) Trends in the actual employment count in 3,15 3,1 3,5 3, (left scale) Forecast 15, 1,5 1, the state (left scale) and the level of employment in the overall economy (right scale). In proportionate terms, the recession in was similar to the national downturn and the recovery is tracking,95 137,5 similarly too. s employment count is on the,9 135, rise.,85,8,75 US (right scale), ,5 13, 17,5 The job market recovery is forecast to continue to track the national trend in 1 and 15. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US). Regional Perspectives: Economic Outlook Commercial Banking 1

13 Intrastate Employment NONFARM PAYROLL EMPLOYMENT IN SELECTED COMMUNITIES (RATIO TO Q LEVEL) Employment trends in local communities US forecast US Kennewick Bellingham Olympia Tacoma Wenatchee Bremerton Mt. Vernon Spokane Seattle-Bellevue across the state. Lines are the cumulative percent change in employment since Q, the peak of the previous business expansion. Employment trends in most communities are beginning to stabilize. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US) Seattle-Tacoma Yakima Longview forecast Regional Perspectives: Economic Outlook Commercial Banking 13

14 Unemployment UNEMPLOYMENT (PERCENT OF THE LABOR FORCE) s unemployment rate, compared 1 1 US (shaded) Forecast 1 1 with the national average. The state s unemployment is receding in line with the nation s and is down to almost 6 percent. 8 8 The unemployment rate is the single best 6 6 indicator of the relative economic performance of a region. The steep descent in the unemployment rate implies that the economy is beginning to turn up. Source: US Department of Labor. Updated through April 1 (state) and April 1 (US) Regional Perspectives: Economic Outlook Commercial Banking 1

15 Relative House Prices RATIO OF THE STATE S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q = 1.) The figure tracks the relative price of houses in the state and its neighbor versus the nation that is, it reflects the ratio of the state price index to the national house price index, with that ratio set to unity in the summer of A drop in the line means that house prices in the state lag the 1.1 Oregon 1.1 national trend. States that did not suffer from speculative conditions saw a decline in the relative price of houses in this last decade House prices in mirrored many of the national trends but corrections elsewhere and in local markets have.9.9 returned house prices back to normal historical alignment Real estate prices are stabilizing. Source: FHFA. Updated through 13 Q. Regional Perspectives: Economic Outlook Commercial Banking 15

16 Real Estate Markets HOUSE PRICES IN SELECTED COMMUNITIES (RATIO TO THE 1995 Q LEVEL) The figure tracks the cumulative percentage deviation in house prices since 1995 in selected local markets and compares those US Yakima Spokane Olympia Kennewick-Richland-Pasco Seattle Bremerton Bellingham Seattle (Case-Shiller) with the national average. House prices are rising in key markets. KEY MESSAGE: House prices should begin to firm, in lagged response to the recovering economy. Sources: FHFA; Standard & Poor s. Updated through 13 Q Regional Perspectives: Economic Outlook Commercial Banking 16

17 New Home Building HOUSING STARTS (RATIO TO THE JULY 199 LEVEL) The pace of new home building (housing US Forecast starts) in, compared with the national trends. Housing activity is firming. s home building industry has cleaned up many of the excesses from the last decade and likely will be boosting construction gradually going forward Source: Census Department. Updated through March 1 (state) and April 1 (US) Regional Perspectives: Economic Outlook Commercial Banking 17

18 Office Markets PERCENT OF OFFICE SPACE THAT IS VACANT Office market conditions in selected 5 5 markets. Vacancy rates in Seattle are beginning to fall back, confirming the revival of the region s Seattle economy s office markets tend to parallel the trends in the national market, but conditions in commercial real estate markets 1 1 are improving more rapidly in Seattle than in the office market nationally. 5 All metropolitan areas (shaded area) 5 Source: CB Richard Ellis (formerly CB Commercial Property Information Systems), Office Vacancy Index of the United States. Updated through 1 Q Regional Perspectives: Economic Outlook Commercial Banking 18

19 CONTACT: James E. Glassman Telephone: (1) JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, JPMC ). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.