Wisconsin Economic Outlook

Transcription

1 WISCONSIN ECONOMIC OUTLOOK FALL 2012 Wisconsin Economic Outlook AT A GLANCE The economy continues to grow at a moderate pace. Fall 2012 Job growth will continue in 2013, adding an average of 3,000 jobs per month. The forecast calls for an unemployment rate of 7.0% in 2012 and 6.8% in The housing sector is finally showing signs of a mild recovery at the state and national levels. Wisconsin real personal income shows continuous modest growth through 2012 and will post stronger growth of 2.5% in 2013 and 2.9% in WISCONSIN OVERVIEW The economy continues to grow at a moderate pace. The Wisconsin economy, as measured by the recently released real personal income data, grew 2.0% in Wisconsin real personal income reached its pre-recession peak in the first quarter of The forecast expects modest continuing growth in Wisconsin through 2012 and stronger growth of 2.5% in 2013 and 2.9% in % 2% 1% 0% -1% -2% -3% The IHS Global Insight U.S. forecast anticipates weak growth. Their forecast emphasizes the slowdown in exports and business investment, the current risks from a weak global economic forecast, and domestic fiscal uncertainty. However, they expect second-half 2012 GDP growth to average 1.5% as the economy sees continuous job gains and improvement in the housing sector. The Wisconsin forecast calls for mild economic growth in terms of jobs and income for 2012 and 2013, with the economy gaining steam toward Real Personal Income Growth EMPLOYMENT Wisconsin jobs started recovering in the second quarter of 2010, as shown by the QCEW (Quarterly Census of Employment and Wages). Both the CES (Current Employment Statistics) and the QCEW employment data from the U.S. Bureau of Labor Statistics (BLS) tell the same story until mid- 2011, the last period included in the revision process of the CES data (see Wisconsin Employment chart). QCEW data is compiled from Unemployment Insurance records from some 160,000 (almost 97%) of Wisconsin employers and reflects actual jobs data. CES data is compiled from a monthly survey sent to about 5,500 (3.5%) of Wisconsin employers. The next revision to the CES jobs data, due March 2013, will correct the deviation seen in the last four quarters to show the same trend the QCEW reports. This trend is also consistent with national job growth. The employment recovery continues in 2012, but at a moderate pace both in Wisconsin and nationwide. Several factors are in play to slow down the economic recovery: fiscal uncertainty at the national level, concern about the European economy, weakness in China s economy, slower exports and investments, weak domestic demand, persistent unemployment, tight credit WISCONSIN DEPARTMENT OF REVENUE 1

2 WISCONSIN ECONOMIC OUTLOOK FALL 2012 Wisconsin Employment Follows the National Pace in Recovery Wisconsin Employment Wisconsin and U.S. Employment 2, ,880 2,840 Period to be revised in March , Thousands 2,800 2,760 2,720 2,680 2,900 2,850 2, ,640 2,750 2,600 07Q1 08Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 2, CES QCEW Wisconsin CES (thousands, left) U.S. CES (millions, right) and slow recovery of the housing market. Most of these issues will persist, constraining the pace of the recovery in The forecast expects Wisconsin employment to reach 2,779,000 in the last quarter of 2012, having added approximately 38,000 jobs in 2011 and Job growth will increase in 2013, adding approximately 36,000 jobs. The state economy followed the national economy into the recession and it shows a similar pattern in the recovery. Total Wisconsin employment will return to its 2008 peak level of 2.9 million jobs in mid-2015 or earlier. The national forecast expects the U.S. to recover its pre-recession employment level by the end of Meanwhile, population should grow at 0.5% per year in Wisconsin and 1.0% nationwide. Employment Sectors in 2013 and 2014 with a growth rate close to 1. each year. Trade, Transportation and Utilities, Wisconsin s largest employment sector, was flat in 2011 and has showed mild growth in the first half of The forecast calls for increases of 0.6% in 2012 and 1. in Employment in this sector is now at 1997 levels for Wisconsin and 1998 levels for the nation. The Education and Health Services sector was the only private sector not to fall during the recession, driven by growth in the health-care subsector. Employment in this sector grew 0.8% in 2011 and the forecast calls for increases of 1.3% in 2012 and 0.9% in For the last two years of the forecast period, growth will be stronger at 1.3% in 2014 and 1.6% Professional and Business Services employment hit bottom early in mid Having lost 29,200 jobs since the beginning of 2008, it almost recovered its job loss by mid The sector posted very strong job growth in 2010 (5.0%) and 2011 (4.1%) driven by extraordinary growth in temporary jobs. The forecast expects this sector Employment in the largest two sectors continues to grow and will reach its previous peaks by Most of the Wisconsin jobs lost in the recent recession came from the state s two largest sectors: Manufacturing (82,600) and Trade, Transportation and Utilities (40,500). Manufacturing is also the sector that has added the most jobs (25,000) in the recovery. Manufacturing jobs grew 2.8% in 2011 and 1. in the first half of The forecast expects strong manufacturing employment growth this year (1.9%), but the recovery will moderate Thousands of Jobs Trade, Transportation, & Utilities Manufacturing WISCONSIN DEPARTMENT OF REVENUE 2

3 10% 9% 8% 7% The unemployment rate continues to fall Employment in the Government sector fell for the third straight year in The outlook calls for another decline of 1.6% in Government employment will then be flat in 2013 and will show a mild increase of 0.7% in By the end of 2015, government jobs will be at the same level as ten years earlier in UNEMPLOYMENT 6% 5% to continue to grow at a strong pace throughout the forecast period. The forecast calls for 1. growth in 2012 and 5.1% in Employment in Leisure and Hospitality decreased by 12,500 jobs during the recession, but started its recovery in early 2010 according to CES data. This sector seems to be the most impacted by the distortion in the CES data and will show significant revisions in the next benchmark due March The CES series is currently showing a decline for 2011 that will probably be revised to be an increase. The forecast calls for weak but steady growth during the forecast period. The CES series shows the Other Services sector posted small job losses between 2009 and This sector is also one of the most affected by the distortion of the CES data. The forecast calls for steady moderate growth that will bring the level of employment just below its pre-recession level by Jobs in the Financial Activities sector continued to decline through 2011 according to CES data. But the last four quarters of CES data (2011q3-2012q2) will also be revised upward next March, showing that the number of financial jobs stayed relatively flat instead of Wisconsin U.S. declining over this period. The forecast expects it to stay around the 160,000 level for the rest of the forecast period. This industry accounts for less than 6% of state employment. Wisconsin employment in the Construction sector peaked at the beginning of 2006 at 129,100 jobs. It has been declining ever since, but it stabilized close to 90,000 jobs in The current CES series shows a decline of 5.1% in 2011 that is expected to be revised to a milder decline of about 3.0%. The forecast expects construction employment to be flat in 2012 and post strong growth rates above 4.0% during the remainder of the forecast period. Employment in the Information sector declined 2.8% in 2010 and another 0. in The forecast expects information employment to be flat in 2012, increase 1.5% in 2013 and remain almost flat the rest of the forecast period. The Natural Resources and Mining sector accounts for only 0.1% of total employment in Wisconsin. Employment in this sector grew 1. in 2011 and its outlook shows job growth throughout The Wisconsin seasonally adjusted unemployment rate was 7.3% in September. The unemployment rate rose from 4.3% in the first quarter of 2008 to 8.8% in mid-2009 and has been hovering around 7% since late 2011, about 1.5 percentage points lower than the national rate. The decline of the unemployment rate was a result of the moderate job gains seen in the current recovery and of a decline in labor force participation between 2009 and The forecast calls for an unemployment rate of 7.0% in 2012 and 6.8% in By the end of the forecast period, the Wisconsin unemployment rate will be 5.8%, still lower than the national unemployment rate of 7.0%. The BLS releases alternative measures of labor underutilization for states and nationwide. The most inclusive of these measures is the so called U-6 rate, which measures the total unemployed, plus all marginally attached workers and workers working part-time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers. This measure adjusts for the distortion of a decline of the unemployment rate due to people leaving the labor force and people working part-time because they cannot find a full time job. The Wisconsin U-6 rate decreased from 13.8% in the first quarter of 2012 to 13.3% in the second quarter of At the national level, the U-6 rate was higher, yet it also declined during the same period from 16.3% to 15.. WISCONSIN DEPARTMENT OF REVENUE 3

4 Wisconsin Housing Permits and Construction Jobs HOUSING The housing sector is starting to show signs of a mild recovery at the state and national levels. IHS Global Insight is forecasting double-digit growth rates for housing starts between 2012 and Their forecast also calls for a moderate recovery of house prices over the forecast period. Wisconsin building permits showed some improvement in the last year after hovering at the bottom for three years. Wisconsin permits declined 13. in 2011 to 10,130 units. Wisconsin Construction (Thousands, left) Wisconsin Housing Permits (Thousands, right) permits started to recover in the second half of 2011 and are expected to grow 9.2% in The recovery will gain speed in 2013 with permits increasing 20.6% to 13,350. Growth above 20% is expected for the following two years, bringing the level of housing permits to 20,420 by the end of 2015, about half its peak level in According to the Wisconsin Realtors Association (WRA), existing home sales also started to recover in the second half of In the first nine 8 months of 2012 existing home sales increased 18.8% from a year earlier, following a 0.3% increase in The recovery is also evident in the mild year over year increase of 1.5% in the median home price between March and September of 2012, when the median home price averaged $135,900. Wisconsin foreclosures in the first half of 2012 declined 9.1% from the previous year. Wisconsin had 23,552 properties with filings in the first six months of 2012, an increase of 6.5% from the previous six months. Nationwide, the first half of 2012 showed a 2% increase from the previous six months, standing 11% below the previous year. Foreclosure data shows that in the U.S., one in 126 housing units had at least one foreclosure filing in the first six months of the year. PERSONAL INCOME Income Revisions The U.S. Bureau of Economic Analysis (BEA) released revised state personal income data on September 25th. BEA released state quarterly personal income for the 2nd quarter of 2012 and revised state annual personal income for the period Wisconsin personal income was revised down each year for the period The first decline of personal income in 50 years was revised down to 3.0% in This Revisions to Wisconsin Personal Income Growth Personal Income Growth 6% 8% 2% % 2% % 0% -2% -2% % Revised Previous Wisconsin Great Lakes U.S. WISCONSIN DEPARTMENT OF REVENUE 4

5 Change from year ago 8% 6% 2% 0% -2% - compares to larger declines in the Great Lakes region (4.9%) and nationwide (4.8%) during BEA revisions show personal income grew 3.5% in 2010 and 4.5% in Wisconsin personal income recovery in 2010 was stronger than the Great Lakes region but weaker than the average nationwide growth. In 2011, the state posted slightly lower personal income growth (4.5%) than the Great Lakes region (5.0%) or the U.S. (5.1%). Downward revisions to personal income in 2009 and 2010 were driven by lower dividend income, while the other components show mild revisions. In 2011, personal income was lower than previously reported due to lower dividend and interest income and lower personal current transfer receipts. Income Outlook The outlook calls for Wisconsin personal income to grow 3.2% in 2012 and 3.7% in 2013, slightly below the growth of national personal income. Inflation was flat in 2009 and bounced between 1.5% and 2.8% during 2010 and Thus, when the impact of inflation is taken into account, real Personal Income Growth -6% Wisconsin U.S. personal income declined 3.0% in 2009 and increased 1.6% in 2010 and 2.0% in Inflation, as measured by the personal consumption expenditures price index, peaked in the third quarter of 2011 and has eased through mid The slow recovery will keep inflation low the following years, advancing 1.7% in 2012, 1.2% in 2013 and 1.5% in Accounting for inflation, Wisconsin real personal income will grow 1. in 2012 and 2.5% in 2013, compared to 1.9% and 2.9% increases nationwide, respectively. Personal Income Components Wages and salaries grew 3.7% in 2011 in Wisconsin and 4.0% nationwide. Adjusting for inflation, wages grew 1.3% in Wisconsin and 1.5% nationwide. Wages and salaries account for slightly more than half of total personal income. Wisconsin wages and salaries adjusted for inflation fell 7.9% from the peak in 2008Q1 to the trough in 2010Q1. Wage income should reach its previous peak by the end of Wage growth will remain moderate over the coming years, increasing in real terms 1.5% in 2012 and 2.8% in Supplements to wages and salaries 1 grew 3.7% in 2010 and 4.7% in The growth in supplements to wages and salaries should moderate in 2012 to 3.1%, but will resume stronger growth above 4.3% the following three years. Proprietors income posted strong growth in 2010 (20.8%) and 2011 (9.) after three consecutive years of declines. The forecast expects mild growth of proprietor s income in 2012 and Its outlook improves toward 2014, growing close to 5% in the last two years of the forecast period. Interest income posted two large drops in 2009 (-20.6%) and 2010 (-10.2%) as a result of the Federal Reserve s policy of easing interest rates. The level of personal interest income remained at $16 billion in 2011 and it is expected to stay close to that level for two more years. Personal interest income fell 30% from its peak of $23 billion in Toward 2014 its growth will pick up again, but in 2015 will still remain 13% below its previous peak. Dividend income dropped 29.5% in 2009, but has already nearly recovered, expanding 7.8% in 2010 and 16.7% in The forecast expects dividend income to grow 7.6% in 2012 and 6.8% in Rental income showed strong growth since 2008 as a result of the crisis in the housing sector. It has more than tripled in just four years, from $2.4 billion in 2007 to $7.5 billion in The forecast calls for two more years of strong growth, increasing 12.1% in 2012 and 8.6% in The last two years of the forecast period will see stable rental income. Personal current transfer receipts jumped 22. in 2009, as expected, given the magnitude of the past reces- 1 This component of personal income consists of employer contributions for employee pension and insurance funds and employer contributions for government social insurance. WISCONSIN DEPARTMENT OF REVENUE 5

6 6% 2% 0% -2% Wages recovering slowly Related Income Measures Wisconsin disposable personal income (total after-tax income received by persons available for spending or saving) fell 0.8% in 2009, despite the decline in personal taxes under the federal fiscal recovery package. Disposable income grew 3.8% in 2010 and 3.3% in Wisconsin disposable personal income should grow 2.8% in 2012 and 3.2% in 2013, while stronger personal income growth, along with modest tax growth, will yield growth rates of 4. and 4.5% for 2014 and 2015, respectively. - -6% Wages sion and the significant increase in unemployment. Unemployment insurance compensation payments grew 142% in 2009, following a surge in the unemployment rate from 4.9% in 2008 to 8.8% in Social security payments, Medicare and Medicaid account for three fourths of Wisconsin personal current transfers. Personal transfer receipts were Real Wages a drag to Wisconsin personal income in 2011, with a fall of 3.2% that contrasts with a national increase of 1.5%. Transfer receipts will show weak growth the next two years, advancing just 1.2% in 2012 and 3.9% in 2013, and will return to normal growth rates close to 5% toward State Gross Domestic Product (GDP) data is released on an annual basis. Wisconsin real GDP posted strong growth of 4.0% in 2010, well above the national increase of 2.. It returned to a modest growth rate of 1.1% in 2011, below the national growth rate of 1.8%. Real GDP should grow 1.7% in Wisconsin and 2.1% nationwide in Over the next two years, real Wisconsin GDP will grow 0.9% in 2013 and 2.1% in 2014, just below the respective 1.8% and 2.9% expected nationwide. This report was prepared by the Wisconsin Department of Revenue Division of Research & Policy Questions: doreconomists@revenue.wi.gov Wisconsin Department of Revenue 2135 Rimrock Road Madison, WI WISCONSIN DEPARTMENT OF REVENUE 6

7 BACKGROUND: U.S. ECONOMY IHS Global Insight, Inc (September 2012) GDP Real GDP ($ Billions, 2005 Dollars) 13, , , , , , , ,703.2 % Change GDP ($ Billions, Current Dollars) 14, , , , , , , ,791.4 % Change Employment and Prices Payroll Employment (Thousands) % Change Unemployment Rate Consumper Price Index (% Change) Employment Cost Index (% Change) Industrial Production (% Change) Retail Gasoline Prices (incl. Taxes, $/gallon) Financial Markets Three Month Treasury Bills (%) Year Fixed Mortgage Rate (%) Income and Profits Personal Income ($ Billions) 12, , , , , , , ,367.6 % Change Wages & Salaries ($ Billions) 6, , , , , , , ,849.1 % Change Corporate Profits, Before Tax ($ Billions) 1, , , , , , , ,911.6 % Change The economy continues on a modest growth track. There has been a continuing improvement in housing indicators and better news on consumer spending. But some of the drivers that were previously supporting growth, such as exports and business fixed investment, are showing signs of flagging in the face of global economic headwinds and domestic policy uncertainty. Key Assumption of IHS Global Insight s September 2012 Forecast: Discretionary Spending: Real nondefense federal government spending falls 1.1% in calendar 2012 and 2.5% in 2013, while real defense spending falls 3.2% in 2012 and 3.6% in Expiring Stimulus: The 2% payroll tax cut and emergency unemployment insurance benefits are extended for 2013, and then phased out over several years. The current 50% bonus depreciation incentive is not extended for Spending Cuts: The automatic spending cuts now scheduled to begin in January 2013 will be delayed. There will be a combination of cuts in Medicare, Medicaid, and Social Security, and increases in income taxes that begin in January The Bush tax cuts are extended for Food Prices: The US drought will cause consumer food price inflation of 3.0% in 2013, up from 2.8% in Oil Prices: Refiners acquisition cost for crude oil will average $100/barrel in the third quarter, and then to drop to $92/barrel in the fourth quarter and $89/barrel in Federal Reserve: Rates will remain near zero until mid Dollar to Gain: The euro will weaken to $1.10 by August There will be no overall appreciation of the Chinese renminbi in 2012 (year-end to year-end). Weaker Global Growth: GDP growth in the United States major-currency trading partners will weaken to 1.1% in 2012 and 1.1% in 2013, from 1.7% in GDP growth for other important trading partners is projected to slow to 4.1% in 2012 and 4. in 2013, from 5.2% in WISCONSIN DEPARTMENT OF REVENUE 7

8 APPENDIX 1 WISCONSIN CES EMPLOYMENT FORECAST: INDUSTRY DETAIL (THOUSANDS OF WORKERS) History Forecast Total Nonfarm 2, , , , , , , ,886.6 % Change Private Nonfarm 2, , , , , , , ,474.2 % Change Natural Resources & Mining % Change Construction % Change Manufacturing % Change Trade, Transportation & Utilities % Change Information % Change Financial Activities % Change Professional & Business Services % Change Education & Health Services % Change Leisure & Hospitality % Change Other Services % Change Government % Change Federal Government % Change State & Local Government % Change Household Survey Employment Measures Labor Force 3, , , , , , , ,140.2 % Change Employment 2, , , , , , , ,955.3 % Change Unemployment Rate (%) WISCONSIN DEPARTMENT OF REVENUE 8

9 APPENDIX 2 WISCONSIN CES EMPLOYMENT FORECAST: INDUSTRY DETAIL (THOUSANDS OF WORKERS) Quarterly Data (Seasonally Adjusted, % Change at an Annual Rate) History Forecast 2011:3 2011:4 2012:1 2012:2 2012:3 2012:4 2013:1 2013:2 Total Nonfarm 2, , , , , , , ,797.5 % Change Private Nonfarm 2, , , , , , , ,389.9 % Change Natural Resources & Mining % Change Construction % Change Manufacturing % Change Trade, Transportation & Utilities % Change Information % Change Financial Activities % Change Professional & Business Services % Change Education & Health Services % Change Leisure & Hospitality % Change Other Services % Change Government % Change Federal Government % Change State & Local Government % Change Household Survey Employment Measures Labor Force 3, , , , , , , ,107.1 % Change Employment 2, , , , , , , ,890.7 % Change Unemployment Rate (%) WISCONSIN DEPARTMENT OF REVENUE 9

10 APPENDIX 3 WISCONSIN INCOME SUMMARY PERSONAL INCOME BY MAJOR SOURCE ($ Billions) History Forecast Total Personal Income % Change Wages and Salaries % Change Supplements to Wages and Salaries % Change Proprietor's Income % Change Property Income % Change Personal Interest Income % Change Personal Dividend Income % Change Rental Income % Change Personal Current Transfer Receipts % Change Residence Adjustment % Change Contributions to Government Social Ins % Change Related Income Measures Real Personal Income (2005 $) % Change Real Per Capita Income (2005 $) % Change Per Capita Income % Change Personal Tax & Nontax Payments % Change Disposable Personal Income % Change WISCONSIN DEPARTMENT OF REVENUE 10

11 APPENDIX 4 WISCONSIN INCOME SUMMARY PERSONAL INCOME BY MAJOR SOURCE ($ Billions) Quarterly Data (Seasonally Adjusted, % Change at an Annual Rate) History Forecast 2011:3 2011:4 2012:1 2012:2 2012:3 2012:4 2013:1 2013:2 Total Personal Income % Change Wages and Salaries % Change Supplements to Wages and Salaries % Change Proprietor's Income % Change Property Income % Change Personal Current Transfer Receipts % Change Residence Adjustment % Change Contributions to Government Social Ins % Change Related Income Measures Real Personal Income (2005 $) % Change WISCONSIN DEPARTMENT OF REVENUE 11