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What’s Up with the Economy?. Fenway CDC Annual Meeting Barry Bluestone Dean, School of Social Science, Urban Affairs, and Public Policy Northeastern University May 11, 2009. A Snapshot of the U.S. Economy. An National Economic Recession with Few Parallels. - PowerPoint PPT Presentation
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What’s Up with the Economy?
Fenway CDC Annual Meeting
Barry BluestoneDean, School of Social Science, Urban Affairs, and Public PolicyNortheastern University
May 11, 2009
A Snapshot of the U.S. Economy
An National Economic Recession with Few Parallels
Already longer than any since 1929 and not over yet December 2007 – April 2009 (17 months)
As deep as the most pessimistic forecast made earlier this year
GDP contraction the steepest in 50 years
With unemployment that may reach 10 percent
Length of U.S. Recessions (1900 – Present)
Average Length of Recessionssince Great Depression:
10 Months
?
Source: NBER
This one is 17 months old andcould last 24 months or more
3.6%3.1% 2.9%
2.2%
0.0%
-6.3% -6.1%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
2004 2005 2006 2007 2008:I 2008:IV 2009:I
Real GDP Growth Rate 2004-2009
Source: CEA
Worst quarterly losses in 50 years
5,692,000
7,001,000 7,078,000
10,080,000
13,700,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
11,000,000
12,000,000
13,000,000
14,000,000
15,000,000
2000 2006 2007 2008: 2009:April
U.S Unemployment (2000-2009: March)
Source: CEA
Nearly 14 million Americans out of work
8
Updated January 6, 2009
9
Actual2008:IV -6.3%
Updated January 6, 2009
Actual2009 -6.1%
10
Updated January 6, 2009
11
ActualApril 2009: 8.9%
Updated January 6, 2009
Debt Driven Recession
Continued stagnation in income Rise in foreclosures
Initially due to Subprime Mortgages and declining home values
Now due to rising unemployment and falling income
Impending increase in credit card & auto loan defaults
Continued falling home prices
$50,782
$52,173
$53,349
$54,127
$55,823
$57,734
$59,088$59,398
$58,545$57,920 $57,751 $57,705
$58,036$58,407
$57,648
$46,000
$48,000
$50,000
$52,000
$54,000
$56,000
$58,000
$60,000
$62,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real Median Family Income ($2006)
Source: CPS
Stagnating Income since 2000
Consumer Credit Outstanding (1959-2007) (in $millions)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
$2.5 Trillion
Source: CEA
Massive Increase in Consumer Indebtedness
Mortgage Debt - All Properties (1949-2006) ($billions)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
19
49
.
19
51
.
19
53
.
19
55
.
19
57
.
19
59
.
19
61
.
19
63
.
19
65
.
19
67
.
19
69
.
19
71
.
19
73
.
19
75
.
19
77
.
19
79
.
19
81
.
19
83
.
19
85
.
19
87
.
19
89
.
19
91
.
19
93
.
19
95
.
19
97
.
19
99
.
20
01
.
20
03
.
20
05
.
$13.5 Trillion
Source: CEA
Massive Increase in Mortgage Debt
Challenges Facing Massachusetts
Economic TrendsDemographic TrendsCost of Living/Cost of HousingStructural Deficits
Massachusetts Economic Trends
Massachusetts real gross domestic product has already declined more than in the prior recession.
-10.0
-5.0
0.0
5.0
10.0
15.0
Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Growth in Current Economic Index, Massachusetts
Recessions: March 1980 - April 1980 (1 month)July1981 - December 1981 (5 months)January 1989 - August 1991 (31 months) (-9.5%)February 2001 - February 2003 (24 months) (-2.5%)April 2008 - present (11 months) (-2.8%)
Initial unemployment claims are higher than in the ‘89-91 recession.
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
Wee
kly
Leve
l, Lo
cal T
ren
d
Massachusetts Weekly Initial Unemployment Claims
Source: Employment and Training Administration, U.S. Department of Labor; UMass Boston
1989-1991
2007-2009
More severe than the last recession, but not as bad as the 89-91 recession.
-10
-8
-6
-4
-2
0
2
4
6
8
10
80 85 90 95 00 05 10
Qu
art
erl
y G
row
th a
t An
nu
al R
ate
s
Employment Growth, Massachusetts vs US
MA US
Source: NEEP, Moody's Economy.com
The pace of decline in Massachusetts may be slowing.
3.6 3.4 3.53.8 3.7 3.6
3.43.0
2.3
0.6
-1.4
-4.4 -4.2
-3.1 -2.8
4.8
2.7
0.8
1.5
0.0
4.8 4.8
-0.2
0.9
2.8
-0.5
-6.3 -6.1
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2006 2007 2008 2009
Qu
art
erl
y G
row
th a
t A
nn
ua
l Ra
tes
Growth in Real Product, Massachusetts Current Economic Index vs. U.S. GDP
MA US
Source: U.S., Bureau of Economic Analysis; Massachusetts, Massachusetts Benchmarks
Projected
Mass Tax Revenues: Another severe revenue crisis
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
Jan-
69
Jan-
70
Jan-
71
Jan-
72
Jan-
73
Jan-
74
Jan-
75
Jan-
76
Jan-
77
Jan-
78
Jan-
79
Jan-
80
Jan-
81
Jan-
82
Jan-
83
Jan-
84
Jan-
85
Jan-
86
Jan-
87
Jan-
88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Pe
rce
nt
Massachusetts Total Revenues for Budget
Growth from Same Month Prior Year
local trend
local level
The capital gains nightmare was not just a dream.103
161
223 359
692
295
268
199
168
184
221
291
290 410 544
769
900
914
1,1
64
337
459
786
1,1
47
1,5
13
1,6
54
2,0
80
1,0
91
873
-
5
10
15
20
25
30
35
40
45
-
500
1,000
1,500
2,000
2,500
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007 E
st
2008 …
2009 …
MA
Cap
ital G
ain
s R
ealiz
atio
ns (
$ b
illio
ns)
MA
Cap
ital G
ain
s T
axes (
$ m
illio
ns)
Capital Gains Taxes, Tax Years 1982 to 2009
MA Tax Year Capital Gains Taxes
MA Tax Year Capital Gains Realizations
Long-term capital gains tax rate 0-5%, raisedto 5.3% ef fective 5/02
Federal capital gains tax increaseenacted 11/86 but ef fective 1/87 spurred
sale of capital assets at end ofcalendar 1986
Source: DOR
• Between 2000 and 2007, the population of Massachusetts increased by less than 87,000 (1.4%) – the second slowest increase in New England (after Rhode Island) … and 1/5 the rate in the U.S.
• Since 2000, Massachusetts has suffered a net domestic out-migration of over 305,000 residents.
• This outflow of people has been softened only somewhat by the arrival of about 206,000 foreign immigrants.
Population Trends
Massachusetts Population
5737.0
6016.4
6363.2 6407.6 6431.8 6438.5 6433.7 6429.1 6434.4 6449.8
5000.0
5200.0
5400.0
5600.0
5800.0
6000.0
6200.0
6400.0
6600.0
1980 1990 2000 2001 2002 2003 2004 2005 2006 2007
Popu
latio
n (in
thou
sand
s)
U.S. Bureau of the Census
Population Trends in New England
Population Growth, 2000-2007
1.36%
0.67%
1.86%
2.65%3.13%
6.08%
6.88%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
MA RI VT CT ME NH US
33,292 33,347 31,785 29,041 26,51530,285
27,014
-22,892
-39,506
-48,514
-61,980 -60,053
-49,528
-35,121
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Foreign Migration Internal Migration
Immigration & Net Domestic Migration
Massachusetts Domestic Net-Migration and Foreign Immigration
-15
-10
-5
0
5
10
15
20
25
30
35
Under 5 5-19 20-24 25-34 35-54 55-64 65+
Massachusetts US
Percent Change in Population by Age Cohort, Massachusetts v. U.S., 2000-2006
Who’s Leaving Massachusetts?
Projected Percent Change in Households by Age Cohort, 2006-2017
The Future Demographics of Massachusetts
Change in Number of Households by Age Cohort: 2006-2017 Massachusetts
40
37,681
-82,548
111,437118,566
14,614
-6,326
-100,000
-50,000
0
50,000
100,000
150,000
18-24 25-34 35-44 45-54 55-64 65-74 75+
Source: U.S. Census Demographic Projections
Of a net increase of 193,500 households, 244,600 are projected to be age 55 +
Cost of Living/Cost of Housing
Greater Boston most expensive metro area in the country
High cost of living is adversely affecting population growth
We are losing the 3rd U.S. Civil War … the battle between states and regions for young people
Boston
Monthly Housing $1,266Monthly Food $ 587Monthly Child Care $1,298Monthly Transportation $ 321Monthly Health Care $ 592Monthly Other Necessity $ 500Monthly Taxes $ 824Monthly Total $5,388
Annual Total $64,656
Raleigh-Durham-Chapel Hill
Monthly Housing $ 779
Monthly Food $ 587Monthly Child Care $ 866Monthly Transportation $ 358Monthly Health Care $ 368Monthly Other Necessity $
369Monthly Taxes $
350Monthly Total $3,677
Annual Total $44,124
A Tale of Two Cities:The Cost of Living Challenge
Source: Economic Policy Institute, “Family Budget Calculator, 2005”
Boston vs. Raleigh
Net Domestic Migration (2000-2006)
Employment Growth(2000-2006)
Boston - 6.0 % -2.0 %
Raleigh +17.8 % +11.9 %
Housing Costs – Top 10 MSAs
1. Honolulu, HI2. San Francisco-Oakland-Fremont, CA3. Santa Cruz-Watsonville, CA4. Oxnard-Thousand Oaks-Ventura, CA5. San Diego-Carlsbad-San Marcos, CA6. Boston-Cambridge-Quincy, MA-NH7. Santa Barbara-Santa Maria-Goleta, CA8. Washington-Arlington-Alexandria, DC-VA-MD-WV9. New York-Northern New Jersey-Long Island, NY-NJ-
PA10. Los Angeles-Long Beach-Santa Ana, CA
Net Domestic Migration Rates (2000-2006) by Housing Cost Decile
-0.21%
0.48%
2.95%
2.01%
3.56%
4.94% 5.07%
5.66%
-1.99%
0.38%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
1st Decile 2nd Decile 3rd Decile 4th Decile 5th Decile 6th Decile 7th Decile 8th Decile 9th Decile 10th Decile
Massachusetts State & Local Government in Trouble
Facing a continuing budget crisis
Current deficits are only the tip of the iceberg in the Commonwealth
The cost of state government services is spiraling out of control
Given the rising cost of debt service, public employee pensions, and Medicaid, the Commonwealth is facing a massive long-term “Structural Deficit” that will destroy public services
Price Increases: Total Economy vs. Cost of State and Local Services
2000-2008:I
21.3%
26.8%
40.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Total Economy Private Services State & Local Services
Price of State & Local Services risingtwice as fast as overall prices
A deepening structural deficit in Massachusetts
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2,200,000
2,400,000
Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08
Th
ou
san
ds
of D
olla
rs p
er
Mo
nth
Total DOR Taxes, Seasonally Adjusted and Smoothed, vs. Trend
Trend Total Taxes for Budget
Source: DOR, author's calculations
Debt Service, Public Pensions, & Medicaid Payments as % of Massachusetts State Budget (2001-2027)
32.8% 33.5% 35.6% 37.1% 38.8% 40.1% 40.9%45.0% 46.0%
64.4%
90.1%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2018 2027
Debt Service, Public Pensions, and Medicaidwill devour most of the Mass State Budget
How Do We Solve the Structural Deficit?
Reform inefficient government bureaucracies and government programs Transportation
Public sector union reforms Work rules and job classifications Pension & medical insurance reform
Raise more tax revenue Sales tax, gasoline tax, income tax
Regionalize public services
A New Grand Bargain Reductions in Work Rules and Job
Classifications Public Sector Pension Reform Universal buy-in on Group Health
Insurance Advocate for School Reform Wage Freeze during times of grave
economic crisis Keep public services public