The Great Recession and Tennessee’s Revenue Outlook Bill Fox and Matt Murray UT’s Center for...

The Great Recession and Tennessee’s Revenue Outlook

Bill Fox and Matt MurrayUT’s Center for Business and Economic Research

October 29, 2009

Fox and Murray, Center for Business and Economic Research, UT Knoxville 2October 2009

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


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


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.


Source: IHS Global Insight, Inc.

Real GDP: 2005 to 2012

11,500

12,000

12,500

13,000

13,500

14,000

14,500

05.1 06.1 07.1 08.1 09.1 10.1 11.1 12.1

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Real GDP

Growth

Le

vel,

bill

ion

s o

f ch

ain

ed

20

05

do

llars

Pe

rcen

tag

e ch

an

ge

, sam

e q

ua

rter la

st yea

r


U.S. Residential Fixed Investment and Nonresidential Fixed Investment in Equipment & Software and

Structures: 2005 to 2012

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1

Equip & SoftwareStructuresResidential

Pe

rce

nta

ge

ch

an

ge

, an

nu

al r

ate


Commercial real estatenow spiraling down


Housing Starts and Light Vehicle Sales:2005 to 2012

0.0

0.5

1.0

1.5

2.0

2.5

2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0Housing Starts

Light Vehicle Sales

Ho

usi

ng

Sta

rts

Lig

ht V

eh

icle S

ale

s


(millions, annual rate)


Starts are Picking Up, But Problems in the Housing Market Continue

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Mar-82 Mar-85 Mar-88 Mar-91 Mar-94 Mar-97 Mar-00 Mar-03 Mar-06 Mar-090.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

US Mortgage Delinquency Rate: % ( L ) US Mortgage Foreclosure Rate: % ( R )

mo

rtga

ge

fore

closu

re ra

te (p

erce

nt)m

ort

ga

ge

de

linq

ue

ncy

ra

te (

pe

rce

nt)


FHFA Housing Price Index: 2005 to 2012

-10.0

-5.0

0.0

5.0

10.0

15.0

2005.1 2006.1 2007.1 2008.1 2009.1 2010.1 2011.1 2012.1

Pe

rce

nta

ge

ch

an

ge

, sa

me

qtr

last

yr



Tennessee Building Permits:Jan-2005 to Aug-2009

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

TotalSingle-family

Num

ber

of u

nits

Source: U.S. Census Bureau, Building Permits Survey (as reported in the State of the Cities Data System [SOCDS] database).


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2005 2006 2007 2008 2009 2010 2011 2012

Per

cent

per

ann

um


Federal Funds Rate: 2005.1 to 2012.4

The Fed’s Exit Strategy?


Source: Bureau of Labor Statistics.

U.S. Payroll Employment: Jan-08 to Sept-09

-800.0

-700.0

-600.0

-500.0

-400.0

-300.0

-200.0

-100.0

0.0

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

M

on

thly

ch

an

ge

(th

ou

san

ds)

(seasonally adjusted)



U.S. Nonfarm Employment: 2005 to 2012

126

128

130

132

134

136

138

140

05.1 06.1 07.1 08.1 09.1 10.1 11.1 12.1

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Level

GrowthEm

plo

yme

nt (

mill

ion

s)

Pe

rcen

tag

e ch

an

ge

, sam

e q

ua

rter la

st yea

r



*not seasonally adjusted

→

State Private State & Local State Private State & Local

Michigan (9.39) (1.49) Washington (4.60) (0.52)Arizona (8.33) (4.18) Miss iss ippi (4.44) 2.99Nevada (7.30) (2.74) Hawai i (4.44) (2.05)Oregon (6.97) (0.76) Connecticut (4.26) (2.54)Idaho (6.47) (0.50) Oklahoma (4.16) 2.06Georgia (6.42) (3.32) West Vi rginia (4.01) (0.50)North Carol ina (6.28) 0.36 Texas (3.87) 3.02Indiana (6.09) (2.57) Iowa (3.85) 0.24Alabama (5.99) (0.96) Virginia (3.85) (0.32)I l l inois (5.88) (0.40) Rhode Is land (3.80) (5.04)Cal i fornia (5.79) (0.85) Pennsylvania (3.72) 0.19Colorado (5.73) 1.45 Maine (3.68) (2.20)Ohio (5.63) (1.43) Missouri (3.66) 0.65Florida (5.51) (0.74) Massachusetts (3.34) (2.26)Utah (5.46) 1.09 New Jersey (3.22) (1.29)Kentucky (5.43) (1.84) New Hampshire (3.16) 1.58Tennessee (5.41) 2.02 Arkansas (3.12) 3.03Delaware (5.21) (5.38) Maryland (3.04) (1.14)Wyoming (5.11) 1.78 New York (2.83) 3.17Minnesota (5.06) 0.23 Nebraska (2.76) 4.45New Mexico (4.88) 0.38 South Dakota (2.25) 1.13Wiscons in (4.82) 2.42 Louis iana (2.25) 0.99South Carol ina (4.75) (1.60) Montana (2.13) 5.21Vermont (4.72) 2.09 Alaska (0.68) 1.62Kansas (4.68) 1.62 North Dakota (0.34) 2.62

Change in U.S. Employment*August 2008 vs. August 2009



TN Nonfarm Employment: Jan-08 to Aug-09

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09

M

on

thly

ch

an

ge

(th

ou

san

ds)



2550.0

2600.0

2650.0

2700.0

2750.0

2800.0

2850.0

2006.1 2007.1 2008.1 2009.1 2010.1 2011.1

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

LevelGrowth

Em

ploy

men

t (t

hous

ands

)

Percentage change, sam

e quarter last year

Source: Bureau of Labor Statistics and CBER-UT.


Tennessee Nonfarm Employment:2006 to 2011


Tennessee Monthly Total Nonfarm Employment Indexed to Beginning of Recession

86.0

88.0

90.0

92.0

94.0

96.0

98.0

100.0

102.0

104.0

106.0

108.0

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

1973 Nov1980 Jan1990 Jul2001 Mar2007 DecForecast

Ind

ex,

mo

nth

#1

= 1

00

.0

Number of months from recession start month

Note: Employment data are seasonally adjusted.

Source: Calculated by CBER using data from the Bureau of Labor Statistics.


Tennessee Monthly SA Unemployment Rate Indexed to Beginning of Recession

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

1980 Jan1990 Jul2001 Mar2007 DecForecast

Diff

ere

nce

fro

m in

itia

l ra

te (

po

ints

)


Note: Unemployment rate data are seasonally adjusted.

Source: Calculated by CBER using data from the Bureau of Labor Statistics.


TN Initial Unemployment Insurance Claims and Benefits Paid: Jan-07 to Sept-09

-50.0

0.0

50.0

100.0

150.0

200.0

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09

ClaimsBenefits

Per

cent

age

chan

ge,

sam

e m

onth

last

yea

r

Source: U.S. Department of Labor.

September’s drop in the unemployment ratemay save the UI trust fund


Less than 10.0%10.0% to 12.9%

Note: County data are not seasonally adjusted.


13.0% to 15.9%16.0% or higher

Unemployment Rate, August 2009

Tennessee 10.7%United States 9.6%*

September rates: TN 10.3% US 9.5%

21

Growth in Total Tax Revenue Collections, FY2008-200911/12/2009

21

Greater than -5.7% --18--

-10.0% to -5.7% --18--

Less than -10.0% --14--

U.S. = -8.2 %


TN Tax Collections, Total and Sales & Use:Jan-07 to Sept-09

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09

TotalSales & Use

Per

cent

age

chan

ge,

sam

e m

onth

last

yea

r

Source: Tennessee Department of Revenue, Revenue Collections, monthly.

Stimulus package will helpsustain spending thru FY 11/12


Tennessee Monthly Sales & Use Tax Revenue Indexed to Beginning of Recession

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36

1973 Nov1980 Jan1990 Jul2001 Mar2007 Dec

Ind

ex,

mo

nth

#1

= 1

00

.0


Source: Calculated by CBER using data from the Tennessee Department of Revenue.


TN Long-Term Revenue Forecast(millions of dollars)

Tax 2007 2008 2009 2010 2011 2012Sales and Use 6,815.4 6,851.2 6,331.3 6,352.0 6,733.1 7,103.4Gasoline 612.3 617.1 601.3 595.0 601.0 607.0Motor Fuel 185.9 182.9 154.8 161.6 169.7 176.5Gasoline Inspection 65.3 65.2 61.6 61.5 62.8 64.4Motor Vehicle Registration 257.4 251.3 241.3 251.3 261.4 267.4Income 247.6 292.0 221.2 168.0 201.6 231.8Privilege 313.8 279.0 255.6 244.8 274.2 301.6Gross Receipts 277.6 291.0 315.1 310.7 322.6 335.0Gross Receipts - TVA 250.2 271.2 289.7 301.3 313.3Gross Receipts - Other 27.4 19.8 21.0 21.3 21.7Beer 18.0 17.9 18.2 18.7 19.0 19.3Alcoholic Beverage 41.0 42.6 45.0 46.6 48.5 50.4Franchise & Excise 1,766.1 1,619.5 1,368.7 1,259.3 1,410.4 1,551.5Inheritance & Estate 112.4 112.8 82.8 90.0 93.5 97.8Tobacco 138.0 286.0 299.2 300.0 301.5 303.0Motor Vehicle Title 11.1 11.4 10.0 11.3 11.6 12.0Mixed Drink 53.7 54.9 54.0 55.0 56.7 58.9Business 133.8 138.2 135.8 131.2 137.5 145.4Severance 1.5 2.6 2.3 2.0 2.0 1.9Coin Amusement 0.3 0.3 0.4 0.3 0.2 0.2Unauthorized Substance 1.7 1.1 1.9 1.9 1.9

Total 11,052.7 11,117.6 10,199.7 10,059.3 10,709.0 11,329.3

Long-Term Forecast, Revenue Collections (Millions of Dollars)EstimateActual

+$211.7 m


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!


Center for Business & Economic Research

College of Business AdministrationThe University of Tennessee, Knoxville

716 Stokely Management Center916 Volunteer Boulevard

Knoxville, Tennessee 37996-0570

phone: 865.974.5441fax: 865.974.3100

http://cber.bus.utk.edu

The Great Recession and Tennessee’s Revenue Outlook Bill Fox and Matt Murray UT’s Center for...

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