The Long Road to Recovery

Matthew N. Murray, Ph.D.

July 1, 2009

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 2

Deep Recession-Years to Regain Lost Ground

-Recession will be the longest since the Great Depression

-Mixed signals now emerging, indication of a possible bottom to current cycle

-Recession might be deemed over in 3rd or 4th quarter

-Very strong growth rates may then take place because economic activity is at such depressed levels

-But levels of economic activity will not be restored for several years—jobs, home starts, car sales, tax revenue

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 3

Source: IHS Global Insight, Inc.

Real GDP: 2005 to 2012

10,000

10,500

11,000

11,500

12,000

12,500

13,000

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

Leve

l, bill

ions

of c

hain

ed 2

000 d

olla

rs

Perce

nta

ge ch

ange, sa

me q

uarte

r last ye

ar

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 4

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

Perc

enta

ge c

hange, a

nnual r

ate

Source: IHS Global Insight, Inc.

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 5

Housing Starts and Light Vehicle Sales:2005 to 20012

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 StartsLight Vehicle Sales

Housi

ng S

tarts

Lig

ht V

ehicle

Sale

s

Source: IHS Global Insight, Inc.

(millions, annual rate)

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 6

Tennessee Building Permits:Jan-2005 to May-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).

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 7

FHFA Housing Price Index: 2005 to 2012

-15.0

-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

Perc

ent c

hange, s

am

e q

tr la

st y

r

Source: IHS Global Insight, Inc.

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 8

$561 Billion Stimulus Injection2009–2010

Corporate tax cuts15.7%

Personal sector tax cuts

25.6%

Infrastructure & other spending

14.7%

Targeted transfer payments to

personal sector17.4%

Transfers to states26.7%

►2009 0.8 percentage pts

►2010 1.3 percentage pts

Boost to GDP

Source: IHS Global Insight, Inc.

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 9

Source: Bureau of Labor Statistics.

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

-800.0

-700.0

-600.0

-500.0

-400.0

-300.0

-200.0

-100.0

0.0

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

M

onth

ly c

hange (th

ousa

nds)

(seasonally adjusted)

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 10

Source: IHS Global Insight, Inc.

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

yment (

mill

ions)

Perce

nta

ge ch

ange, sa

me q

uarte

r last ye

ar

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 11

Source: Bureau of Labor Statistics.

TN Nonfarm Employment: Jan-08 to May-09

-20.0

-15.0

-10.0

-5.0

0.0

5.0

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

M

onth

ly c

hange (th

ousa

nds)

(seasonally adjusted)

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 12

2500.0

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

-6.0

-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; IHS Global Insight, Inc.; and CBER-UT.

(seasonally adjusted)

Tennessee Nonfarm Employment:2006 to 2011

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 13

Less than 9.0%9.0% to 11.9%

Note: County data are not seasonally adjusted.

Source: Tennessee Department of Labor and Workforce Development.

12.0% to 14.9%15.0% to 17.9%

Unemployment Rate, May 2009

18.0% to 20.9%21.0% or higher

Tennessee 10.7%United States 9.4%

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 14

TN Initial Unemployment Insurance Claims and Benefits Paid: Jan-07 to Apr-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, sa

me

mon

th la

st y

ear

Source: U.S. Department of Labor.

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 15

Year-Over-Year Change in Real Major Taxes:2004.1 to 2008.4

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2004.1 2005.1 2006.1 2007.1 2008.1

Personal Income

General Sales

Property

4-q

tr a

vg o

f % c

hg

in r

ea

l ta

x re

ven

ue

Source: U.S. Census and Bureau of Economic Analysis.

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 16

TN Tax Collections, Total and Sales & Use:Jan-07 to Apr-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, sa

me

mon

th la

st y

ear

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

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 17

TN Realty Transfer & Mortgage Tax Collections: Jan-05 to May-09

-50.0

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

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

Perc

enta

ge c

hange, s

am

e m

onth

last

year

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

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 18

TN Long-Term Forecast, Revenue Collections(millions of dollars)

Tax 2007 2008 2009 2010 2011 2012Sales and Use 6,815.4 6,851.2 6,380.0 6,352.0 6,733.1 7,103.4Gasoline 612.3 617.1 592.0 595.0 601.0 607.0Motor Fuel 185.9 182.9 164.6 161.6 169.7 176.5Gasoline Inspection 65.3 65.2 60.6 61.5 62.8 64.4Motor Vehicle Registration 257.4 251.3 248.8 251.3 261.4 267.4Income 247.6 292.0 207.3 168.0 201.6 231.8Privilege 313.8 279.0 240.0 244.8 274.2 301.6Gross Receipts 277.6 291.0 305.0 310.7 322.6 335.0Gross Receipts - TVA 250.2 271.2 284.0 289.7 301.3 313.3Gross Receipts - Other 27.4 19.8 21.0 21.0 21.3 21.7Beer 18.0 17.9 18.0 18.7 19.0 19.3Alcoholic Beverage 41.0 42.6 44.8 46.6 48.5 50.4Franchise & Excise 1,766.1 1,619.5 1,305.0 1,259.3 1,410.4 1,551.5Inheritance & Estate 112.4 112.8 95.0 90.0 93.5 97.8Tobacco 138.0 286.0 290.0 300.0 301.5 303.0Motor Vehicle Title 11.1 11.4 10.9 11.3 11.6 12.0Mixed Drink 53.7 54.9 54.9 55.0 56.7 58.9Business 133.8 138.2 131.2 131.2 137.5 145.4Severance 1.5 2.6 2.0 2.0 2.0 1.9Coin Amusement 0.3 0.3 0.3 0.3 0.2 0.2Unauthorized Substance 1.7 1.9 1.9 1.9 1.9Total 11,052.7 11,117.6 10,150.5 10,059.3 10,709.0 11,329.3

Actual Estimate

Source:

William F. FoxCBER-UTMay 11, 2009

July 2009 Matthew N. Murray, Center for Business and Economic Research, The University of Tennessee, Knoxville 19

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