Washington State Economic Outlook & Revenue Collection ...
Transcript of Washington State Economic Outlook & Revenue Collection ...
WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington State Economic Outlook & Revenue Collection Experience
Presented to
Governor’s Distinguished Mangers Association
Steve Lerch Executive Director
October 25, 2013
Tumwater, Washington
Economic Outlook October 25, 2013
Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Summary
• The U.S. and Washington economies continue to grow, although at a slow pace
• Construction activity has been a big contributor to Washington employment growth; employment is rising in most Washington industries except aerospace and government
• Risks to the forecast are generally from factors outside the state, including a weaker Chinese economy, uncertain federal fiscal policy and possible disruptions to the housing recovery
• State revenue collections have returned to pre-recession levels
Economic Outlook October 25, 2013
Slide 2 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Three major risks to the forecast
China • Hard Landing • Reduced
Exports
Fiscal Policy
• Debt Ceiling • Budget
Housing • Affordability • Household
formation
Baseline Forecast
Economic Outlook October 25, 2013
Slide 3 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Excluding aerospace, exports outside of China are weak
0
2
4
6
8
10
12
14
16
Total ex Trans Equip Total ex Trans Equip
China All Other
Per
cen
t Washington Exports
(4 Quarter Moving Average Annual % Change)
Source: Wiser Trade Data; data through 2013 Q2
Economic Outlook October 25, 2013
Slide 4 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Slowing government expenditures a drag on GDP growth
-2
-1
0
1
2
3
4
5
2011 2012 2013
Per
cen
tag
e P
oin
ts
Contributions to Percent Change in Real GDP
Personal Consumption Private Investment Net Exports Govt Exp & Investment
Source: BEA; data through 2013 Q2
Economic Outlook October 25, 2013
Slide 5 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Consumer confidence is beginning to strengthen…
0
25
50
75
100
125
150
1980 1985 1990 1995 2000 2005 2010
Index Mich: 1966Q1 = 100, SA Conf Board: 1985 =100, SA
U Mich Conf Board
Source: University of Michigan; Conference Board, data through October 2013
Economic Outlook October 25, 2013
Slide 6 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
…but housing affordability is plummeting.
50
75
100
125
150
175
200
225
1994 1997 2000 2003 2006 2009 2012
Ind
ex
Housing Affordability Index, SA
U.S. Washington
Source: Global Insight, WA Center Real Estate Research, ERFC; data through 2013Q3
Economic Outlook October 25, 2013
Slide 7 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Many adults continue to live at home with their parents
10
11
12
13
14
1983 1987 1991 1995 1999 2003 2007 2011
Per
cen
t U.S. Residents Ages 25-34 Living with Parents
Source: U.S. Census; data through 2012
Economic Outlook October 25, 2013
Slide 8 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Euro area GDP has returned to positive growth but risks remain
-6
-4
-2
0
2
4
6
8
10
2010 2011 2012 2013
Per
cen
t C
han
ge
SA
AR
Quarterly GDP Growth
Italy Germany Euro area
Source: Eurostat; data through 2013Q2
Eurozone Forecast: 2013: -0.6% 2014: 0.8%
Economic Outlook October 25, 2013
Slide 9 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
U.S. employment returns to pre-recession levels in 2014
125
130
135
140
145
150
2000 2002 2004 2006 2008 2010 2012 2014 2016
Mill
ion
s
U.S. Total Nonfarm Employment
Actuals September forecast
Source: BEA, ERFC; historical data through 2012
Economic Outlook October 25, 2013
Slide 10 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Part time jobs have grown faster than full time jobs since 2000
0.8
0.9
1.0
1.1
1.2
1.3
2000 2002 2004 2006 2008 2010 2012
Ind
ex,
20
00
=1
.0
Part time Full time
2000: PT = 23.0 M FT =113.8 M 2012: PT = 27.7 M FT = 114.8 M
Source: U.S. Bureau of Labor Statistics, ERFC; annual data through 2012
Economic Outlook October 25, 2013
Slide 11 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Oil prices are expected to decline over the next several years
25
50
75
100
125
2005 2007 2009 2011 2013 2015 2017
Dol
lars
per
bar
rel
Average Price of Crude Oil
Forecast
Source: DOE, ERFC September 2013 forecast; historical data through 2013Q1
Economic Outlook October 25, 2013
Slide 12 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington personal income is growing
100
150
200
250
300
350
400
450
2000 2002 2004 2006 2008 2010 2012 2014 2016
Bill
ion
s of
Dol
lars
Washington Personal Income
Actuals September forecast
Source: ERFC September 2013 forecast; historical data through 2012
Economic Outlook October 25, 2013
Slide 13 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington Housing Permits Forecast: still increasing but lower than June
10
15
20
25
30
35
40
45
50
2012 2013 2014 2015 2016 2017
Thou
san
ds
Washington Housing Permits
June September
Source: U.S. Census, ERFC September 2013 forecast; historical data through 2012
Economic Outlook October 25, 2013
Slide 14 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Like the U.S., Washington employment will return to pre-recession levels in 2014…
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
3,200
2000 2002 2004 2006 2008 2010 2012 2014 2016
Thou
san
ds
Washington Nonfarm Payroll Employment
Actuals September forecast
Source: ERFC September 2013 forecast; historical data through 2012
Economic Outlook October 25, 2013
Slide 15 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
But Washington employment is growing slightly faster than the U.S.
0.94
0.96
0.98
1.00
1.02
1.04
1.06
1.08
1.10
2005 2007 2009 2011 2013 2015 2017
Ind
ex,
20
13
Q2
= 1
.0
Nonfarm Payroll Employment
Washington U.S.
Forecast
Date of regaining peak:
WA: 2014Q3
U.S.: 2014Q3
Source: ERFC September 2013 forecast; historical data through 2013Q2
Economic Outlook October 25, 2013
Slide 16 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
WA personal income will recover slightly faster than the U.S.
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
2005 2007 2009 2011 2013 2015 2017
Ind
ex,
20
13
Q2
= 1
.0
Real Personal Income
Washington U.S.
Forecast
Source: ERFC September 2013 forecast; historical data through 2013Q2
Economic Outlook October 25, 2013
Slide 17 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Aerospace employment is declining
80
85
90
95
100
2012 2013 2014 2015 2016 2017
Thou
san
ds
Washington Aerospace Employment
June September
Source: ERFC September 2013 forecast; historical data through 2012
Economic Outlook October 25, 2013
Slide 18 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Boeing has over 7 years of commercial orders on its books
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1250
2500
3750
5000
0
400
800
1200
1600
03 04 05 06 07 08 09 10 11 12 13
Bac
klog
Ord
ers
& D
eliv
erie
s
Net Orders Deliveries Backlog
YTD
Source: Boeing, data through October 2013
Excludes the military’s new refueling tanker
Economic Outlook October 25, 2013
Slide 19 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington construction employment is recovering
100
125
150
175
200
225
1990 1995 2000 2005 2010 2015
Thou
san
ds
Washington Construction Employment
Trend, 1990-2012 Employment
Forecast
Source: ERFC September 2013 forecast; historical data through 2013Q2
Economic Outlook October 25, 2013
Slide 20 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Single-family home prices continue to increase
-25
-20
-15
-10
-5
0
5
10
15
20
25
2001 2003 2005 2007 2009 2011 2013
Per
cen
t Case Shiller Home Price Index, SA
Year–over-year percent Change
Seattle Composite 20
Jul 2013
U.S. is up 12.3%
Seattle is up 12.4%
Source: S&P/Case-Shiller; data through July 2013
Economic Outlook October 25, 2013
Slide 21 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Washington building permits are improving
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5
10
15
20
25
30
35
40
45
50
1970 1975 1980 1985 1990 1995 2000 2005 2010
Thou
san
ds
Washington Housing Units Authorized by Building Permits, 3MMA, SAAR
Multiple Single
Source: U.S. Census Bureau; data through August 2013
Economic Outlook October 25, 2013
Slide 22 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Contract data indicates a possible increase in activity
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1
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3
4
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6
7
8
0
10
20
30
40
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60
70
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2000 2002 2004 2006 2008 2010 2012
Bill
ion
s
Nonresidential Construction Contracts, SAAR, 3MMA
Sq. Feet Value
Mill
ion
s
Source: Dodge, ERFC; data through September 2013
Non-Residential square footage is up 69%, and value is up 36% year over year (3mma).
Economic Outlook October 25, 2013
Slide 23 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Revenue collections have recovered slowly after the last recession
-15 -10
-5 0 5
10 15 20 25 30 35
0 2 4 6 8 10 12 14 16 18 20 22
Cu
mu
lati
ve G
row
th (
per
cen
t)
Quarters
Revenue Act Collections after Business Cycle Peak
1990 2001 2007-09
Source: ERFC; data through 2013 Q2
Revenue Act collections have now exceeded their previous peak reached in Q1 2008
Economic Outlook October 25, 2013
Slide 24 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Rev Act collections still above pre-recession peak despite surtax sunset
Source: DOR and ERFC; monthly data through estimated August 2013 activity
* Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act
600
700
800
900
1,000
1,100
2002 2004 2006 2008 2010 2012
$millions SA
Revenue Act Revenue 3-Month Moving Average
Seasonally adjusted collections decreased slightly in the September 11th - October 10th collection period (August taxable activity) Collections in the previous period managed to increase even though the B&O surtax expired on July 1st The surtax brought in $20-$26 million per month
Economic Outlook October 25, 2013
Slide 25 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Revenue from liquor sales has been volatile since privatization
14
16
18
20
22
24
26
2007 2008 2009 2010 2011 2012 2013
Liquor Sales and Liter Taxes, SA
Actual Forecast Pre-Privitization Trend
Mill
ion
s of
dol
lars
Source: DOR, ERFC; data through September 2013
Economic Outlook October 25, 2013
Slide 26 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Underlying REET trend still positive after spike in commercial sales
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1
2
3
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6
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9
10
1996 1998 2000 2002 2004 2006 2008 2010 2012
$Billions
Seasonally Adjusted Taxable Real Estate Excise Activity
Source: ERFC; Monthly data through September 2013 preliminary
Large sales of commercial property were still elevated in September, with $222 million in sales of property worth $10 million or more There has already been a $475 million sale in October, which will generate $5.6 million in GF-S REET
Economic Outlook October 25, 2013
Slide 27 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
10
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20
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
$billions
Forecast
8.0% 1.2%
General Fund-State* forecast by fiscal year
(9.6%) (4.1 %)
7.9%
*General Fund-State & Related Funds for FY 07-09, General Fund-State new definition for FY 10-17 Source: ERFC forecast, September 2013
1.5% 6.2%
General Fund-State Revenue
2.4% 4.1%
3.9% 4.1%
Economic Outlook October 25, 2013
Slide 28 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Revenue collections to date
Estimate Actual Difference Pct.
Dept. of Revenue $1,096,129 $1,129,529 $33,400 3.0%
All other agencies $8,486 $7,394 ($1,092) -12.9%
Total GF-S $1,104,615 $1,136,923 $32,308 2.9%
Excl. Special Factors* $1,104,615 $1,114,423 $9,808 0.9%
Cumulative Variance Since September Forecast (September 11 – October 10, 2013)
dollars in thousands
*$22.5 million refund included in forecast but yet to occur
Economic Outlook October 25, 2013
Slide 29 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Conclusion
• We expect the slow pace of economic recovery to continue in both the U.S. and Washington economies
• Washington is still likely to outperform the nation, but by a small margin
• Washington construction activity has been strong but rising mortgage rates could slow the housing recovery
• Other threats to economic recovery include slowing Asian economies and uncertainty around federal fiscal issues
Economic Outlook October 25, 2013
Slide 30 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Questions
Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560