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The US and New Mexico Economies:Recent Developments and Outlook
NM Revenue Stabilization & Tax Policy CommitteeDecember 15, 2015
22
Summaryo New Mexico recovery has lagged behind the US.
o From 2010‐June 2014, Oil & Gas was a bright spot.
o Despite the decline in oil prices, employment growth began to pick up in mid‐2014.
o ACA‐related health care & social assistance and transportation accounted for much of this growth.
o Employment data for past 6 months has been disappointing.o Oil & Gas employment has begun to contract.o Where are the gasoline savings?
o Apparent lack of confidence among local businesses & consumers – sustained recovery will depend on stronger local markets; e.g. residential demand.
3
U.S. Review & Outlook
44
Review: National Economyo Final estimate for 2015Q2 revised up 2.3% to 3.9%. Third quarter initially
quite slow: 1.5%; recently revised up to 2.1%.
o Employment expanded 145,000 in September, 298,000 in October and 211,000 in November. Unemployment rate down to 5.0%.
o Consumer Confidence Index (U. of Mich.) sitting at around 90 since May; Overall index has been higher in 2015 than any year since before the Recession.
1800
1850
1900
1950
2000
2050
2100
2150o Oil prices (WTI): from $104 (June ‘14) to $44.45 (January 31), $60.27 (June 26); around $36 on Dec. 14th.
o S&P 500 volatile.
o Housing is still weak but it is slowly improving .
S&P 500 – Year‐to‐Date
55
Real GDP Growth
Contrib.
2012 2013 2014 15Q1 15Q2 15Q3 15Q3
Gross Domestic Product 2.2 1.5 2.4 0.6 3.9 2.1 2.1
Total Consumption 1.5 1.7 2.7 1.8 3.6 3.0 2.1
Durable goods 7.4 5.8 5.9 2.0 8.0 6.5 0.5
Nondurable goods 0.6 1.9 2.1 0.7 4.3 4.0 0.6
Services 0.8 1.0 2.4 2.1 2.7 2.2 1.0
Residential Fixed Investment 13.5 9.5 1.8 10.1 9.3 7.3 0.2
Nonresidential Fixed Investment 9.0 3.0 6.2 1.6 4.1 2.4 0.3
Structures 12.9 1.6 8.1 ‐7.4 6.2 ‐7.1 ‐0.2
Equipment & Software 10.8 3.2 5.8 2.3 0.3 9.5 0.6
Intellectual Property 3.9 3.8 5.2 7.4 8.3 ‐0.8 0.0
Change in Private Inventories ‐0.6
Exports 3.4 2.8 3.4 ‐6.0 5.1 0.9 0.1
Imports 2.2 1.1 3.8 7.1 3.0 2.1 ‐0.3
Federal Government ‐1.9 ‐5.7 ‐2.4 1.1 0.0 0.1 0.0
State & Local Government ‐1.9 ‐1.0 0.6 ‐0.8 4.3 2.6 0.3
Composition of Real GDP Growth Over Previous Period SAAR
US Bureau of Economic Analysis, Gross Domestic Product, 2015 Third Quarter (revision), Nov. 24, 2015
66
Key Forecast Assumptions
o Federal fiscal policy assumes no debt ceiling problems and no significant budget initiatives; two year budget deal since confirmed.
o Monetary Policy: Fed first tightening in December 2015 – federal funds rate hitting 0.50% by end of 2015 and reaching 3.25% by the end of 2017. (Newer estimates are slightly lower)
o World GDP: Growth in major trading partners to average about 1.9% through 2025, with other partners averaging growth of 3.8% (both down a bit from July). US dollar appreciates through mid‐2016 and slowly depreciates thereafter
o Oil price: Oil price (WTI) is expected to register $48/barrel in 2015, $51/barrel in 2016, $59/barrel in 2017, $74/barrel in 2018
77
Global Insight Oct. 15
Quarterly US Interest Rates
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2011 2011 2012 2013 2014 2014 2015 2016 2017 2017 2018 2019 2020
U.S. Gov't. 30‐Year Bonds (%) Conventional Mortgages (%)
Federal Funds (%) 3‐Month T‐Bills (%)
Interest Rate Forecast
88
Oil: West Texas Intermediate, Spot Price per Barrel
Global Insight, Oct. 15 and July 15
Natural Gas: Henry Hub Price per MBtu
Forecast for oil price brought down quite a bit throughout the forecast period. IHS Global Insight Global Insight cites high US productivity as the major driver keeping prices relatively lower.
$0
$20
$40
$60
$80
$100
$120
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
October 2015 July 2015
$0
$1
$2
$3
$4
$5
$6
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
October 2015 July 2015
Expectations for natural gas prices remain subdued.
Oil & Gas Spot Prices
99
Quarter‐Over‐Quarter, SAAR
Global Insight, Oct. 15 and July 15
‐3.0%
‐2.0%
‐1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020October 2015 July 2015
U.S. Real GDP Forecast
1010
US Employment Forecast by Sector
2012 2013 2014 2015 2016 2017 2018 2019 2020
Employment Sector
Construction 114 212 281 240 244 407 303 217 207
Manufacturing 200 93 170 131 8 147 137 108 63
Trade, Transportation & Utilities 405 385 520 543 361 131 214 114 52
Prof. & Bus. Services 606 588 573 645 752 800 370 304 488
Health Care & Soc. Asst. 375 386 315 526 541 266 292 338 277
Leisure & Hospitality 423 486 450 441 270 139 254 210 119
Other Private 307 216 312 239 (76) (159) (55) (21) 24
Government (175) (69) 8 108 92 209 231 175 256
Total Nonfarm Payrolls 2,255 2,296 2,629 2,872 2,190 1,941 1,746 1,447 1,486
Annual Growth 1.7% 1.7% 1.9% 2.1% 1.5% 1.3% 1.2% 1.0% 1.0%IHS Global Insight, October 2015
Increase (Decrease) in US Payroll Employment from Previous Calendar Year, Actual & Forecast (Thousands)
11
New Mexico Review & Outlook
1212
92
94
96
98
100
102
104
US
New Mexico
Total Non‐Farm Employment US and New Mexico (2007=100)
Dec 2013
103.8%
98.9%
1313
NM & US Total Employment Growth
Percent
‐6
‐5
‐4
‐3
‐2
‐1
0
1
2
3
Jan2007
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
NM Total US Total
Oct=0.3%
1414
NM & US Mining Employment Growth
Percent
‐25
‐20
‐15
‐10
‐5
0
5
10
15
20
25
Jan2007
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
NM Mining US Oil & Gas Activities
October US = ‐14.5%NM= ‐6.4%
1515
New Mexico Economy: Recent Data
o 2015Q1&2 employment up 10,810 jobs (1.4%) – 33rd of 50 states.
o Health care & social assistance accounts for 40% of new jobs.
o Composition of health care expansion reflects early outreach & enrollment: two‐thirds of new healthcare jobs outside ABQ MSA, and 60% in social assistance.
o Medicaid transfers continue to expand but more slowly.
o Mining continued to expand through 2015Q1 but has since begun to fall (‐6.4% in October). Rig counts continue to decline, now below 40.
1616
New Mexico Economy: Recent Data
o Unemployment rate spiked to 6.8% (September) but this is because of increase in labor force participation (>10,000 or 1.1% in Jan‐June 2015).
o Home sales improving (up 10% in Q3) and building permits beginning to respond, but values remain flat.
o Income growth weak (3.8% during Jan‐June 2015) due to slow growth of labor income.
1717
NM Job Creation by Sector, 2015 Q1 & Q2
‐1,000 0 1,000 2,000 3,000 4,000 5,000
Federal Government
State Government
Local Government
Government
Leisure & Hospitality
Healthcare & Educ. Srvs
Mgt & Admin Srvs
Prof & Tech Srvs
Financial Srvs
Information
Transp & Warehousing
Retail & Wholesale Trade
Manufacturing
Construction
Mining
1818
Rig Counts in New Mexico vs. WTI Price
Source: Baker Hughes
18
21
24
27
30
0
20
40
60
80
100
120
Rigs (#) – Left
WTI ($) – Left
Jobs ($) – Right
1919
Personal Income Growth and Medicaid Transfers
20
New Mexico Economic Outlook
2121
New Mexico Economic Outlook
o Employment forecast weaker than July through mid‐2016, but returns to earlier growth trends by end‐ 2016 (1.3%) and 2017‐2020 (1.4% per year).
o Composition of new jobs: 32% in health care & social assistance; 29% in low‐wage service sectors; 19% in mining, utilities, construction, manuf, transportation, 12% in P&BS, 5% in government (tied to health)
o Personal Income forecast weaker than July: 4.8% in 2016, 5.0% thereafter.
o Investment income & transfer growt6h just above the total, labor income just below the total.
2222
Employment Forecast: October vs. July
‐0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
October 2015 July 2015
2323
Income Forecast: October vs. July
‐2%
‐1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020October 2015 July 2015
2424
NM Job Creation by Sector, 2016 (#)
(1,000) 0 1,000 2,000 3,000 4,000 5,000
Federal Government
State Government
Local Government
Government
Leisure & Hospitality
Healthcare & Educ. Srvs
Mgt & Admin Srvs
Prof & Tech Srvs
Financial Srvs
Information
Transp & Warehousing
Retail & Wholesale Trade
Manufacturing
Construction
Mining
2525
NM Job Creation by Sector, 2017‐2020 (#)
(4,000) (2,000) 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
Federal Government
State Government
Local Government
Government
Leisure & Hospitality
Healthcare & Educ. Srvs
Mgt & Admin Srvs
Prof & Tech Srvs
Financial Srvs
Information
Transp & Warehousing
Retail & Wholesale Trade
Manufacturing
Construction
Mining
2626
US & NM: Housing Starts & Permits
0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2.000
0.000
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
NM Housing Permits (Total) US Housing Start (Total)
New Mexico USA, Millions
2727
Alternative Forecasts
o Upside risk (15%)
o Macro: higher consumer demand & stronger housing markets.
o NM: stronger through 2017, housing markets & construction employment strong; investment income way up.
o Downside risk (20%)
o Macro: weak global economy, low commodity prices, equities fall in value, consumers & investors pull back.
o NM: more severe, without later bounce; housing & construction, and administrative services hit hard. Income way below baseline without higher transfers to offset.
2828
New Mexico Employment Forecast, Alternative Scenarios
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2014 2015 2016 2017 2018 2019 2020
Baseline Scenario Pessimistic Scenario Optimistic Scenario
2929
New Mexico Job Gain/Loss by Region
‐35,000
‐30,000
‐25,000
‐20,000
‐15,000
‐10,000
‐5,000
0
5,000
10,000
15,000
Non‐metro New Mexico
Santa Fe MSA
Las Cruces MSA
Albuquerque MSA
3030
Job Gain/Loss by Sector – 2015‐2018 (‘000s)
Santa FeLas Cruces
Albuquerque Non Metro
0.0
1.8
0.1
3.1
0.4
3.8
5.3
2.41.2
‐0.50.51.52.53.54.55.5
2.4
1.1
‐0.1
2.0
0.41.5
4.4
2.1
0.1
‐0.50.51.52.53.54.55.5
0.20.4
‐0.2
0.40.1
0.4
1.6
0.4 0.2
‐0.5
0.5
1.5
0.0
0.0 0.00.3
0.1 0.2
0.8
0.4 0.2
‐0.5
0.5
1.5
31
The US and New Mexico Economies:Recent Developments and Outlook
NM Revenue Stabilization & Tax Policy CommitteeDecember 15, 2015
