The State of the State

Greetings,

Most of you know that I am not an economist. Most of you know that economists are people that didn’t have the personality to become CPA’s. U.W. faculty excluded.

While it’s frustrating trying to figure out which economist is right, I thought it might be insightful to share the thoughts of the Chief Economist for the Wisconsin Department of Revenue. Obviously, the projections from John Koskinen at D.O.R. will have an impact on the budget decisions that lie ahead. John was a presenter at last week’s Governor’s Conference on Economic Development. You can find his presentation on the WEDA web site at: http://www.weda.org/calendar/conferences/2009-gov-conf/ppt/koskinen-pfaff.ppt

As a non-economist, here is what I heard in the presentation:

-Decline in Gross Domestic Product (GDP), three to 5 months after the start of the recession is much worse than our previous two recessions. The Bureau of Economic Analysis is projecting slight growth in the GDP starting in the third quarter of 2009 (slide 11).

- The Federal Reserve Bank of Philadelphia Coincident Index (noted as FRB Phil coincident Index in the slides) combines four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). As you look at the maps on slides 5-10, you will see that Wisconsin has fared better than most of the Midwest states but the trend is certainly downward and rapid since June of 2008. If you look at the slides pertaining to Wisconsin (beginning slide 16), you will see that Wisconsin has been outperforming the other Great Lake States but not the national average.

-Retail sales and industrial production are in steep decline

- Wisconsin exports have been relatively strong.

- Home prices in Wisconsin have not appreciated as rapidly as the nation and will not likely decline as rapidly. Housing starts in Wisconsin are not projected to reach the 2005 levels until late 2011.

- Wisconsin housing starts have tanked, but the bottom is projected to occur in the third quarter of 2009.

-Despite all of the recent unemployment announcements, Wisconsin’s unemployment rates have been better then the nation. However our employment numbers in Wisconsin are back to 2000 levels (“the lost decade”). On the other hand, the other great lake states have employment levels lower than 2000-2001. Job losses in Wisconsin so far are not as bad as what we experienced in our last bad recession in the early 80’s. Janesville is the only metro area in Wisconsin with an employment rate above the national level (see slide 38). The Madison metro area has historically had some of the lowest unemployment rates during recessionary times and had an unemployment rate of 4.2% this month.

- When looking at employment numbers for December 2008 compared to December 2007, the only sectors to grow in employment at the state and national level were Education & Health and Government. In 2009, education is the only sector projected to grow in the U.S. while the hospitality industry in Wisconsin shows modest increases as well.

-Employment recovery is projected to be a little quicker in Wisconsin with a recovery beginning in mid 2010. Employment growth tends to follow economic growth as businesses are hesitant to add back employees and will likely be reliant on temporary staffing agencies in the interim.

-Wisconsin income is projected to outpace national income in 2010 as a result of a slightly quicker recovery in employment.

- Personal interest payments, and decreasing prices in consumer goods (gas!) has resulted in a rise in consumer spending power. However, as mentioned before retail sales are plummeting and savings are going up.

What's your take on these projections?