Midstate Economic Outlook 2005

1
Midstate Economic Outlook 2005

• David A. Penn
• Director, Business and Economic Research Center
• Jennings A. Jones College of Business
• Middle Tennessee State University
• dpenn_at_mtsu.edu
• 615-904-8571
• September 2005

2
National Compensation Survey 2004
1 Airline pilots 2 Economics professors
(distant 2nd) 3 Medical doctors

• Wall Street Journal, Sept. 13
• There were some surprisesEconomics
  professors, in response to the popularity of the
  subject and the relative scarcity of professors
  available to teach it, came in second

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Contents

• Economic update
• Its Rutherford County (again)
• Whither manufacturing?
• Housing prices no bubbles here
• Midstate auto industry
• Current projects
• Leading indicators
• Forecast

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Gasoline Prices

• Tennessee prices up 22 2004-05 Jan-June
• Consumption virtually unchanged at 8.8 million
  gallons per day
• Tennesseans spent 455 million more for gasoline
  than last year (Jan-June)
• Data Energy Information Administration, USDOE

5
Tennessee Update
Personal income growth cooled in the first
quarter following a very strong fourth quarter.
6
Tennessee UpdateFirst Quarter Personal Income
Growth

• Growth of earned income 7.6
• Same as the national average
• Rank among the states 19th
• Somewhat slower than the Southeast average of 8.1

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Midstate and Nashville MSA
Population 2004 Tennessee 5,900,962
(1.0) Midstate 2,235,086 (1.5) Nashville
MSA 1,395,879 (1.7) (Growth from 2003)
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Economic Update - Midstate

• 2004 Fourth Quarter
• Total Midstate payroll 38.9 billion
• 32) Kansas - 45.7 billion
• 33) Utah 37.8 billion
• 34) Arkansas - 37.1 billion
• 35) Mississippi - 34.0 billion

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Economic Update - Midstate

• 2004 Fourth Quarter
• Midstate employment 1.0 million
• 34) Mississippi 1.11 million
• 35) Utah 1.09 million
• 36) Nebraska 0.89 million

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Economic Update Midstate Growth 2003-04

• Total payroll 6.2
• Nonfarm employment 2.4
• Source Quarterly Census of Employment and Wages
  (QCEW).

• Taxable sales 6.7

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Midstate payroll growth 2003-04 2.04 billion
(6.2) By comparison 16) Tennessee 5.14
billion 31) Utah 2.08 billion 32) Kansas
2.00 billion 33) Oklahoma 1.94 billion Source
Quarterly Census of Employment and Wages (QCEW).
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Midstate employment growth 2003-04 23,345
(2.4) By comparison 6) Tennessee 46,579 20)
Colorado 24,704 21) Minnesota 23,336 22)
South Carolina 22,696 Source Quarterly Census
of Employment and Wages (QCEW).
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Economic Update Nashville MSA 2003-04

• Total payroll grew 1.66 billion (6.6)
• Nonfarm employment grew 19,000 (2.7)
• Source Quarterly Census of Employment and
  Wages (QCEW).

• Taxable sales grew 1.47 billion (6.3)

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Economic Update 2005What have you done for me
lately?

• Nashville MSA
• Nonfarm employment growing more slowly
• Taxable sales growing more slowly
• Housing construction growing more slowly

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Growth of Taxable Sales
Year to year growth first half
Growth slower in 2005 compared with 2004.
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Nashville Payroll Employment 2004-05
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Nashville Payroll Employment
Growth for 2005 is on the lower end of the
post-recession trend.
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Nashville Employment Growth Rates
Employment growth in 2005 has averaged less than
2.
19
Nashville Services-Providing Industries Growth
Rates
20
Nashville Manufacturing Growth Rates
21
Nashville MSA Employment by Industry (Second
Quarter)
22
Its Rutherford County (reprise)
Employment growth ranking among largest U.S.
counties

• March 2004 2 (7.3)

• June 2004 1 (8.5)

• September 2004 1 (9.2)

• December 2004 1 (8.9)

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Rutherford CountyEmployment Growth 2003-04
24
Job Growth 2003-04
25
Manufacturing Jobs 2003-04
26
Total payroll growth 2003-04
27
Any sign of bubbles?
Housing prices are rising very rapidly along the
East and West Coasts. Prices rising much less
rapidly in the central interior states. U.S.
average price increase 2004-05Q1 12.5
Graphic courtesy Norris Hall Studio, Murfreesboro.
28
Housing bubbles

• Housing prices rise when
• Population is rising,
• Incomes are rising,
• Mortgage rates are low, and
• Supplies of new housing are limited.

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Housing prices for Nashville MSA and Tennessee
1990-2004
4.1 annual average home price increase 2000-2005
30
Housing prices Nashville MSA, Tennessee, and
U.S., 1990-2004
U.S. 8.5 annual growth 2000-2005
Nashville 4.1 annual growth 2000-2005
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New Housing
Growth rates for housing units 2003-04
Tennessee 1.5
32
Population Growth
Growth rate for population 2003-04
Tennessee 0.95
33
Housing Construction

• Status for 2005
• Volatile
• Little net change

34
Single family units Nashville MSA
Activity volatile in late 2004 and 2005.
35
Growth of single family unit construction
Nashville area (Jan-Jul)
By either measure, growth of single family
activity has slowed in the Nashville area.
36
Nashville Area Real Estate

• Compared with 2004
• Closings are moderately higher
• Median sale prices are up sharply
• Inventories of homes unsold are down

37
Nashville Area Home Closings
Total closings up 5 Jan-July 2004-05 Single
family closings up 3.5
38
Nashville Area Home Prices (August)
Median single family price up 12.7
39
Inventories are down
Total residential housing inventories down 7.5
(August)
40
But real estate transactions are increasing more
slowly
Real estate tax collections first six months
Collections up 3.5 in the Midstate 2004-05.
41
Mortgage tax collections are falling
Mortgage tax collections first six months
Collections down 6.0 in the Midstate 2004-05.
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Real Estate and Construction

• Midstate real estate and housing construction
  growth has cooled demand appears to be growing
  more slowly, but the evidence is mixed.

• Energy price increases, if permanent, may have
  long-term consequences for housing development
  patterns.

• Slower mortgage refinancings may slow growth of
  retail sales.

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Whither manufacturing?

• Manufacturing employment for the Nashville MSA is
  level in 2005 after substantial gains last year.
• Plant closings are well-publicized job gains are
  usually not as visible.
• Total wages are a better measure of manufacturing
  output.

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Whither manufacturing?

• In half the Midstate counties manufacturing still
  accounts for 30 or more of total wages.
• Manufacturing payrolls rose 226.3 million
  2001-04 in the Midstate counties.
• Total manufacturing payroll increased in 24 of 41
  Midstate counties 2001-04.

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Whither manufacturing?

• Midstate manufacturing share of payroll

46
Whither manufacturing?

• Midstate manufacturing share of payroll

47
Whither manufacturing?

• MFG sectors growing (payroll million)
• Transportation equipment 273.0
• Rubber and plastic products 61.9
• Food products 80.8
• Electrical equipment 51.6

48
Whither manufacturing?

• MFG sectors declining (payroll million)
• Computers electronics -120.5
• Machinery manufacturing -107.2
• Nonmetallic mineral products -17.5
• Leather products -6.8

49
Whither manufacturing?

• Average pay per employee
• Sectors with increasing payrolls 43,750
• Sectors with falling payrolls 38,944
• Avg. pay per employee up 12 2001-04

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Whither manufacturing?

• Counties with payroll increases 2001-04
• Counties with increases 576.7 million
• Rutherford County 254.8
• Warren County 57.7
• Wilson County 43.4
• Cheatham County 39.4
• Robertson County 37.0

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Whither manufacturing?

• Gainers
• Rutherford County Auto production, auto parts,
  tires
• Warren County - Electronics, rubber products
• Wilson County - Auto parts, paper products,
  audio-video equipment
• Cheatham County - Boats
• Robertson County Appliances, auto parts

52
Whither manufacturing?

• Counties that lost payroll 2001-04
• Total decreases 350.4 million
• Davidson County 177.1
• Marshall County 58.1
• Dickson County 33.9
• Maury County 27.7
• Giles County 26.3

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Whither manufacturing?

• Large job losses
• Davidson County Telecommunications
• Marshall County Air conditioning equipment
• Dickson County - Printing
• Maury County - Air conditioning equipment,
  chemicals
• Giles County - Auto parts, communications
  equipment

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Manufacturing Payrolls 2004
One dot equals 1 million payroll.
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Importance of manufacturing payrolls
Percent of payroll in manufacturing
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Manufacturing payroll in the South
Red counties 50 or more total payroll in
manufacturing 2004.
Of the 40 red counties, six are in Tennessee and
three are in the Midstate.
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Importance of manufacturing payroll in the South
Pink counties 33-49 of total payroll in
manufacturing 2004.
Of the 207 pink counties, 36 are in Tennessee and
13 are in the Midstate.
South average 13.3 Tennessee average 18.7
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Auto sector

• North American auto production flat
• Nissan (Smyrna) production climbing

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Auto sector
60
Trend of payroll for Midstate transportation
equipment sector
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Whither Manufacturing

• Since the recession, payroll gains have more than
  offset payroll losses
• Gains are concentrated in auto production
• Losses will likely continue in trade sensitive
  and low skill manufacturing sectors

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Forecast
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Multivariate structural time series model
Stochastic trends
Forecast of Nashville MSA nonfarm employment
National variables
Interdependence among regional employment
components
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Forecasting Model

• Interdependent forecasts for
• Manufacturing employment
• Construction employment
• Services-providing employment

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Forecast for Nashville MSA Nonfarm Employment
(thousands)
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Forecast for Nashville MSA Nonfarm Employment
Growth rates (AARG) June 2002-05
Actual 1.75 June 2005 to Dec 2006 Forecast
1.43
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Forecast for Nashville MSA Employment
Growth rates (AARG) June 2005-Dec
2006 Services-providing 1.8 Construction
-0.7 Manufacturing -0.7
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Longer Term Issues

• Education and training for long-term
  competitiveness
• Digesting higher energy prices

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Current Economic IndicatorsNashville-Davidson-Mur
freesboro MSA
http//www.mtsu.edu/berc/indicators.html

• Nonfarm employment
• Taxable sales
• Housing construction
• Unemployment Rate

70
BERC Products Coincident and Leading Indexes
for the Nashville MSA

• Coincident Index
• Nonfarm employment
• Inflation-adjusted taxable sales

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Nashville Coincident Index
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Leading Index for the Nashville MSA

• Leading Index
• Initial unemployment claims
• Inflation-adjusted value of housing construction
• Inflation-adjusted new orders for consumer goods
  (national)

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Nashville Leading Index
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Research Contracts

• Nashville Area Healthcare Council
• Northwest Tennessee Workforce Board
• Williamson County United Way
• Bonnaroo music festival
• Tennessean
• Nashville Business Journal

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Business and Economic Research CenterJennings A.
Jones College of BusinessMiddle Tennessee State
University
David A. Penn, Director Murat Arik, Associate
Director Sally Govan, Publications Editor Horace
Johns (Tennesses Business) Steve Livingston
(Global Commerce) Kitty Kulp, Secretary 3 Zhijie
Qi, Graduate Research Assistant Weiwei Gao,
Graduate Research Assistant Petar Skobic,
Graduate Research Assistant Mitchell Caulder,
Undergraduate Research Assistant Brittany Bunch,
Undergraduate Research Assistant Harika Erdemir ,
Undergraduate Research Assistant