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Old Dominion University2017 National Economic Outlook

May 16, 2017

Larry “Chip” FilerChair and Associate Professor of Economics

Strome College of Business

www.odu.edu/forecasting

Real GDP Growth United States and Virginia

0.8

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

16

Q1

20

16

Q2

20

16

Q3

20

16

Q4

20

17

Q1

Virginia United States

Source: Bureau of Economic Analysis and Center for Economic Analysis and Policy

Sources of Recent GDP Growth(12-month Growth Rates)

2.4% 2.7% 2.8% 3.1% 2.8%

-0.7%

-2.9% -2.7%

0.1%

2.0%1.9%

0.7% 0.4% 0.2%

-0.6%

8.7%

6.4%

-4.6%

6.8%6.4%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1

Consumption Investment Government Net Exports

Source: Bureau of Economic Analysis

Total Nonfarm Payroll Employment(Month over Month Net New Jobs)

-1,000

-800

-600

-400

-200

-

200

400

600

1/1

/09

5/1

/09

9/1

/09

1/1

/10

5/1

/10

9/1

/10

1/1

/11

5/1

/11

9/1

/11

1/1

/12

5/1

/12

9/1

/12

1/1

/13

5/1

/13

9/1

/13

1/1

/14

5/1

/14

9/1

/14

1/1

/15

5/1

/15

9/1

/15

1/1

/16

5/1

/16

9/1

/16

1/1

/17

Source: Bureau of Labor Statistics

The Unemployment SituationCivilian Unemployment Rate and the U6 Rate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20

05

-02

-01

20

05

-07

-01

20

05

-12

-01

20

06

-05

-01

20

06

-10

-01

20

07

-03

-01

20

07

-08

-01

20

08

-01

-01

20

08

-06

-01

20

08

-11

-01

20

09

-04

-01

20

09

-09

-01

20

10

-02

-01

20

10

-07

-01

20

10

-12

-01

20

11

-05

-01

20

11

-10

-01

20

12

-03

-01

20

12

-08

-01

20

13

-01

-01

20

13

-06

-01

20

13

-11

-01

20

14

-04

-01

20

14

-09

-01

20

15

-02

-01

20

15

-07

-01

20

15

-12

-01

20

16

-05

-01

20

16

-10

-01

20

17

-03

-01

Unemployment Rate U6 Rate

Gap = 3.8%

Gap = 7.1%

Gap = 4.2%

Source: Bureau of Labor Statistics

Labor Force Participation Rates Are Starting to Stabilize

56.0

58.0

60.0

62.0

64.0

66.0

68.0

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

Labor Force Participation BLS Projection

Source: Bureau of Labor Statistics

Labor Force Flows from Prior Month

0

1000

2000

3000

4000

5000

6000

1/1

/10

4/1

/10

7/1

/10

10

/1/1

0

1/1

/11

4/1

/11

7/1

/11

10

/1/1

1

1/1

/12

4/1

/12

7/1

/12

10

/1/1

2

1/1

/13

4/1

/13

7/1

/13

10

/1/1

3

1/1

/14

4/1

/14

7/1

/14

10

/1/1

4

1/1

/15

4/1

/15

7/1

/15

10

/1/1

5

1/1

/16

4/1

/16

7/1

/16

10

/1/1

6

Employed to Not In Labor Force Unemployed to Not In the Labor Force

Source: Bureau of Labor Statistics

Measures of Inflation – CPI, Core CPI and PCE Deflator

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

CPI Overall CPI Core PCE Deflator

Source: Bureau of Labor Statistics

The Fed in 2017

• There is an expectation of 3 rate increases during 2017 (75 basis points total). This would leave the Fed Funds Target at the range 1.25% to 1.50% by December.

• Remaining Meeting dates in 2017:

• June

• July

• Sept/Oct

• December

Current Implied Probabilities of Fed Funds Target Rate(December 2017 Contract)

11.0%

42.5%

35.7%

10.0%

0.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

75-100 100-125 125-150 150-175 175-200

Source: CME Group

Is The Fed Being Too Accommodative?

Source: Janet Yellen, Speech to Stanford Institute for Economic Policy Research on January 19, 2017.

Treasury Yield Curves

May 2014

May 2015

May 2017

0

0.5

1

1.5

2

2.5

3

3.5

4

1m 3m 6m 1y 2y 3y 5y 7y 10y 20y 30y

Source: US Department of the Treasury

The Current National Recovery

Recession End Expansion Duration

October 1945 80 months

February 1961 106 months

March 1991 120 months

November 2001 73

June 2009 94 (ongoing)

Source: National Bureau of Economic Research

Real GDP Growth ForecastsUnited States and Virginia

1.6

2.2

1.5

2.42.6

1.61.7

0.6 0.70.4

0.02

1.4

0.8

1.2

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2011 2012 2013 2014 2015 2016 2017F

United States

Virginia

Source: ODU Center for Economic Analysis and Policy Forecasts

2016 2017

Forecast Actual Forecast

Real Gross Domestic Product 2.03% 1.60% 1.7%

Employment Growth 1.50% 1.74% 1.5%

Unemployment Rate 5.1% 4.9% 4.6%

Consumer Price Index 1.34% 1.28% 2.7%

CPI - Core 2.03% 2.21% 2.0%

3-Month Treasury Bill 1.25% 0.32% 0.58%

10-Year Treasury Bond 3.15% 1.84% 2.39%

30-Year Conventional Mortgage Rate 4.25% 3.65% 4.25%

National Economic Outlook for 2017

Old Dominion University2017 Regional Economic Forecast

May 16, 2017

Professor Vinod AgarwalDirector, Economic Forecasting Project

Strome College of Businesswww.odu.edu/forecasting

The views expressed in this presentation do not represent official positions on the part of Old Dominion University, the Old Dominion University Board of Visitors, or any of the sponsors of the Economic Forecasting Project. The data in this presentation may be subject to revision. To our knowledge, all data in this presentation are accurate at the time of the presentation.

Presentation outline

I. 2016 Economic Performance

a) Regional and National Economies

b) Defense

c) Civilian Nonfarm Jobs

d) Hotel Industry

e) Port and Cargo

f) Single Family Residential Housing Market

II. Forecast for 2017

Selected Time Periods from 2001 to 2017*

13.69%

10.84%

2.60% 1.62% 1.74%

21.21%

0.87%

3.71%1.36% 1.41%

0%

5%

10%

15%

20%

25%

2001 to 2009 2009 to 2014 2014 to 2015 2015 to 2016e 2016 to 2017f

USA Hampton Roads

Source: Bureau of Economic Analysis and the Old Dominion University Economic Forecasting Project. Data on GDP incorporates latest BEA

revisions in September 2016. * GRP numbers for 2016 are estimates.

Rate of Growth of Real Gross Domestic Product (U.S.) and Gross Regional Product (Hampton Roads)

Growth rate in 2015Virginia: 2.00%

DC Metro: 1.27%

The 2007-2009 Recession and its Recovery through March 2017% Change in Total Non-farm Payroll Employment from Pre-Recession Peak

5.51%

4.40%

-1.02%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115

Ch

an

ge

from

Pre

-Rec

essi

on

Peak

Months After Pre-Recession Peak

USA VA HR

Pre-Recession Peak Dates:U.S.: January, 2008Virginia: April, 2008

Hampton Roads: July, 2007

Defense Spending

450

500

550

600

650

700

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Bil

lion

s of

doll

ars

BCA 2011 Sequestration ATRA2012 BBA 2013 BBA 2015

Caps on Department of Defense Discretionary Spending, FY 2012 to FY 2021

Source: BCA2011,Budget Requests for FY14, CBO Sequestration Update Report and the Old Dominion University Economic Forecasting Project.

The legislated cap on spending increased by $27B (5.18%) during FY 2016 and by

only $3B or 0.55% during FY 2017; is expected be $2B less in FY 2018.

Hampton Roads Economy

Estimated Direct DOD Spending in Hampton Roads

Source: U.S. Department of Defense and the Old Dominion University Economic Forecasting Project. *Includes Federal Civilian and Military Personnel and Procurement

Bill

ion

s o

f $

10.0

19.5 19.618.7

19.2 19.2 19.6

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

Between 2000 and 2012, DOD spending in our region increased by an annual average of 5.8% . In 2017, it will be about 50 million higher than its peak in 2012.

2000 to 2017

Estimated Average Compensation (Wages, Salaries and Fringe Benefits):Selected Categories

Hampton Roads: 2014 and 2015

Source: U.S. Bureau of Economic Analysis (BEA) and the Old Dominion University Economic Forecasting Project. * BEA calls compensation as earnings. Data updated on November 17, 2016

Earnings in 2014

Earnings in 2015

Percent change

2014 to 2015

Military $91,531 $91,283 -0.27%

Federal Civilian Govt. Employees

$103,583 $107,521 3.80%

State and Local Govt. Employees

$59,150 $60,088 3.28%

Private Nonfarm $41,279 $42,185 2.19%

Growth (CAGR) in Estimated Average Compensation (Wages, Salaries and Fringe Benefits) Selected Categories

Hampton Roads: 2001 to 2015

Source: U.S. Bureau of Economic Analysis (BEA) and the Old Dominion University Economic Forecasting Project. BEA refers to compensation as earnings.

Compound Annual Growth Rate

2001 to 2010

Compound Annual Growth Rate

2010 to 2015

Military 7.2% 0.7%

Federal Civilian Govt. Employees 4.5% 2.6%

State and Local Govt. Employees 3.6% 2.1%

Private Nonfarm 2.9% 2.0%

Annual Civilian Employment (Jobs) in Hampton Roads: 1999 to 2016

706.6

730.5737.5

749.9

775.5767.2

742.2 740.2746.8

767.0771.8

650

675

700

725

750

775

800

Source: U.S. Department of Labor CES data and the Old Dominion University Economic Forecasting Project. Not seasonally adjusted.

The HR economy added 4,800 jobs in 2016. At the end of 2016, on an annual basis, we were still about 3,700 jobs below our pre- recession level.

In t

hou

san

ds

Percent Net New Civilian Jobs Gained/Lost in Selected MSA’s, Virginia, and North Carolina

From 2007* to 2016

-0.5%

12.4%

7.3%5.8%

15.2%

6.7%8.4%

3.9% 4.8%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Source: U.S. Department of Labor CES seasonally unadjusted data and the Old Dominion University Economic Forecasting Project. * Peak employment in Raleigh, Durham, Northern Virginia, and Virginia occurred in 2008. Change for these areas is shown for 2008 through 2016.

Hotel Industry in Hampton Roads

Hotel Revenue in Hampton Roads 1996-2016

Source: STR Trend Report January 24, 2017 and the Old Dominion University Economic Forecasting Project.

708.3 711.9

804.7

0

100

200

300

400

500

600

700

800

900

Mil

lio

ns o

f $

Hotel Revenue grew by 5.9 % during 2015 and by another 6.7 % during 2016.

4.8%

6.2%6.7%

3.2%

5.8%

8.2%

0%

2%

4%

6%

8%

10%

12%

14%

USA Virginia Hampton Roads

REVENUE

REVPAR

Source: STR Trend Report January 24, 2017 and the Old Dominion University Economic Forecasting Project.

Percent Change in Hotel Revenue and REVPAR: 2015 to 2016

Percent Change in Hotel Revenue within Hampton Roads: 2015 to 2016

Source: STR Trend Report January 24, 2017 and the Old Dominion University Economic Forecasting Project.

0.46%

11.85%

3.83%4.71%

7.34% 6.72%

0%

2%

4%

6%

8%

10%

12%

14%

Estimated Hotel Industry Market Shares in Hampton Roads

(Measured by Hotel Room Revenue, 2000 and 2016)

14.7%

7.4%

30.6%

34.1%

13.2%

Norfolk/Portsmouth Market

Chesapeake/Suffolk Market

Williamsburg Market

Virginia Beach Market

Newport News/Hampton Market

2000 2016

Source: STR Trend Report, January 24, 2017 and the Center for Economic Analysis and Policy at Old Dominion University.

12.6%

12.7%

20.4%39.8%

14.5%

Norfolk/Portsmouth Market

Chesapeake/Suffolk Market

Williamsburg Market

Virginia Beach Market

Newport News/Hampton Market

REVPAR in Selected Markets: 2007 and 2016

2007 2016

Percent

Change

Real Percent

Change

USA $65.55 $81.19 +23.9% +7.0%

Virginia $61.91 $68.04 +9.9% -5.1%

Hampton Roads $52.93 $59.46 +12.3% -3.0%

Virginia Beach $64.62 $79.36 +22.8% +6.1%

Williamsburg $47.47 $56.35 +18.7% +2.6%

Newport

News/Hampton$41.49 $43.47 +4.8% -9.5%

Norfolk/Portsmouth $54.05 $54.68 +1.2% -12.6%

Chesapeake/Suffolk $52.90 $49.93 -5.6% -18.5%

Source: STR Trend Report, January 24, 2017 , Bureau of Labor Statistics (base year is chained; 1982-84=100), and the Center for Economic Analysis and Policy at Old Dominion University.

The Port of Virginia

Twenty-Foot Equivalent Container Units (TEUs) at the Port of Virginia: 1991 to 2016

Source: Virginia Port Authority and Old Dominion University Economic Forecasting Project.

TEUs increased by 4.2% in 2016; Loaded TEUs increased by 4.8%; empty TEUs increased by only 1.2%.

2,128.4 2,223.5

2,655.7

0

500

1,000

1,500

2,000

2,500

3,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Th

ou

san

ds

Operating Income/Loss for the Port of Virginia (In Million $)

-$20.7 -$20.1

-$11.1 -$16.9

$13.6

$4.8

-25

-20

-15

-10

-5

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Fiscal Year 2006 through Fiscal Year 2016 (ending June 30)

Source: Virginia Port Authority Comprehensive Annual Financial Report for Fiscal year 2015 and Fiscal Year 2016, and the Old Dominion University Economic Forecasting Project.

Mil

lion

$

Port of Virginia’s Operating Income for the first seven months of FY 2017 is $8.3M compared to a loss of $6.3M for the same time period in FY 2016.

Single Family Residential Housing Market in Hampton Roads

Number of Existing and New Construction Homes Sold

Hampton Roads: 2002-2016

Year Existing Homes SoldNew Construction

Homes Sold

Percent New

Construction

2002 19,869 4,969 20.0%

2003 21,421 4,757 18.2%

2004 23,548 4,587 16.3%

2005 24,755 4,379 15.0%

2006 22,405 4,327 16.2%

2007 19,154 3,912 17.0%

2008 15,046 3,178 17.4%

2009 15,851 2,673 14.4%

2010 14,703 2,265 13.4%

2011 15,818 2,366 13.0%

2012 16,856 2,664 13.6%

2013 18,791 2,878 13.3%

2014 18,700 2,485 11.7%

2015 20,595 2,954 12.5%

2016 22,456 3,219 12.5%

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not

Guaranteed. Figures reported here represent only those properties that are listed through REIN by REIN members and may not represent all new

construction activity in our region.

41% decline

in sale of existing homes

from 2005 to 2010existing

homes Sales Have increased by 7,753

from 2010 to 2016

Median Sale Price of Existing Residential Homes

Hampton Roads: 2002-2016

Year Median Price Percent change year to year

2002 $116,900 7.3%

2003 $130,000 11.2%

2004 $156,500 20.4%

2005 $192,000 22.7%

2006 $214,900 11.9%

2007 $223,000 3.8%

2008 $219,000 -1.8%

2009 $207,000 -5.5%

2010 $203,900 -1.5%

2011 $180,000 -11.7%

2012 $185,000 +2.78%

2013 $190,000 +2.70%

2014 $193,205 +1.70%

2015 $203,000 +5.07%

2016 $210,000 +3.5%

90% increase from 2002-07

19% decreaseFrom 2007-11

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information deemed reliable but not guaranteed.

16% increase from 2011-16

Summary on Existing Homes Market since 2011

• Inventories have decreased substantially.

• Days on market have decreased from 102 days in 2011 to 75 days in 2016.

• Number of homes sold has steadily increased.

• Estimated months of supply has steadily declined to 4.7 months compared to a historical average (January 1996 to April 2017) of 5.6 months.

• But the median price has increased only slightly.

• The explanation lies in the size of the distressed market---which consists of short sales and bank-owned homes (REOs).

606

3,224

991

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Number of Active Listing of Distressed Homes (REO & Short Sales)

Hampton Roads: June 2008 to April 2017

Source: Real Estate Information Network (REIN) and the Old Dominion University Economic Forecasting Project.

April 2017: 991Peak: 3,224 (November 2010)

Number of Existing Short Sale and REOs Residential Homes Sold

Hampton Roads: 2006- 2016

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed.

Year All Sales Short SalesPercent

Short SalesREO Sales

Percent

REO Sales

2006 22,405 3 <1% 56 <1%

2007 19,152 40 <1% 223 1.2

2008 15,047 217 1.4 833 5.5

2009 15,849 598 3.8 2,271 14.3

2010 14,696 784 5.3 3,021 20.6

2011 15,817 1,127 7.1 4,213 26.62012 16,856 1,644 9.8 3,337 19.8

2013 18,791 1,769 9.4 3,178 16.9

2014 18,700 1,347 7.2 2,744 14.7

2015 20,592 1,230 6.0 2,542 12.3

2016 22,456 1,002 4.5 2,294 10.2

Selected Cities in Hampton Roads: 2002 and 2007

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed.* Williamsburg represents Williamsburg, James City County, York County and Gloucester County. ** Median price in Suffolk peaked in 2006 at $263,950

CityMedian Price

2002

Median Price

2007% change

Chesapeake $134,900 $250,100 85.4%

Norfolk $ 93,200 $195,000 109.2%

Portsmouth $ 80,300 $165,500 106.1%

Suffolk** $139,900 $257,500 84.1%

Virginia Beach $125,000 $245,000 96.0%

Hampton $ 92,900 $180,000 93.8%

Newport News $105,000 $199,250 89.8%

Williamsburg* $157,325 $284,450 80.8%

Hampton Roads $116,900 $223,000 90.8%

Median Sale Price of Existing Residential Homes

Median Sale Price of Existing Residential Homes Selected Cities in Hampton Roads: 2007 and 2016

Source: Real Estate Information Network and Old Dominion University Economic Forecasting Project. Information Deemed Reliable But not Guaranteed.* Williamsburg represents Williamsburg, James City County, York County and Gloucester County. ** Median price in Suffolk peaked in 2006 at $263,950

CityMedian Price

2007

Median Price

2016% change

Chesapeake $250,100 $240,000 -4.0%

Norfolk $195,000 $175,000 -10.3%

Portsmouth $165,500 $134,900 -18.5%

Suffolk** $257,500 $230,451 -10.5%

Virginia Beach $245,000 $240,500 -1.8%

Hampton $180,000 $149,000 -17.2%

Newport News $199,250 $169,900 -14.7%

Williamsburg* $284,450 $270,000 -5.1%

Hampton Roads $223,000 $210,000 -5.8%

Performance of Hampton Roads Economy through March 2017

Performance of Hampton Roads Economy

YTD March 2016 and YTD March 2017

YTD March2016

% Change

Civilian Labor Force 827,959 834,126 + 0.74

Employment 788,632 797,217 + 1.09

Unemployment 39,327 36,908 -- 6.15

Unemployment Rate 4.75% 4.42%

Civilian Non-Farm Jobs 758,730 762,900 + 0.55

New Auto Registrations 22,115 22,345 + 1.04

Taxable Sales $5.05B $5.09B + 0.80

YTD March2017

Performance of Hampton Roads Economy

YTD March 2016 and YTD March 2017

% Change

Hotel Revenue $125.07M $132.29M + 5.77

General Cargo Tonnage* 6.679M 7.350M +10.04

TEU Containers* 842,010 906,236 + 7.63

Number of 1 Unit Housing Permits 907 1,193 +31.53

Value of 1 Unit Housing Permits $188.66M $260.12M +37.88

Number of Existing Homes Sold** 6,178 6,424 + 3.98

Distressed Homes as a Percentage of all Existing Homes Sold**

18.76 15.47

Median Price of Existing Homes Sold** $198,000 $206,000 + 4.04

YTD March2016

YTD March2017

** Data shown here are for YTD April 2016 and YTD April 2017.

Forecast for 2017

Old Dominion University 2017 Forecast for Hampton Roads MSA

2016 2017 % Change

** Base year is 2009

Nominal Gross Regional

Product$98.96B $103.17B

Real Gross Regional

Product**$86.73B $87.95B +1.41%

Civilian Employment 771,817 775,676 +0.50%

Unemployment Rate 4.57% 4.40%

Taxable Sales $22.18B $22.76B +2.60%

Hotel Revenue $804.70M $840.11M +4.40%

General Cargo Tonnage 20.87M 21.43M +2.70%

Housing Permit Value $843.13M $865.05M +2.60%

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Center for Economic Analysis and Policy, Strome College of Business at Old Dominion University

Any Questions?

Professor Vinod Agarwal Professor Larry “Chip” Filer

Strome College of Business

www.odu.edu/forecasting