The “State” of the State EconomyDr. James Ramsey

President, University of Louisville

NOVEMBER 7, 2013

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Thank you for this opportunity

We value our partnerships with the Owensboro community

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I have a job ...But my passion ...Today

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I don’t get to teach economics anymore, but I did find my notes from Econ 202

My notes from Econ 202

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In “Macro” we talk about exciting topics:

GDPFull employmentInflationAll that stuff … The Business Cycle

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While I was trained as an econometrician

Today let me make some casual observations on:

• National economy• Kentucky economy• State budget• Higher education

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(With apologies to a Dallas Federal Reserve Economist who I heard 14 years ago)

• The Business Cycle Still Exists!

Observation I

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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

2.5

The Last Decade or so

The “recession!”

Quarterly Change in GDP (measure of macro economic activity)

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We know that nationally times have been unprecedented…11 post WWII recessions

*Lowest level during the current recession. The next two quarters (2009: III and IV) have been positive.

- http://

books.google.com/books?id=g-L0iLH5u34C&pg=PA408&lpg=PA408&dq=Real+GDP+November+1948&source=bl&ots=1eT_Am6PKI&sig=hkYMPbaa6BWiE92o-tg8Z8DPBI4&hl=en&sa=X&ei=2gEJUrDyE-Hg2AX384DYDQ&ved=0CDcQ6AEwAQ#v=onepage&q=Real%20GDP%20November%201948&f=false

Peak Decline in real GDP

Dec-07 (IV) -5.1%*

Mar-01 (I) -0.5%

Jul-90 (III) -1.3%

Jul-81 (III) -2.9%

Jan-80 (I) -2.2%

Nov-73 (IV) -3.1%

Dec-69 (IV) -0.6%

Apr-60 (II) -1.6%

Aug-57 (III) -1.2%

Jul-53 (II) -2.7%

Nov-48 (IV) -1.7%

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Just when we thought recovery was taking hold

Observation II

2011 “Black Swans”• Tsunamis/Nuclear Meltdown

Japan• Civic unrest

Tunisia/Egypt/Libya/Yemen/etc.• Europe Economic Meltdown

Greece/Spain/etc.

2012• “Sandy”• Sequestration

2013• And now shutdown

So, we are recovering – but we are not back! Yet.

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The real problem!

Observation III

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Slow recovery continued – September 2013

Dec-07

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

Feb-10

Apr-10

Jun-10

Aug-10

Oct-10

Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

Dec-11

Feb-12

Apr-12

Jun-12

Aug-12

Oct-12

Dec-12

Feb-13

Apr-13

Jun-13

Aug-13

Oct-13

Dec-13

-1000

-800

-600

-400

-200

0

200

400

600

-830

148

Net monthly change in nonfarm payrolls, in thousands

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13

National Employment

136,290,000

US jobsDecember 2007

137,982,000

Jobs lost in the recession

7.479 million

Jobs gained in the

recovery

5.787 million

US jobsSeptember 2013

Still 1.69m fewer people working today

http://beta.bls.gov/dataViewer/view/timeseries/CES0000000001http://www.deptofnumbers.com/employment/us/

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Observation IV

We live in a:• New

Economy/Knowledge Based Economy(Human Capital most important input into production process)

• Global Economy(What happens…)

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The New Economy

Rank Company Name Market Cap

($B)

1Exxon Mobil 422.27

2Apple 398.35

3Google 292.92

4Berkshire Hathaway 288.99

5Microsoft 261.42

6Johnson & Johnson 260.02

7Wal-Mart 258.53

8General Electric 255.3

9Chevron 247.72

10Wells Fargo 234.94

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Jobs of Today …Jobs of Tomorrow …

Education Is …

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Less than H.S. Diploma

H.S. graduate, no college

Some collegeor Associates

BA or HigherU.S. National Unemploymen

t

%

%

%

%

%

September 2013

17

Sep-130.0

2.0

4.0

6.0

8.0

10.0

12.0

7.2

10.3

7.6

6

3.7

Observation VEducation is Important!

http://www.bls.gov/web/empsit/cpseea05.htm

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OK, so I am still awake (barely)

But…

What’s The Point Of All This

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Oh – so let’s talk about KYKentucky’s Economy is Dependent

on National Economy

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Kentucky’s Economy “A Quick History”

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Beginning in 2000Kentuckians working

August 2013

1,745.0

1,765.0

1,785.0

1,805.0

1,825.0

1,845.0

1,865.0

1,885.0

1,846.9

1,870.6

1,814.4

1,750.6

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Just a little comparison

September 2013

U.S. KY

Jobs Lost 7,500,000 120,000

Jobs Regained 5,787,000 96,300

% of Jobs Regained 77% 80%

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But there is more to itKentucky Manufacturing Employment

Why Important? WAGES!

August 2013

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

200.0

220.0

240.0

260.0

280.0

300.0

320.0

225.2

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So, in Kentucky things are better but we are not back yet from the depths

of recession

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“I am trying to hang with you but work with

me …What’s all this

mean?”

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The Kentucky “General Fund”

Kentucky State General Fund

$9.3B 100%

Individual Income Tax $3.7B 40%

State Sales Tax $3.1B 32%

Combined $6.7B 72%

Income Tax/Sales Tax highly correlated with economic activity —i.e. Employment! People working!

State Funded?OR

State assisted?FY 13

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Year ($000,000) % Change2005 7,645 9.56%2006 8,376 9.56%2007 8,573 2.35%2008 8,664 1.06%2009 8,426 -2.75%2010 8,225 -2.39%2011 8,759 6.49%2012 9,026 3.05%2013 9,348 3.44%2014 9,578 2.4%*

* Forecasted

Recessionaryyears

Modestrecovery

KY General Fund

http://www.osbd.ky.gov/NR/rdonlyres/1ADF4A09-F159-40BE-9DD0-2156ACCD0276/0/1214BOCBudInBrief.pdf

Legislative (budget) Session

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State Revenue Growth

Public Pensions Medicaid Debt Service Corrections/Adult Prisons

K-12 Base Higher Ed-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

10.0%

63.5%

41.9%

32.8%

15.3%

-1.0%

-14.0%

http://www.ksba.org/protected/PrintArticle.aspx?iid=50GAYB&dasi=3UBI

So, While Modest Economic Recovery, State Budget (2008-14) Continues To Be Ugly Because of Expenditure Side of Budget

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Um – Not Good, is it

Well – no one knows, but my guess is• “OK” recovery will continue in Kentucky• KY will continue to add jobs, but … probably late

2014 before we return to job level of late 2007

• Jobs of the future continue to be different than jobs of the past

• “Pockets” of problems — e.g. Eastern KY

But what does the future hold for Higher Education in 2014 Biennial Budget Session

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Continue to face difficult state and fiscal challenges that impact our future

o Slow State General Fund revenue growth (estimate 2013-14 is 2.5%, FY14-15: 2.4%, FY15-16: 2.3%)

o State’s structural budget imbalance still exists (more funding needed for state pensions)

And, We Will:

http://www.kypolicy.us/content/revenue-forecast-next-budget-remains-weak

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Other Expenditure areas of budget will be higher priority than higher education – because questions of:

o Is Higher Education accountable?o Is Higher Education effective?o Higher Education hasn’t sold itselfo Higher Education has alternative revenue

sources

And:

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• Limited / if any funding for higher education• Funding, if available, tied to “performance”• Funds, if available, tied to specific initiatives; i.e.

“college readiness”• Continued pressure on modest tuition increases

What this means

Tough Fiscal Outlook to Continue

2014 - 2016

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So!

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Thank you

Questions?