UpdateontheNewEnglandEconomyandHousingMarketsBanker & Tradesman Real Estate Outlook BreakfastFebruary 27, 2013

Alicia Sasser Modestino, Senior EconomistNew England Public Policy CenterFederal Reserve Bank of Boston

The views expressed in the presentation are not necessarily those of either the Federal Reserve Bank of Boston or the Federal Reserve System.

AreasofFocus

• Employment situation

• Consumer and business confidence round‐up

• Housing situation

• Economic outlook for New England

NewEnglandEmploymentSituation

Good News: Employment and incomes are higher than they were one year ago.

• Employment is growing in most major industries.• Regional unemployment still below the national rate.• Personal incomes grew over the past year.

Bad News: Growth has been slower than the nation and unemployment ticked up over the summer.

• Job growth has been unsteady and lags behind the nation.• Unemployment rate increased slightly in July and August. • Growth of personal incomes has been below that of the U.S. each quarter over the past year.

IEmploymentgrowthinNewEnglandhasbeen

unsteadyin2012.

Source: Bureau of Labor Statistics, NBER, Haver Analytics

Monthly Employment Change, New England

‐60

‐50

‐40

‐30

‐20

‐10

0

10

20

30

40

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Thou

sand

s of Job

s

Asaresult,year‐over‐yearemploymentgainsforNewEnglandwerebelowthatoftheU.S.

Annual Employment Growth

Source: Bureau of Labor Statistics, NBER, Haver Analytics

US

NE

‐6

‐4

‐2

0

2

4

6

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Percen

t Cha

nge from

 a Year E

arlier

New EnglandLast 12 months: +0.8%Since peak: -3.1%

United StatesLast 12 months: +1.6%Since peak: -2.5%

Byindustry,employmentgrowthinNewEnglandwasmixedcomparedtoayearearlier.

Source: Bureau of Labor Statistics, NBER, Haver Analytics

Annual Employment Growth by Industry

1.9

1.2

‐0.2

2.0

1.4

1.6

3.2

1.3

2.2

3.0

0.0

2.9

‐1.1

‐0.4

‐0.4

‐0.1

‐0.1

0.5

0.6

0.7

1.4

1.7

2.5

2.7

‐4 ‐2 0 2 4

Construction

Manufacturing

Government

Wholesale Trade

Finance

Retail Trade

Transportation, Warehousing, and Utilities

Other Services

Education & Health

Leisure & Hospitality

Information

Professional & Business Services

Percent Change, December 2011 ‐ December 2012

NE US

Aftertwoyearsofsteadyimprovement,NewEngland’sunemploymentratetickedupover

thesummerandnowstandsat7.3%.Unemployment Rates

Source: Bureau of Labor Statistics, NBER, Haver Analytics

NE

US

0

2

4

6

8

10

12

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Percen

t

Year‐over‐year,theunemploymentratewasupslightlyfortheregion,butimprovedmarkedly

inConnecticutandRhodeIsland.

Source: Bureau of Labor Statistics, Haver Analytics

Unemployment Rates

5.1

10.2

5.7

6.7

7.3

8.6

7.3

7.8

5.2

11.0

5.2

6.9

7.0

8.1

7.2

8.5

0.0 2.0 4.0 6.0 8.0 10.0 12.0

Vermont

Rhode Island

New Hampshire

Massachusetts

Maine

Connecticut

New England

United States Dec‐11

Dec‐12

PersonalincomecontinuedtogrowinNewEngland,althoughataslowerratethantheU.S.

Annual Personal Income Growth

Source: Bureau of Economic Analysis, NBER, Haver Analytics

NE

US

‐8

‐6

‐4

‐2

0

2

4

6

8

10

12

Q3‐98 Q3‐00 Q3‐02 Q3‐04 Q3‐06 Q3‐08 Q3‐10 Q3‐12

Percen

t Cha

nge from

 Year E

arlier

ConsumerandBusinessConfidenceGood News: Confidence is higher than one year ago and forward looking indictors suggest greater growth. 

• Business confidence increased in Massachusetts in January, reversing several months of declines.

• Consumer confidence among New England residents had been falling since October, but rebounded in February. 

• Forward‐looking indicators point to greater expected growth over the coming six months for most of the New England states. 

ConfidenceamongMassachusettsemployerstickedupinJanuary,justabovetheneutralmark.

AIM Business Confidence Index

Source: Associated Industries of Massachusetts, NBER

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13

Inde

x

Massachusetts

0

10

20

30

40

50

60

70

80

90

100

US NE US NE US NE

Consumer Confidence Present Situation Future Expectations

Feb‐12

Feb‐13

Overall,consumerconfidenceinNewEnglandisslightlyhigherthanayearagobutbelowtheU.S.

Consumer ConfidenceIndex, 1985 U.S. Average = 100

Source: The Conference Board, Haver Analytics

Forward‐lookingindicatorssuggestgreaterexpectedgrowthoverthecomingsixmonths.

Federal Reserve Bank of Philadelphia Leading Economic Index

Source: Federal Reserve Bank of Philadelphia.

‐6

‐4

‐2

0

2

4

Dec‐06 Dec‐07 Dec‐08 Dec‐09 Dec‐10 Dec‐11 Dec‐12

Percen

t

Recession

US

CT

ME

MA

NH

RI

VT

HousingMarketSituation

Good News:  There are positive signs of recovery.

• Price declines have moderated in much of New England.• Sales and permits are up compared to a year ago.• Foreclosures have fallen sharply over the past year.

Bad News:  The housing recovery continues to be slow.

• Regional house prices grew more slowly than the U.S.• Existing home sales and single family permits lag the nation. • Foreclosures are persistently high compared to historical levels.

Attheendof2012,housepricesinNewEnglandwereslightlyhigherthanayearago,butgrowing

muchmoreslowlythanthenation.Repeat‐Sales Home Price Indices

Source: FHFA, NBER, S&P/Case‐Shiller, Haver Analytics

‐25

‐20

‐15

‐10

‐5

0

5

10

15

20

Q4‐98 Q4‐00 Q4‐02 Q4‐04 Q4‐06 Q4‐08 Q4‐10 Q4‐12

Percen

t Cha

nge from

 Year E

arlier

Recession

NE FHFA Purcharse Only

US FHFA Purchase only

US S&P Case‐Shiller

Year‐over‐year,housepricesfellinfourofsixNewEnglandstates.

FHFA Purchase‐Only House Price Index

Source: FHFA, NBER, S&P/Case‐Shiller, Haver Analytics

‐0.5

1.4

‐1.0

1.8

‐0.1

‐0.8

0.5

5.5

‐2.00 ‐1.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00

Vermont

Rhode Island

New Hampshire

Massachusetts

Maine

Connecticut

New England

Boston

United States

Percent Change, Q4 2011 ‐ Q4 2012

InBoston,pricesneverfellasmuchasinsomemetropolitanareas,althoughrecoveryisstillslow.

Source: S&P/Case‐Shiller, NBER, Haver Analytics

S&P/Case Shiller Home Price Indices

‐20

‐15

‐10

‐5

0

5

10

15

20

25

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Percen

t Cha

nge from

 a Year E

arlier

Composite Index, Top 20 Cities

Composite Index, Top 10 Cities

Boston

Over2012,pricesinBostonincreasedbutlaggedbehindmostoftheComposite10cities.

S&P/Case Shiller Home Price IndicesPercent Change, Dec‐11 to Dec‐12

Source: S&P/Case‐Shiller, Haver Analytics

5.8

14.4

9.2

‐0.5

10.7

10.2

12.9

8.5

2.2

3.6

6.0

6.9

‐2 0 2 4 6 8 10 12 14 16

Washington DC

San Francisco

San Diego

New York

Miami

Los Angeles

Las Vegas

Denver

Chicago

Boston

Composite 10

Composite 20

ExistinghomesalesintheNortheastlagbehindtherestofthenationbutarestartingtocatchup.

Total Existing Home SalesSeasonally Adjusted at Annual Rates

Source: National Association of Realtors, NBER, Haver Analytics

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jan‐00

Jan‐01

Jan‐02

Jan‐03

Jan‐04

Jan‐05

Jan‐06

Jan‐07

Jan‐08

Jan‐09

Jan‐10

Jan‐11

Jan‐12

Jan‐13

Inde

x, 1999 Av

erage = 1

USNortheastMidwestSouthWest

Single‐familyhousingpermitsinNewEnglandhaveshownlittleincreaseoverthepastyear.

Single Family Permits

Source: Census Bureau, NBER, Haver Analytics

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Inde

x, 1988 Av

erage = 1

United States

New England

Multi‐familyhousingpermitsinNewEnglandarereboundingmorestrongly.

Multi Family Permits

Source: Census Bureau, NBER, Haver Analytics

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Dec‐98 Dec‐00 Dec‐02 Dec‐04 Dec‐06 Dec‐08 Dec‐10 Dec‐12

Inde

x, 1988 Av

erage = 1

United StatesNew England

Foreclosures Started, All Loans

Foreclosureshavefallenfromtheirpeakbutremainpersistentlyhighcomparedtohistoricallevels.

Source: Mortgage Bankers Association, NBER, Haver Analytics

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Q4‐98 Q4‐00 Q4‐02 Q4‐04 Q4‐06 Q4‐08 Q4‐10 Q4‐12

Percen

t of M

ortgages

Recession

CT

ME

MA

NH

RI

VT

NE

US

NewEnglandEconomicPartnership’sEconomicOutlook

Employment• Employment forecast to grow more slowly than the nation.

Housing• House prices expected to post steady gains through 2016.

Overall Economic Growth• Real gross product for the region is expected to grow moderately along with the nation.

• Continued fiscal cliff negotiations are expected to slow growth but not derail the region’s recovery.

EmploymentinNewEnglandisexpectedtogrowmoreslowlythantheU.S.overthenext4years.

Source: New England Economic Partnership

Annual Growth Rate 2012‐16: Employment

2.0

1.31.1

1.4

1.1

1.51.3

1.5

0

1

1

2

2

3

US NE CT MA ME NH RI VT

Percen

t

Housepricesareexpectedtopoststeadygainsthrough2016formostNewEnglandstates.

Source: New England Economic Partnership

2006‐2016 Median House Price Change

‐15.0

‐10.0

‐5.0

0.0

5.0

10.0

15.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percen

t Cha

nge from

 Previou

s Year

US NECT MAME NHRI VT

NewEnglandisexpectedtogrowslowerthanthenationonaveragethrough2016.

Source: New England Economic Partnership

Annual Growth Rate 2012‐16: Gross State Product

3.1 3.1 3.1 3.1

2.4

3.6

2.3

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

US NE CT MA ME NH RI VT

Percen

t

0

0.5

1

1.5

2

2.5

1950 1957 1964 1971 1978 1985 1992 1999 2006 2013

New England Sports Index (NESI)

Inde

x 1920=1

 (Bab

e Ru

th trad

ed to

 the Yankees, th

e curse be

gins)

Celtics Reign of Terror (57-69) Multiple Bruins and

Celtics Championships

Buckner!

Patriots Super Bowl Wins

Yankees win Game 7 ALCS with walk-off homerun

Red Sox come back to beat Yankees in ALCS and win WS

Red Sox 2007 WS Champs

Sox miss playoffs

Note:    Red Sox given favorable weights.

Bruins are back in black after NHL lockout

ButNewEnglandhasbeenthroughtoughtimesbefore...

Celtics beat Lakers to win 17th NBA Championship

Bruins win the Stanley Cup

Pats defeated by Giants in Superbowl, AGAINCelts defeated by Heat in Eastern Conference FinalsSox first losing season since 1997, worst since 1965