NEW HAMPSHIRE ECONOMIC OUTLOOK Ross Gittell, James R Carter Professor, UNH

Outlook Overview: The Context for discussion of the NH economy – The US Outlook  In 2010 the national economy started to recover and then in the Spring and Summer lost its momentum… with debt troubles in Europe, fading stimulus spending and caution by businesses to hire and consumers to spend… so a slow recovery  Signs of improving US economy for strong corporate balance sheets, export growth, federal tax and economic stimulus “resolution”, Fed Reserve’s actions to keep interest rates low, improved stock market  Threats – international financial markets (will debt troubles spread in Europe to Spain and Portugal and elsewhere), rising energy prices, gridlock in DC, state and local fiscal deficits, potential housing market destabilization  How well (or poorly) NH economy performs in 2011 depends largely on National and Global economies and that is why I remain cautiously optimistic about the NH economy in 2011

Outlook Overview: New Hampshire  New Hampshire less of a decline than US average this recession and stronger recovery than US and one of top 5 states, best economy in Northeast, 4 th lowest unemployment rate in nation, more than 4 percentage points below US average  NH well diversified economy.. growing professional & business services, growing “green” jobs, improving leisure and hospitality, low unemployment, high median and average income, relatively low income disparity.. In top ten on many quality of life and health of population measures  Opportunity.. make sure NH has skilled labor supply and other fundamentals to help established and entrepreneurial ventures grow during recovery period  NH can lead New England economy recovery and have one of have one of best performing economies in the nation  Threats to NH – trying to “fix” what is not broken… NH economy is one of strongest economies in the nation.. Reasons include skill and education of workforce, relative (to nearby and competitor) states low costs, quality of life and character of our state and communities.. Should think how new legislation will affect this….

NH has had stronger growth than Bordering States and US average since Key to long term growth is differential growth coming out of recessions.. Will this happen again?

NH and New England Economic Outlook: What happened??  This recession unlike previous recessions, New England and NH employment declines less than US decline in percentage terms  This was not the first Great Recession in NH and New England. Late 1980s- early 1990s recession, had about double the percentage drop in employment (10 percent compared to less than 5 percent)  And the recovery from this recession started …. sooner and stronger in NH and the region than in US  Unemployment peaked in the NH 2010-Q1 at 7% (up from 3.4% in 2008-Q1).. But well below the US peak close to 10%

Across New England Percentage Decline Total Employment Peak-to-Trough. NH & MA declines well below US average

Employment % changes Peak-to-Trough during Recession, US, NE, NH. Real estate related industries and manufacturing had most pronounced percent declines TotalConst.Manu.TradeInfoFinance Prof. and Business Ed. and Health Leisure and Hosp.High Tech NE %-5.2%-29.6%-17.2%-7.9%-8.2%-9.2%-7.8%3.3%-3.3%-6.3% US %-6.1%-26.1%-19.5%-8.0%-9.9%-8.2%-9.1%3.7%-3.8%-4.6% NH %-4.6%-30.6%-19.0%-6.5%-2.7%-13.0%-6.4%-0.4%-4.4%-9.7%

Housing Prices Peak-to-Trough. Median Price Percent decline… NE rate of decline below US average but still significant. High variance across region. RI steepest decline, VT least decline

Peak Unemployment Rate NH Lowest in Region, Well below US peak. RI only state to have rate above US

NEEP NH Forecast Overview  The NEEP forecast is for the NH economy to lead the region in growth. Growth will be above the US average through 2012  But.. Currently the nation is struggling to sustain recovery …  Double-dip in housing prices expected to continue in US and NH until early 2012  The full recovery in NH in total employment back to pre- recession peak (2008-Q1) not expected until 2012-Q2.. this is year before recovery in US is expected 2013-Q2  NH unemployment rate is expected to slowly decline.. but still be above pre-recession level at end of forecast period 2014-Q2

Total Employment annualized % chg 2006 to mid NH leads NE but growth not expected to be above 2% until 2011-Q3. NH growth above US till 2013

% Change Total Employment Trough-End of Forecast NH only state in region expected to have employment growth above US average

Why NH’s relatively strong recovery?  Significantly fewer layoffs and business closings in 2010 than 2009 and at the same time there is some modest growth in employment across different sectors.  The sector that is growing the most on a percentage change basis is professional and business services which is a fairly broad category that includes engineering services, accounting and also computer and software services.  NH benefits relative to other states from having a well diversified economy, low costs, and well educated population  And NH has had less of a housing market and price decline than many other states, and less than in early 1990s in NH

Trough-to-2014 Q2. NH growth % change basis expected to be highest in Prof & Bus Services, Construction, Leisure & Hospitality, High Tech and Health Services.

Median Housing Price Trough to End of Forecast (2014) “Recovery” of NH Median Price is expected to remain 11% below peak

Fiscal Shadow Over the Economy dark shadow  The dark shadow over the economic recovery are the looming federal and state fiscal crises  It will first hit government sector …1% decline in NH expected.. from now till mid-2011 loss of nearly 1,000 jobs  And it will have impact on all sectors …. and public services and infrastructure

New Hampshire Looking Forward  How can the state come out of this past recession strong again??

NEW HAMPSHIRE IN THE INNOVATION ECONOMY

NH Science & Technology Overall, New Hampshire ranks well in the science and technology indicators and this has contributed to strong economic performance over the last three decades Among the toolkit variables, New Hampshire is at the median or better on over two-thirds of 60 indicators This is significant and impressive. There are many strengths and highlights in the innovation system in the state. The state ranks among the top 20 percent (or top 10 of 50 states) on one-quarter of the inputs.

High Tech Intensity and Per Capita Income – the relationship across 50 states.. NH in the leading group

New Hampshire’s innovation economy is being challenged by increasing competition from other states and internationally 1. High-technology employment in NH is lower than it was in the early 1990s 2. NH has been steadily dropping in high-technology concentration since the mid-1990s (ranked 9 th in 2008 compared to 4 th in 1995) 3. During the “technology bust” in the early 2000s, NH was the worst performing state in employment percentage change 4. Recovery of NH’s high-technology industry since the bust has been relatively weak and below the median of states from

Because of New Hampshire’s S&T strengths, improving its innovation system will involve building on the state’s existing and proven strengths

SWOT Analysis – Summary NH Strengths  Among the New England states, only Massachusetts has a stronger innovation system than NH. NH’s greatest innovation system strengths include: 1. Existing high-technology industry base 2. Skilled general workforce (not S&T specific) 3. Growing R&D strength of the academic sector 4. Increased industry investment in R&D 5. A more supportive funding environment for high- technology start-ups than is generally appreciated

SWOT Analysis – Summary Weaknesses  The most glaring weaknesses for the state are:  Relatively low concentration of start-up and high- growth (“gazelle”) companies  High dependence on corporate and business taxes  Tax “Trap” when start-ups are growing, adding employment, increasing financing but not profitable  Underdeveloped university technology commercialization (e.g., could play a greater role in technology-based economic development)  Underdeveloped S&T-specific workforce

 US Economy at critical point  NH Economy strong relative to US average and most other states  NH economic outlook highly dependent on US economic performance  The trend in NH is positive … but it will be difficult to sustain if there is continued weakness in the national economy  Deficits and fiscal challenges will most likely put a “drag” on economic recovery  Slow growth period in NH and nation most likely…  NH can enhance its growth and the growth of well-paying employment opportunities by building on existing innovation system strengths Summary