Economic Outlook for Connecticut Developers Council

.

Alissa DeJonge Vice President of Research Connecticut Economic Resource Center, Inc (CERC)

March 5, 2015

Presentation Overview

} Global Conditions

} US Trends

} Connecticut Indicators

Global Economic Conditions

Global Conditions - Europe

}  Economic Conditions in European Union }  Continued high unemployment }  Deflation

}  Bailout negotiations between Greece and European Union }  Reached agreement on bailout extension }  Greece will adhere to previously agreed

upon austerity measures in exchange for relaxation in 2015 fiscal targets

Source: The Economist, Bloomberg Businessweek

Global Conditions – Emerging Markets

Source: The World Bank

}  Emerging market growth has slowed especially in Brazil, Russia and China

}  India has experienced an increase in growth due to more business friendly policies and reduced oil prices

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014

Emerging Market GDP Growth

China India Brazil Russia

Global Outlook

}  Global GDP growth in 2015–16 is projected to be 3.5% and 3.7%, respectively. }  Europe economic weakness will continue as high

unemployment rates continue to hamper demand

}  Lower probability of Greece leaving the Eurozone because of recent cooperation

}  Emerging market growth continues to slow because of geopolitical issues in Russia, tax increases and lower commodity prices in Brazil, and a slumping housing market in China.

Source: The International Monetary Fund

US Economic Conditions

US Conditions – Gross Domestic Product }  GDP advanced 2.6% in 2014 }  Increases in business equipment, residential investment, personal

consumption

Source: International Monetary Fund, US Bureau of Economic Analysis

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2012 2013 2014

GD

P

GD

P C

OM

PON

NEN

TS

Percent Change in GDP Components

Consumption Investment Exports less imports Government spending Gross domestic product

US Conditions - Trade Balance

Source: Federal Reserve Bank of St Louis, US Bureau of Economic Analysis

70

72

74

76

78

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82

84

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I II III IV I II III IV

2013 2014

US

Dol

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Trad

e Ba

lanc

e ($

Mil)

Trade Balance and US Dollar

US Trade Balance US Trade Weigted Dollar

}  US Dollar has increased in value due to stronger economic activity }  Has impacted trade balance: imports increasing, exports decreasing slightly

US Conditions – Job Growth

208,833 173,917

94,917

(298,083)

(424,000)

88,833

173,333 188,083 199,000

259,667

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Annual Average Job Growth

In 2014, job growth accelerated significantly.

Job growth has been influenced by falling energy prices and business investments.

Jobs added were in traditionally low-wage sectors such as temporary help; and leisure and hospitality.

Source: US Bureau of Labor Statistics

US Conditions - Wage Growth

2.0%

3.1%

3.6%

3.9%

2.4%

1.1% 1.2%

1.6%

1.0%

1.9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gro

wth

in M

edia

n Q

uart

erly

Ear

ning

s

Source: US Bureau of Labor Statistics

Wage growth has been relatively flat in recent years However, 2014 wage growth almost reached the Federal Reserve’s target inflation rate of 2%

US Conditions – Consumer Confidence

Source: Surveys of Consumers: University of Michigan; The Manufacturing ISM Report On Business PMI

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*

2013 2014 2015

Inde

x Ye

ar: 1

980

Consumer Confidence

US Conditions – Consumer Spending

Source: Yahoo Finance, CNN Money

}  After adjusting for inflation, consumer spending grew by 0.3% in January 2015.

}  Although spending increased, it was weaker than expected.

}  Economists expected a larger increase based on the decrease in gasoline prices.

}  The average American driver will save $750 on gas this year, according to government estimates.

US Conditions – Consumer Activities

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

2010 2011 2012 2013 2014

Hou

seho

ld D

ebt

as %

Dis

posa

ble

Inco

me

Household Debt

3.0

3.5

4.0

4.5

5.0

5.5

6.0

2013 2014

As

Perc

ent

of D

ispo

sabl

e In

com

e

Personal Savings Rate

Source: Federal Reserve Bank of St. Louis, US Bureau of Economic Analysis

US Conditions - Housing

}  Housing prices started to plateau at the end of 2014.

}  Demand for housing has weakened recently due to weather and more stringent lending guidelines.

}  The Obama Administration has implemented policies to stimulate demand such as relaxing lending standards.

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200

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CASE-SHILLER INDEX

Source: Surveys of Consumers: University of Michigan; T

US Conditions - Household Formation

}  The unemployment rate for individuals 25 to 34 years decreased from 7.7% (2012) to 5.7% (2014).

}  The number of renters grew by 2 million in 2014.

}  Increase in household formation may indicate more demand for housing going forward.

Source: Bloomberg Business Week, US Census Bureau

-0.5

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2011 2012 2013 2014

MIL

LIO

NS

US Household Formation

US Conditions – Mfg Business Confidence

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60

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r O

ctob

er

Nov

embe

r D

ecem

ber

Janu

ary

2013 2014 2015

Inde

x Ye

ar: 1

980

Business Confidence

Source: The Manufacturing ISM Report On Business PMI

US Conditions - Energy Prices

}  Energy prices (natural gas, oil) declined significantly in latter half of 2014

Source: Bloomberg, Energy Information Agency

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

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$2.00

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US Motor Gasoline Prices

US Conditions - Stock Market

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2013 2014 2015

•  The S&P 500 reached a high of 2,110 on February 17th driven by positive economic indicators such as job growth and robust corporate earnings.

Source: Yahoo Finance

US Economic Outlook

GDP growth in 2015 is expected to be above 3% in 2015 and 2016

•  The Federal Reserve has indicated that it will not raise interest rates in the short-term because inflation has not reached 2%, but many expect the Fed to raise rates by the end of the year (affecting 2016 GDP).

•  Consumer spending is expected to increase due to job gains and energy price declines, but may taper when the Fed increases rates.

•  Weak wage growth and strong low-wage job gains indicate that homes values/sales may not be as strong as desired.

•  Business activity should continue to be strong due to job growth and strong corporate earnings, however some manufacturing sectors experience continued weakness.

Source: Forbes, the IMF

Connecticut Conditions

Connecticut Conditions - State Budget

}  Governor Malloy announced his two year $40 billion budget plan for FY2016-17.

}  Increase in corporate taxes and removal of the business entity tax.

}  Several tax cuts previously promised were cut, including sales tax exemption for apparel under $50.

}  Increases in early childhood education and transportation spending ($100 billion for transportation).

}  Estimated $325 million spending gap will be reconciled by issuing bonds.

}  Mental-health-care providers, hospitals and higher education among those to see deepest cuts.

Source: CT Mirror, Courant.com, Wall Street Journal

Connecticut Conditions - Labor Market

0%

2%

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6%

8%

10%

12%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Une

mpl

oym

ent

Rat

e

Unemployment Rate

Connecticut United States

Source: US Bureau of Labor Statistics

Connecticut Conditions - Industry

95

97

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107

109

111

113

2012 2013 2014

Inde

x Ye

ar: 2

012

Industry Employment

Leisure and Hospitality Government Construction Manufacturing Trade, Transportation, and Utilities Financial Activities Professional and Business Services

Source: US Bureau of Labor Statistics

Connecticut Conditions - Housing

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1,000

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2,000

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2010 2011 2012 2013 2014

Num

ber

of P

erm

its

Housing Permits

1-unit 5+ units 2-units 3-4 units

}  Housing permits in Connecticut increased 11% from 2013 to 2014. Increase driven by demand for 5+ unit housing.

}  Average sale price of single family homes decreased 4% from Q4 2013 to Q4 2014; average price of condos increased 3%.

}  The number of home sales decreased 4% between Q4 2013 and Q4 2014.

Source: Berkshire Hathaway, DECD

Connecticut Economic Outlook }  The Connecticut budget proposal indicates decreased government

spending and business tax increases, which could hurt business investment and consumer spending.

}  Employment is improving in Connecticut with gains in Business and Professional Services and Leisure and Hospitality. Construction employment should improve with employment gains in other industries.

}  A stronger dollar and continued economic troubles in Europe could hurt demand for Connecticut exports.

}  Housing permits increased slightly indicating some gains in the housing market in 2015. Demand for multi-unit housing and condominiums should continue to trend upwards.

Thank you!

Alissa DeJonge Vice President of Research

Connecticut Economic Resource Center, Inc adejonge@cerc.com

(860) 571-6206