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Dr. Anne M. Alexander, University of Wyoming

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Dr. Anne M. Alexander, the Director of International Programs for the University of Wyoming, gave a presentation on the economic outlooks of Utah, Wyoming, and Idaho at the Tri-State …

Dr. Anne M. Alexander, the Director of International Programs for the University of Wyoming, gave a presentation on the economic outlooks of Utah, Wyoming, and Idaho at the Tri-State Telecommunications Conference on August 1, 2012 in Jackson, WY.

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  • Source: Bureau of Labor Statistics
  • Source: Bureau of Labor Statistics
  • Source: Calculated Risk
  • EIA’s forecast of the WTI spot price is higher than last month’s Outlook, averaging about $106 per barrel in both 2012 and 2013 (West Texas Intermediate Crude Oil Price Chart), compared with $100 and $104 per barrel for 2012 and 2013, respectively, in the previous Outlook. The projected WTI price discount to the average U.S. refiner acquisition cost of crude oil narrows over the forecast from about $10 per barrel in the second quarter of 2012 to $4 per barrel by the fourth quarter of 2013, as physical pipeline capacity constraints diminish. The projected average refiner acquisition cost (RAC) of crude oil averages $115 per barrel in 2012 and $110 per barrel in 2013.
  • Natural gas spot prices averaged $2.50 per MMBtu at the Henry Hub in February 2012, down $0.17 per MMBtu from the January 2012 average and the lowest average monthly price since February 2002. Abundant storage levels, as well as ample production, have contributed to the recent low prices. EIA expects that the Henry Hub spot price will begin to recover soon and will average $3.17 per MMBtu in 2012, and $3.96 per MMBtu in 2013, down $0.18 per MMBtu and $0.11 per MMBtu from last month’s Outlook, respectively (U.S. Natural Gas Prices Chart).Natural gas futures prices for May 2012 delivery (for the 5-day period ending March 1, 2012) averaged $2.69 per MMBtu, and the average implied volatility was 42 percent (Market Prices and Uncertainty Report). The lower and upper bounds for the 95-percent confidence interval for May 2012 contracts are $1.96 per MMBtu and $3.69 per MMBtu. At this time last year, the May 2011 natural gas futures contract averaged $3.98 per MMBtu and implied volatility averaged 33 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $3.09 per MMBtu and $5.11 per MMBtu.
  • Natural gas spot prices averaged $2.50 per MMBtu at the Henry Hub in February 2012, down $0.17 per MMBtu from the January 2012 average and the lowest average monthly price since February 2002. Abundant storage levels, as well as ample production, have contributed to the recent low prices. EIA expects that the Henry Hub spot price will begin to recover soon and will average $3.17 per MMBtu in 2012, and $3.96 per MMBtu in 2013, down $0.18 per MMBtu and $0.11 per MMBtu from last month’s Outlook, respectively (U.S. Natural Gas Prices Chart).Natural gas futures prices for May 2012 delivery (for the 5-day period ending March 1, 2012) averaged $2.69 per MMBtu, and the average implied volatility was 42 percent (Market Prices and Uncertainty Report). The lower and upper bounds for the 95-percent confidence interval for May 2012 contracts are $1.96 per MMBtu and $3.69 per MMBtu. At this time last year, the May 2011 natural gas futures contract averaged $3.98 per MMBtu and implied volatility averaged 33 percent. The corresponding lower and upper limits of the 95-percent confidence interval were $3.09 per MMBtu and $5.11 per MMBtu.
  • “After the Fall,” Reinhart and Reinhart, 2010
  • UPDATED 7/24/12

Transcript

  • 1. Economic Outlook Dr. Anne M. AlexanderDirector, International Programs University of Wyoming The Telegraph
  • 2. Idaho - Unemployment Idaho Unemployment Rate, 2011-2012 98.88.68.48.2 87.8 PERCENT OF LABOR FORCE UNEMPLOYED7.67.47.2 7
  • 3. Idaho Outlook Idaho posted year-over-year job losses for 30 straight months until October 2010, when the economy began to stabilize. In 2012 the economy has begun to show signs of job growth. June 2012 nonfarm jobs totaled 618,600, or 1.2 percent above June 2011. State government revenues for the last fiscal year ran below expectations, and business formation has been essentially flat. Tourism, which accounts for roughly 5% the state’s GDP, has rebounded but has not recovered to pre-recession levels.
  • 4. Utah Unemployment Utah Unemployment Rate, 2011-2012 8.0 7.0 6.0 5.0 4.0 Percentage of labor force unemployed 3.0 2.0 1.0 0.0 Nov Dec Aug Feb Apr Jul Sep Feb Apr June May May Jan-11 Jan-12 Mar Oct Mar Jun
  • 5. Utah Outlook Utah typically grows more rapidly than the nation after recessions, and this pattern is taking hold in the current recovery to a certain extent, but it is a much slower recovery than normally would be expected. Job growth in 2011 was a healthy 2.3% for Utah, and the unemployment rate fell to 6% by June 2012. Government revenues have stabilized and grown since FY 2011 for Utah. Economic growth in Utah has risen at a reasonable pace during 2012, but there is still room for improvement. Housing has stabilized, but home-building is not leading the economy as it does during a typical Utah recovery. There is still significant hang-over in foreclosure rates, as they hover around 2.5% of mortgage loans in the state. Another interesting note is that Utah is the state with the 5th largest percentage of GDP generated by exports (top trade partners: United Kingdom, Hong Kong, Canada, Thailand, Taiwan). This can buffer growth and present opportunities (though it can also make you more susceptible to outside financial chaos).
  • 6. Wyoming Economic Outlook Wyoming’s economic structure ring-fences us from some of the continued residual impacts of the 2007 recession and continuing financial volatility in Europe. Resumed robust tourism and hospitality growth. Potential increase in flight to safety of European savings to US, potentially WY as well as ID and UT, by Europeans concerned about financial instability in Euro zone. Concerns about Iran and Syria (see also – “Negatives/Red Flags”), and their impact on oil prices and energy exploration patterns in general.
  • 7. Wyoming Economic Outlook Financial volatility in Eurozone and potential for “Fiscal Cliff” if Congress does not come to debt ceiling deal continue to cause uncertainty. As we all know, “capital is a coward.” Recession in EU is certainly underway due to austerity measures, which could put a damper on hospitality and tourism. Concerns about public policy towards coal. Concerns about Iran and Syria (see also – “Positives-Green Flags). Impact of oversupply of natural gas on state fiscal picture.
  • 8. Wyoming Economic Outlook**Caveat Emptor! Poverty rate = 9.8%  6th lowest in U.S. according to Census Bureau Food stamp usage is lowest in the country at 5.8%  Has fallen 7% since Sept. 2010. Personal disposable income per capita = $47, 301  6th highest in U.S. according to Bureau of Economic Analysis
  • 9. Wyoming Economic Outlook**Caveat Emptor! “Competitiveness Effect” - effect on job creation of differing public policy, industry focus, and economic development strategies across states (newgeography.com)  Wyoming created 1.1% more jobs in 2011 than could be explained by national economic environment only
  • 10. Wyoming 10-Year Unemployment Picture January 2001-May 20128.0 Financial crisis begins7.0 Recession begins6.05.04.03.02.01.00.0 Jan-01 Jan-06 Jan-11 Jul Jul Nov Feb Nov Feb Nov May Dec Mar Aug May Dec Mar Aug Sep Sep April Apr Oct Apr Oct Jun Jun Jun
  • 11. Wyoming Economic Outlook**Caveat Emptor! Wyoming Unemployment Rate 2011-12 7 May 2012 = 6 5.2% 5 (June 4 preliminary estimate = 3 5.4%) 2 1 0 Unemployment Rate
  • 12. Economic Outlook* ID UT WY
  • 13. Commodity Outlook – Oil From US EIA
  • 14. Commodity Outlook – Natural GasSource: US EIA
  • 15. Commodity Outlook – Natural GasSource: US EIA
  • 16. Commodity Outlook - CoalFrom Economist Intelligence Unit Coal ($/ton) 140 120 100 80 Coal ($/ton) 60 40 20 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
  • 17. Economic Outlook**Caveat Emptor! In the next 3-6 months, expect a stabilization of the Wyoming unemployment rate near 5.0%. Utah’s unemployment rate will finally fall below 6.0%, while Idaho’s will drop to around 7.3%. Without growth in the rest of the U.S., the Wyoming energy economy will be solid but not accelerating. WY has likely hit a spot where improvement comes more slowly, but conditions are very unlikely to worsen unless the Euro crisis spins out of control or the U.S. falls back into recession. Utah and Idaho are more exposed to a U.S. recession should it occur, and both are more directly impacted by the Euro crisis.
  • 18. US Economic Outlook**Caveat Emptor! In the EU a recession is already underway. A financial crisis or recession (or both) in the EU could tip the U.S. back into recession in the coming 3-6 months. If a mild recession grips the EU, it may just slow growth in the U.S. and Wyoming by as much as full percentage point (weak 2- 3% growth instead of recovery rates in excess of 3%).
  • 19. US Economic Outlook**Caveat Emptor! We are still recovering from a deep and long economic trauma. Research shows that recessions caused or exacerbated by financial crises induce such an economic shock that they significantly alter the structural characteristics of the economy The recessions that ensue are significantly deeper and longer than those not caused by financial crises. Note that on average, your “run of the mill” non-crisis-induced recession lasts around one year.
  • 20. Financial Crises and their Recessions Unemployment rates are significantly higher in the decade after crises compared to the decade before. In the vast majority of post-World War II crises, unemployment rates never returned to their pre-crisis levels by the end of 10 years post-crisis. Real housing prices are 10-15% lower during the entire post-crisis decade compared to their prices just before the crisis.
  • 21. Financial Crises and their Recessions Economic growth (real per-capita GDP) is significantly lower during the entire post-crisis decade than during the pre-crisis decade. On average, median growth is 1% lower post vs. pre-crisis.
  • 22. Financial Crises and their Recessions US economic outlook has begun to look more positive in the early part of the past three years, then tips back towards slowing growth. Based on financial crisis histories, it’s almost always a precarious situation and we are in for a long slog.
  • 23. Unemployment
  • 24. Unemployment
  • 25. Millions of Jobs 10 12 14 2 4 6 8 0 11/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/2012 11/1/2012 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013 11/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014Jobs Shortfall 9/1/2014 11/1/2014 1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/2015 11/1/2015 1/1/2016 Unemployment Recovery Estimates Time Required to Restore 6% Unemployment Rate 3/1/2016 with net population growth – this what the red line represents 5/1/2016 NOTE: Around 125,000 jobs must be created per month to keep up 7/1/2016 9/1/2016 11/1/2016 1/1/2017
  • 26. Millions of Jobs 10 12 14 0 2 4 6 8 11/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/2012 11/1/2012 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013Jobs Shortfall 11/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/2014 11/1/2014 1/1/2015 3/1/2015 At 300K jobs added per 5/1/2015300000 jobs added per month 7/1/2015 9/1/2015 month, 6% unemployment late next year at current GDP growth 11/1/2015 1/1/2016 Unemployment Recovery Estimates 3/1/2016 5/1/2016 Time Required to Restore 6% Unemployment Rate 7/1/2016 9/1/2016 11/1/2016 1/1/2017
  • 27. Millions of Jobs 10 12 14 0 2 4 6 8 11/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/2012 11/1/2012Jobs Shortfall 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013 11/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014300000 jobs added per month 9/1/2014 11/1/2014 1/1/2015 3/1/2015 5/1/2015 7/1/2015 9/1/2015 11/1/2015 Time Required to Restore 6% Unemployment Rate Unemployment Recovery Estimates 1/1/2016250000 jobs added per month at current GDP growth rate 3/1/2016 At 250K jobs per month, 6% unemployment by mid-2014 5/1/2016 7/1/2016 9/1/2016 11/1/2016 1/1/2017
  • 28. Millions of Jobs 0 2 4 6 12 14 8 10 11/1/2011 1/1/2012 3/1/2012Jobs Shortfall 5/1/2012 7/1/2012 9/1/2012 11/1/2012 1/1/2013 3/1/2013 5/1/2013 7/1/2013 9/1/2013300000 jobs added per month 11/1/2013 1/1/2014 3/1/2014 5/1/2014 7/1/2014 9/1/2014 11/1/2014 2016 1/1/2015 3/1/2015250000 jobs added per month 5/1/2015 At 200K jobs per 7/1/2015 9/1/2015 11/1/2015 month, unemployment would fall to 6% in mid- Time Required to Restore 6% Unemployment Rate 1/1/2016 Unemployment Recovery Estimates 3/1/2016 5/1/2016 7/1/2016 9/1/2016200000 jobs added per month 11/1/2016 1/1/2017
  • 29. Job Losses Relative to Peak Employment inRecent Recessions
  • 30. Vehicle Sales 2006-2012
  • 31. Vehicle Sales (since 1967)
  • 32. Retail Sales
  • 33. Housing Starts
  • 34. Mortgage Delinquencies and Foreclosures
  • 35. Specific Uncertainties/Challenges Net neutrality Cybersecurity Privacy
  • 36. Euro Crisis Impact on The Tristate Region Sigh…when are the You know, I’m German kind of not elections?sorry that I lost the election… 36
  • 37. Exposure to Euro Crisis Wyoming’s top-ten trading partners do not include any EU country.  On average, Wyoming firms have low direct exposure to Euro crisis via exports. However, trade in manufactured/high tech goods as well as tourism and other services are more highly interconnected to EU.  They are most at risk from an unwinding Eurozone or continuing instability in the EU.
  • 38. Exposure to Euro Crisis Utah’s top-ten trading partners includes the UK (non- Euro, but impacted by crisis nonetheless); top-fifteen includes Germany and Belgium as well  On average, Utah’s firms have moderate direct exposure to Euro crisis via exports. Again, Utah’s trade in manufactured/high tech goods as well as tourism and other services are more highly interconnected to EU.  They are most at risk from an unwinding Eurozone or continuing instability in the EU.
  • 39. Exposure to Euro Crisis Idaho’s top-ten trading partners includes France; top- fifteen includes the UK and Netherlands as well  On average, Utah’s firms have moderate direct exposure to Euro crisis via exports. Tourism and other services are more highly interconnected to EU.
  • 40. Exposure to Euro Crisis On broad scale, most impacts on region would be indirect, which is not to say small or insignificant.  Potential U.S. bank exposure uncertainty, though US banks have likely unwound a large portion of their EU portfolios, could lead to a “Lehman-like” moment. • Already seeing a large volume of outflows from EU banks, and reduced lending there. If bank-run atmosphere takes hold, that will impact all lending institutions.
  • 41. What Uncertainty Does to Financial InvestmentEnvironment Double-dip speculationLehman collapse, Emergency begins EuroEconomic Stabilization Act of mess2008 fails to pass
  • 42. Exposure to Euro Crisis Indirect Effects, continued  Wealth effects in savings held by people in our region – when there is financial chaos, nest eggs tend to shrink.  Higher uncertainty in the investment and business climate  could negatively impact employment and expansion plans that may have been looking more positive.  Could see mini “trade collapse,” as seen in wake of 2008 financial crisis, that drags down growth for a few months.  Reduced demand for commodities and energy resources if either a European recession or a Euro financial crisis set in.
  • 43. Summary – Wyoming Barring financial market chaos, Wyoming is on a solid, steady economic trajectory.  Unemployment will hold steady in the state around 5% in the next year. For the next 12 months, economic growth will remain solid but unimpressive as subdued domestic demand for energy, the warm winter, and oversupply of natural gas continues among high national unemployment, relatively low U.S. consumer confidence and weak national growth projections.  If oil prices spike higher due to Iran or Syrian interventions or tensions, this could improve Wyoming’s state revenue outlooks in the near term, but would depress growth in the longer term as the US responds by falling into another recession.  Even with indirect exposure to Euro-Mess there is still concern about that Lehman-like moment and its possible impacts on Wyoming. If something spins out in the next few months, there would be a significant hit on the Wyoming economy along with the rest of the U.S.
  • 44. Summary – Idaho Barring financial market chaos, Idaho’s outlook is improving.  Unemployment will decline in the state to around 7.3% in the next year. For the next 12 months, economic growth will pick up but will not be robust because of relatively high state unemployment, high national unemployment, weak consumer demand and confidence and weak national growth projections.
  • 45. Summary – Utah Barring financial market chaos, Utah’s outlook is stronger.  Unemployment will decline in the state to around 6% or lower in the next year. For the next 12 months, economic growth will strengthen due to strong export sector, but caution is still needed because of residual effects of the housing bust, high national unemployment, weak consumer demand and weak national growth projections.
  • 46. Summary – US and World U.S. economy will remain sluggish but improved.  EU is the US largest trading partner, so the Euro crisis and an emerging recession in the E.U., a high degree of both investment and political uncertainty nationally and globally, and chronically high but slightly improving level of unemployment point to a challenging year ahead. Global economy on shaky ground.  Strong and steady emerging economies’ growth rates are leveling or falling, and confidence globally is eroding.  It is still uncertain whether the Euro as a currency will continue on. Whether that decision and ensuing results are orderly or not is up for grabs.