John O. Harney: NEEP sees regional growth and then massive uncertainty

The New England Economic Partnership (NEEP) explored "What’s Ahead After This Historic Election?" at the group's outlook conference held Jan. 17 at the Federal Reserve Bank of Boston, right across the street from South Station.

Their general conclusion: New England's economy will stay robust through 2017 and 2018 ... but then watch out! (And that's just economists—groups of scientists, multiculturalists, educators, philosophers and others would presumably voice similar cautions.)

Brandeis International Business School Senior Lecturer John Ballantine opened the NEEP proceedings by urging the crowd to reexamine its "confirmation bias," noting that the northern congressional district in Maine voted for Donald Trump and Clinton won New Hampshire by only about 2,700 votes.

NEEP's frequent national forecaster, Moody’s Analytics Chief Economist Mark Zandi, reassured the audience that the U.S. is in the midst of its second-longest economic expansion in history, including a record-setting seven consecutive months of job growth, record-low layoffs and nearly full employment. It would take a lot to derail that in 2017, he said.

The conference theme—Trump's election—is another story. Zandi was in London on election night and went to bed expecting a Clinton victory, only to take a call from his daughter in the U.S., who was crying over the results. He said he wouldn’t read too much into the post-election reaction in financial markets. Investors are responding to pledges of lower taxes, less regulation and deficit-financed government spending on the military, infrastructure improvements and other items, he said. But “there’s a boatload of uncertainty” here.

Tweets browbeating specific companies have made businesses anxious, Zandi said. And while U.S. policy since World War II has been to embrace the world, the Trump administration would use tariffs and other sticks with countries it sees as cheating. Zandi conceded that China and Mexico would probably retaliate, touching off a trade war. In addition, tough immigration standards will constrain growth in the U.S. labor force. We actually need more immigration, skilled and unskilled, he said. He added that immigrants tend to be more entrepreneurial, so immigration is the best way to increase productivity. Zandi suggested if you're in the recession-prediction business, look out for the end of Trump’s term, when some of the worst disruption (not in the current fashionable sense) will kick in.

Ross Gittell, chancellor of the Community College System of New Hampshire and NEEP vice president, noted that the New England economy has tracked the U.S. economy and should see strong growth in 2017 and 2018. But he too worried about uncertainty in the outer years of forecast.

New Hampshire posted the lowest unemployment rate in the U.S., at 2.5%, and Massachusetts the third lowest rate in the U.S., at 3.3%. (South Dakota, at 2.7 percent, was the second-lowest.) The New England average was 5% in 2015, down from a regional peak of 8.7% in 2010, and NEEP projected that it would fall to 3.7% in 2018. That's when things may go south, in part, because all that employment constrains room for more growth and, in part, because the Trump risks begin to kick in at that point. Among those risks, Trump's anti immigration stands would deal big blows to New England's already-vulnerable labor pool and the region'shigher-education sector,  which relies so much on foreign talent.

Different states may meet different fates. For example, Trump could offer perverse pluses in Connecticut: tax cuts for the rich and more submarines for a defense buildup. Massachusetts could also benefit from the Pentagon spending, but could be hurt by changes to the Affordable Care Act (so-called Obamacare) as well as immigration policy.

Massachusetts also has net inflow of domestic and international Millennials, said Alan Clayton-Matthews, associate professor of public policy at Northeastern University. An audience member asked why people in their 20s are migrating to Massachusetts, but people in their 30s are migrating out. Panelists didn’t seem to know. Bird suggested that New Hampshire is the opposite, losing people in their 20s who return in their 30s for a perceived quality of life.

Ryan Wallace, project director at the Maine Center for Business and Economic Research at the University of Southern Maine, noted that Maine employment won’t return to pre-recession peaks until 2018. The oldest state in the nation by median age, Maine is among the few states where deaths outpace births. But since 2010, Maine's population has grown by 4,200—almost all through international migration. The state had been famous for welcoming Somalis to Lewiston and other cities. But more recently, Maine stories focus on cutting safety nets. On a different front, Maine’s governor has threatened cuts to the state workforce.

Independent economist Jeff Carr gave the Vermont forecast. “I don’t think there’s been a time where we’ve been more uncertain about where we’re going,” Carr said. He agreed that 2019 and 2020 will be the danger years. Among other risks, Vermont—like Maine and Rhode Island—gets a high percentage of funds from the Feds, led by Medicaid.

Every New Hampshire industry is hiring, except government, partly because a declining school-aged population means less demand for teachers, according to Greg Bird, economist with the New Hampshire Center for Public Policy Studies. Bird also noted a serious divide between counties tied to Greater Boston and more rural counties, which are treading water, or evenstill in recession. New Hampshire—like Maine and Vermont—hasn’t seen labor force growth from 2012 to 2015. Bird said the state's prosperity is not sustainable because of its demography and already Granite State businesses are having trouble finding people to hire.

Rhode Island had the highest unemployment rate in New England in November at 5.3%. But that's a far cry from the 9.1% it hit in November 2013. Edinaldo Tebaldi, associate professor of economics at Bryant University, noted that Gov. Gina Raimondo’s economic development emphasis includes attracting jobs from GE and Johnson & Johnson and proposing free tuition at the Ocean State's public higher- education institutions.

Patrick Flaherty, assistant director of research and information at the Connecticut Department of Labor, said employment is hitting record highs in Connecticut, though the state has recovered less than three-quarters of jobs lost in the recession. Healthcare has been a key employer in Connecticut, but is currently restructuring with hospital mergers. Also, the number of school-age children is projected to keep shrinking, while the 65-and-over age groups, especially 85 and over, keeps growing. Also a Trump tax policy that favors high-income individuals could help Connecticut's affluent population, as could the defense buildup: Connecticut is still the fourth largest state in aerospace employment … and a major producer of submarines.

Song for Europe

In addition to regional economic forecasts, NEEP counts as part of its mission providing indepth discussions on key issues. This time around, some of that focused on the economic and political crises facing Europe—not unrelated to the Trump reflections.

Jeffry Frieden, professor of government at Harvard University, explained how confidence in government has collapsed and support for the European Union has plummeted. And the economy has been suffering a long time; for some, it may be not a lost decade, but a lost generation. In addition, poor Spanish are more likely to share values with poor Germans than with well-off Spanish. And, said Friedan, if the NEEP crowd thinks New England’s demography is threatening, the labor force constraints in Europe are even tighter.

John O. Harney is executive editor of the New England Board of Higher Education, on whose Web site this essay first ran.

John O. Harney: Powering a slow recovery

The economic recovery  from the Great Recession is not jobless as economists once warned, but it is slow and uneven. Every month, the Hamilton Project at the Brookings Institution reports on the number of jobs the U.S. economy will have to create to return employment levels to where they were when the Great Recession began in December 2007, while absorbing people who enter the potential labor force. At the end of May, this jobs gap was 3.6 million. If the economy adds about 191,000 jobs a month—the average monthly growth rates since the jobs recovery began in March 2010 — the gap will not close until August 2017.

Meanwhile, in a recent study by the Federal Reserve, nearly half of Americans say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.

The jobs recovery has been one of the measures that has preoccupied the New England Economic Partnership (NEEP) in recent years.

NEEP is a member-supported nonprofit that provides economic analyses and forecasts. Historically, NEEP published macroeconomic forecasts of the New England region and its six individual states and held semi-annual “Outlook” meetings packed with colorful content about the economy in our backyard: which industries and occupations are expanding, which are shrinking and so forth.

The meetings used to begin with a national context set by big economists such as Moody’s. This was typically followed by state-specific forecasts from New England academic and corporate economists who volunteer to offer a report focused on each state’s economy, but tied to the particular conference theme: in the case of spring 2015, energy. The forecasts always rated a short report in the big daily New England newspapers and AM radio news—mainstays of taking the region’s economic pulse.

But these are somewhat leaner times for the economists' organization that always was a bit unsung. Last year, NEEP decided to do only one forecast per year, though forecast managers offered to do their own updates for this special conference focused on "Building the Backbone of Energy Efficiency" and held in June at the Federal Reserve Bank of Boston. The spring 2015 conference was co-sponsored by the Massachusetts Business Roundtable and Brandeis International Business School, the latter of which has become something like NEEP’s guardian since the New England Council (NEC) ended a short-lived sponsorship in 2013, and Brandeis Prof.  John Ballantine became NEEP president. (The NEC, meanwhile, in partnership with Deloitte Consulting LLP, published a study on the promise of New England’s advanced manufacturing sector to provide jobs to middle-class workers.)

This year, NEEP broke with tradition, skipping the usual national forecast and going straight to the energy theme and the always-informative state forecasts—but this time without one of the six states: Rhode Island.

The energy discussion featured talk of a perceived abundance of oil and gas, much of it drawn from shale, as well as ambivalence about fracking, interest but underachievement on renewable resources and dreams of more pipelines.

New England’s energy prices have long been among the highest in the U.S. All six states rank in the top 10 nationally in terms of highest electric rates. Kevin Lindemer, managing director of IHS Global Insight/Cambridge Energy Research Associates, pointed out that despite so much talk about wind and solar, the region is reliant on gas, which we don’t have enough of, and nuclear, which we have a love-hate relationship with. Indeed, Maine and Vermont each closed nuclear power plants in recent years.

The spring 2015 state gigs were done by: Fairfield University  Prof.-Emeritus Edward Deak (Connecticut); Ryan Wallace of the University of Southern Maine (Maine) in place of his colleague Charlie Colgan (the canny Maine economist whose department's dismissal from the struggling university a year ago was an ominous sign of New England economic uncertainty); Northeastern University Prof. Alan Clayton-Matthews (Massachusetts); New Hampshire Center for Public Policy Studies economist Dennis Delay; and Vermont economist Jeff Carr.

Deak noted that Connecticut has 1.1 percent of the U.S. population, but contributes lower proportions of greenhouse gases. Spurred by fears of climate change, the Connecticut legislature has mandated that 27 percent of the state’s energy be supplied by renewable sources (including solar, wind, hydro, fuel cells and biomass) by 2020. Right now, the renewables portion is less than 5 percent, Deak said.

Deak added that Connecticut’s housing market is still suffering from the distresses of the Great Recession. (Nationally, the Labor Department reported that builders broke ground on new homes in April at a faster rate than at any time since November 2007.)

Wallace reminded the audience that Maine is the nation's oldest state in terms of residents' age and observed that the state is energy-intensive because of its traditional industries of paper (which is in free-fall) and shipbuilding. Fully half of Maine’s electricity comes from renewable sources—hydro, biofuels and wind. The big issue in Maine, Wallace said, is transmission: pipelines and high-voltage power lines to carry energy to and from Maine.

Clayton-Matthews said that while the Massachusetts economy has been outperforming the U.S., youth unemployment is disturbing—nearly 12 percent for people under age 25. And the number of people who want full-time work but have only part-time is more than twice what it was in 2007. Also labor force growth will decline to almost zero by 2018.

Delay reported that the Granite State added jobs, but the problem is job quality: two of three added jobs pay below state average wage. Moreover, Delay pointed out, the Market Basket worker protests of 2014 hit New Hampshire especially hard.

Energy prices in New Hampshire are very volatile, Delay said, noting that what used to be Public Service of New Hampshire is now Eversource. And in an effort to contain energy costs, proposals have surfaced that would pull New Hampshire from the nine-state Regional Greenhouse Gas Initiative designed to reduce carbon emissions.

Carr said that Vermont has very energy-intensive industries form computer chips to famous food businesses including cheese, ice cream, craft beer and coffee. Vermont’s Comprehensive Energy Plan would have 90 percent of the state’s energy use coming from renewables by 2050.

TDI New England wants to build a 1,000-megawatt transmission line to carry electricity generated by Hydro Quebec in Canada to markets in southern New England. The so-called “New England Clean Power Link” would pass under nearly 100 miles of Lake Champlain, and the developer promises to include phosphorus cleanup, habitat restoration and recreational improvements.

“To be competitive in the future, New England must find ways to invest in a flexible grid and a mix of less expensive energy sources—gas, hydro, wind,” said Ballantine. “This requires a coordinated energy policy across the six New England states and investment of billions of dollars to modernize our infrastructure."

Lindemer observed that 60 percent of oil goes into transportation worldwide. Despite all those gas guzzlers you see out there, Lindemar claimed oil and gas are not “exhaustible” like fish and trees, especially with the cost of fracking going down as people learn how to improve the environmentally controversial practice—even pursuing so-called superfracking to crack more and deeper fissures in the earth to release more oil and gas. Talk about cracked.

John O. Harney is executive editor of The New England Journal of Higher Education (nebhe.org), on whose Web site this piece originated.

John O. Harney: New England vs. demographics

  BOSTON

“The Great Recession and not-so-great recovery applies to all of us.”

That was University of Southern Maine professor Charlie Colgan’s  remark at at the New England Economic Partnership (NEEP) conference Oct. 13 as he noted that Maine was just two-thirds of the way back to pre-recession employment levels.

The  New England forecasts at the Fall Economic Outlook conference were  generally cautiously optimistic, sprinkled with the expressed and implied NEEP mantra: “Having said that, I could be wrong.”

It may be the dismal science, but it’s an experiment you're part of every time you go to work or buy anything.

“What is relatively unique in New England is the region’s demographics—with a rapidly aging population and steep declines in young adult population threatening the region’s workforce skills and education advantage,” said New England Forecast Manager Ross Gittell, chancellor of the Community College System of New Hampshire.

In Maine, for example, Baby Boomers and their children simply had fewer babies, so all of Maine’s added population in the next 40 years will come from in-migration, but the big sources of that in-migration—Vermont and New Hampshire—are also shrinking, said Colgan. Will productivity increase enough to keep Maine and New England competitive?

Gittell and others joked that given the demography, the region should have focused on under-18 housing instead of over-65 housing.

Colgan noted that ship and boatbuilding have returned to Maine as a major industry (thanks to more destroyers  being built at Bath Iron Works) and natural-resource industries have returned, in a sense, with Lincoln Logs coming back to Maine from China.

Colgan, by the way, is one of the professors let go recently by the University of Southern Maine—part of a higher-education disinvestment story that may say more about the future of the New England economy than any other layoff tracked by NEEP.

He warned that people in Maine see the loss of old-economy jobs such as the impending closure of the Verso paper mill in Bucksport as a tragedy, while they view the laying off of intellectuals at USM, who may be “from away” (though Colgan’s not) as a win for taxpayers.

Among tidbits from the other NEEP forecast managers:

Fairfield University professor emeritus Edward Deak noted that just 60 percent of Connecticut jobs lost during the recession have been regained in the Land of Steady Habits. No one knows whether they are as good as the jobs they’re replacing. What is clear in Connecticut, said Deak, is that “the well-to-do are doing very well.”

Connecticut has the sixth-oldest population in the U.S., though many people over age 65 are leaving the state after retiring. In retail, more purchases are being made via the Internet by working women with young children; fewer at the malls, Deak said, adding that when you look at Connecticut skylines, you don’t see any cranes. It’s all work on old buildings.

Bryant University assistant professor Edinaldo Tebaldi seemed relieved that Rhode Island is no longer first in unemployment; now it’s third. But this “gain” is associated with shrinking of the labor force, and the number of jobs is still below pre-recession levels.

New Hampshire has gone the other direction. Center for Public Policy Studies economist Dennis Delay said New Hampshire had been outperforming New England and U.S. job growth especially in early '80s, but is no longer the superstar. He showed 2012 migrants by higher educational attainments: lots of graduate or professional degrees among the foreign-born, but also many without a high school diploma. Delay noted that New Hampshire ranks high in indicators of home ownership, voter turnout and low welfare costs, but also high in student debt and low in growth of people ages 25-44—so-called wealth-building years.

Vermont economist Jeff Carr noted that about 90 percent of jobs  there lost during the recession had been recovered—second in New England to Massachusetts, which has fully recovered jobs. Vermont is difficult to analyze because the job totals in each sector are small. But that small size adds to anxiety about the loss of a few-hundred highly paid jobs at the closing Vermont Yankee nuke; as well as perpetual concern about IBM because its decisions are made in Armonk, N.Y. Carr also cited the importance of Vermont’s food industry, including craft brewers. (The  same day, the Vermont Foodbank reported that one-quarter of Vermont's citizens don't know where their next meal is coming from.)

Carr joked that he is in favor of financial-services bonuses in New York City and Boston because they boost Vermont's sizable second-home economy.

According to the New England regional forecast, prepared by Gittell, the regional economy will continue to see growth rates below the national average. The NEEP forecast is that total employment growth will average 1.3 percent a  year—and all the New England states are projected to have employment growth below the national average over the forecast period out to 2018.

Mark Zandi, chief economist at Moody’s Analytics, opened the conference with a presentation on the U.S. Economic Outlook. In a year or so, growth in gross regional product could go from 3% to 4 percent fueled partly by more housing, including pent-up demand among millennials who have been renting. The economist, and increasingly visible TV pundit, contended that financial aspects of economy are in great shape, especially high-income households. Middle-incomes households are still encumbered by debt, he said, but the high end does most of the spending, “though I’m not arguing economy can flourish without everyone participating,” said Zandi.

Phew. He told of his son majoring in philosophy. (Reminded me of the founder of one of the nation’s leading career-oriented online providers confiding that his child was majoring in sociology on a traditional campus.)

Despite Zandi’s general optimism, the risks include interest rates and a mélange of global issues, Zandi noted, adding that even Ebola could undermine traveling and spending (may not be rational to be so concerned about it, but people are). In response to a question, Zandi said he doesn’t think income and wealth inequality is a big issue in a given year, compared with the lack of labor. No one’s going to be writing a book about income inequality soon, he said. Really?

In his keynote address, former Maine Gov. John E. Baldacci, now at the law firm of Pierce Atwood, cited the importance of energy and exports in the region’s economic future. He hailed natural gas as the foundation fuel, while the region works toward renewables, including solar, tidal and wood.

He tied exports to tourism, noting that the owner of New Balance sneakers was introduced to Maine via ski vacations, where he was treated well, then announced plans to open plants in the state.

In a concluding panel, William Guenther, chair and CEO of Mass Insight, boasted: “Massachusetts has benefited for years from the talent cluster that we have offered business.” He noted, however, that technology-focused jobs are growing in such areas as big data analytics, cybersecurity, and computer sciences, but the state is not producing enough college graduates with degrees in science, technology, engineering or math (STEM) to keep up with demand from business. "Jobs will always come to where the talent is,” said Guenther.

Jobs also go where there’s energy work. The state and Canadian province with the most explosive job sectors are oil- and gas-rich North Dakota and Alberta.

John O. Harney is executive editor of The New England Journal of Higher Education, the online publication of the New  England Board of Higher Education (nebhe.org), where this column originated.