Annual Preview: Has N.H. economy weathered the storm?
A little more than a year ago in October, we celebrated the rescue of the Portsmouth Naval Shipyard from the threatened Base Review and Closure Commission chopping block. That same month hurricanes struck the U.S. Gulf Coast, sending economic jitters across the country.
Closer to home, flooding from a record October storm closed roads across the state and devastated the towns along the way. Record spring rains brought more flooding and delayed planting of New Hampshire crops, slowed the start of the warm weather tourist season, held up the start of some construction projects, and made New Hampshire residents wonder if they were witnessing a permanent climate change. Rising prices of petroleum started to affect automobile purchase decisions, and raised concerns about whether New Hampshire residents would be able to afford to keep their homes heated through the coming winter.
The spring also saw the closing of two mainstays of the North Country economy. The closing of the paperboard mill in Groveton and the Burgess Pulp mill in Berlin marked another setback to the Pulp and paper industry in North America.
It has been a tumultuous period. But, in spite of this, through the first eight months of 2006, the New Hampshire economy continued to recover from the most recent national recession, which officially ended in November 2001. Recent indicators, however, may suggest a moderating rate of growth.
New Hampshire’s unemployment rate has consistently been below the national rate, in recent years ranging, from a point to a point and a half lower. The state’s jobless rate seems to have leveled off over the last two years, while the national rate continues to fall. Of additional concern is that the region’s rate has leveled off some two points higher than its pre-recession low. New England’s unemployment has leveled, in large part because the Massachusetts rate has been higher than last year in five out of the first eight months of 2006.
Since Massachusetts represents about half of the New England economy, it can be a major drag on the region’s economic vigor. Much of New Hampshire’s economic wellbeing radiates northward from Boston. When the Bay State economy is in decline, we have to be concerned about the potential spill-over to the New Hampshire economy.
New Hampshire’s resident labor force, seasonally adjusted, has grown by 4.6 percent in the nearly five years since the end of the recession, from November 2001 to September 2006. This was slower than the U.S. labor force growth, over the same time period, of more than 5 percent. New England’s labor force grew by just 2 percent, pulled down by a loss in Massachusetts of nearly one percent.
Payroll job growth in New Hampshire, as measured by seasonally adjusted nonfarm jobs estimates, has nearly kept pace with U.S. growth, though state job gains seem to have slowed in recent months. New Hampshire jobs growth of just over 3 percent since the end of the recession seems somewhat less than robust. New England, however, has yet to return to November 2001 jobs levels and is still 130,000 jobs shy of its January 2001 peak. As with the unemployment rate, Massachusetts lags far behind in job recovery.
New Hampshire’s growth in private nonfarm jobs has been in the service-providing area.
Estimates of service-providing industries, not seasonally adjusted, found gains of nearly 34,000 jobs, from August 2000, while total private jobs grew by only 14,000. The difference is a loss of nearly 20,000 jobs in goods-producing industries. Construction, the state’s second largest goods-producing sector, gained 6,400 jobs, but manufacturing lost more than 26,000. The manufacturing losses coupled with the gains in service-providing industries, from August 2000 to August 2006, have diminished manufacturing’s share of total private jobs in New Hampshire from 18.6 percent to 13.5 percent.
Monthly initial claims and continued weeks claimed for unemployment compensation benefits in New Hampshire during 2006 have been nearly flat, though seeming to turn slightly upward in recent months.
There are signs that rising interest rates have finally begun to take a toll on real estate activity in New Hampshire and across the country. What had been a seller’s market has flipped to a buyer’s market. Houses are staying on the market longer and prices are flattening out.
Total housing permits (a unit count that tallies single-family homes and each individual unit in buildings with multiple units) in New Hampshire — cumulative through August — have dropped sharply in each of the last two years. This has a number of implications to the New Hampshire economy, since permits anticipate construction activity. The impacts of creating new housing go well beyond the construction industry.
Consumer spending is an important driver of the economy. Each new home represents a significant amount of consumer spending. With the construction of each new house or residential unit, tens of thousands of dollars are spent on building materials, appliances, furniture and household furnishings, and landscaping. Payment of real estate commissions, engineering and architectural fees, and municipal fees also contribute to the economy. The completion of a new house creates jobs for moving companies. It also starts a chain reaction that may allow several families to upgrade their housing. The buyers move into their new home, their former residence becomes available for another family, and so on.
In the current recovery, growing real estate values have also stimulated consumer spending.
This stimulation has been both direct and indirect. Consumers have directly used the value in their homes to obtain home equity loans with which to purchase consumer goods. Indirectly, rising real estate values, have improved consumers’ net worth and feelings of financial well-being, making them confident in their ability to afford to purchase more goods and services.
The New Hampshire economy does not operate by itself. Its success is largely dependent on the success of the New England region, which is highly influenced by Massachusetts, the U.S. economy and the greater global economy. So the state’s near-term outlook cannot be separated from regional, national, and global trends and events. Consumer spending is the key to continued economic growth of New Hampshire and the nation.
Consumers have been confronted with many shocks in the last year that raise questions about whether economic growth can continue into the coming months. So far the current recovery has been able to weather all of the storms. A year ago, hurricanes that severely damaged homes, businesses and infrastructure in the U.S. Gulf Coast also threatened the national energy supply. Severe gasoline price increases throughout most of the year raised auto fuel economy concerns and hit domestic car makers hard. Gas prices dropped back in the fall, however. That and ideal weather, for a change, gave the New Hampshire tourism industry a welcome autumn boost.
The Federal Reserve has signaled an end to its steadily ratcheting up of interest rates. This has allayed fears of real estate bubbles bursting catastrophically. A soft landing of flat or slightly lower real estate prices and values now seems more likely. However, any lowering of real estate values has the potential to suppress consumer spending.
International events have the capacity to cause consumer jitters. Continued setbacks in Iraq or Afghanistan, additional provocative actions by North Korea or Iran, a major attack by terrorists carried out at home or abroad, any of these possibilities has the potential to derail the recovery.
Though most of the forces that will shape our economy are outside our control, we do know that New Hampshire is well positioned in the region as a lower-cost alternative to expensive metropolitan regions to the south. Its workforce is skilled and well educated. Its postsecondary schools are able to respond to changing workforce needs. New Hampshire residents are highly entrepreneurial and flexible enough to take advantage of whatever are presented in an ever-changing global economy.
Peter Bartlett is an economist with the state Economic and Labor Market Information Bureau.