N.H. economy should continue to make progress in ‘05
As the end of 2004 draws near, it is a fitting time to take stock of the past year’s events and make some predictions for what we can expect to happen in the New Hampshire economy during 2005.
First, let’s start with the U.S. economy — for, as we all know, what happens to the domestic economy eventually has an impact on us here in New Hampshire.
Real gross domestic product is expected to expand by 3 percent next year, which would be consistent with its 15-year average rate of growth. More important is that if the U.S. economy is expanding, the Granite State will participate in this growth.
Household and business spending will be the principal sources of economic expansion. The big spenders will be baby boomers, especially empty-nesters, on goods and services pertinent to lifestyle needs — health care, recreation, home improvement and financial services. Businesses are expected to increase spending on resources to improve productivity — computer software, machinery and telecommunications equipment, for example.
Both households and businesses will probably spend more on energy during the next year as well. Steady to slightly stronger global demand for crude oil means we shouldn’t expect much retreat in the current price of crude next year; the same can be said about natural gas prices, which also influences the majority of household and business budgets across the country and here in New Hampshire.
As a result, our forecast considers the cost of energy as a negative, taking away from consumption of other goods and services, and as the primary reason our growth at 3 percent is under its 50-year average rate of 3.5 percent.
Like the price of energy, the trade deficit and depreciation of the dollar are negatives for the U.S. and New Hampshire economies.
If the country continues its recent trend of importing $1.50 of goods and services for every $1 we export, this will take away from economic growth in the next year. Also, a depreciating dollar could force interest rates higher — a negative for the housing and stock markets, each of which thrive in low-interest rate environments.
As a result, the trade deficit and value of the dollar are major risks to be faced by the economy in 2005. Remember, the ways to reconcile each (spend less and save more or increase taxes to reduce dependence on foreign financing of the federal deficit) are painful; yet, should we ignore these risks, we could face some severe consequences beyond next year.
That being said, let’s consider the employment outlook.
Expect 2005 to be a good year for the country and New Hampshire labor markets, with national nonfarm payrolls increasing by about 1.5 million people. This means the jobless recovery will officially be over, as the number of people on nonfarm payrolls ought to end 2005 at about 133.5 million people, or about 1 million more people working than at the start of the 2001 recession.
As for New Hampshire, look for nonfarm payrolls to increase by about 1.5 percent next year, slightly higher than our average over the past five years.
Most of our job growth will be on the service side of the economy — the goods-producing side of the economy will probably continue to see payroll shrinkage. The state’s unemployment rate will likely drop to the 3.2 percent range — in this case, additions to payrolls will probably exceed the growth of the civilian labor force.
Most important to New Hampshire will be the beginning of some labor shortages in 2005.
This is a demographic issue — older baby-boomers are retiring and our population isn’t growing as fast as it has in the past, which means the number of people available to fill retiring boomer slots will start to reduce in 2005. Hence, from an employment opportunity standpoint, 2005 ought to be a pretty good year for those looking for work.
So, despite the shock of September 11th, the dot-com stock market sell-off and the technology/telecom downturn in nearby Massachusetts, we have been able to make progress. In looking ahead to 2005, we should all remember that the national and New Hampshire economies are amazingly resilient to adversity.
Robert Magan is senior vice president and senior investment officer for Banknorth Wealth Management Group in Concord, part of Banknorth Group Inc.