1. LEAD Virginia:
Where We Are in Virginia—
Economic Drivers
April 17, 2010
Economic Drivers of Virginia
National growth
Is the recession o er?
over?
What determines how fast we can grow?
Industry Base
Occupation Base
Take-Awaysy
Averages are misleading
Not all industries/jobs are equal
Past  Future
Skills and education are important 2
1

2. Real GDP Grew an Annualized
5.6% in 4th Qtr 2009
Real Gross Domestic Product
Quarterly Annualized Percent Change
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
2.0
-4.0
-6.0
-8.0
1992 1994 1996 1998 2000 2002 2004 2006 2008
NBER Defines Recession
• Business Cycle Dating Committee
• A recession i a significant d li i economic
i is i ifi t decline in i
activity spread across the economy, lasting more
than a few months, normally visible in
– real GDP,
– real income,
– employment,
employment
– industrial production, and
– wholesale-retail sales.
2

3. Business Cycle Dating
Committee Met April 8, 2010
• The committee reviewed the most recent data for all indicators
relevant to the determination of a possible date of the trough in
economic activity marking the end of the recession that began in
December 2007.
• The trough date would identify the end of contraction and the
beginning of expansion. Although most indicators have turned up,
the committee decided that the determination of the trough date on
the basis of current data would be premature. Many indicators are
quite preliminary at this time and will be revised in coming months.
The committee acts only on the basis of actual indicators and does
not rely on forecasts in making its determination of the dates of
peaks and troughs in economic activity. The committee did review
data relating to the date of the peak, previously determined to have
occurred in December 2007, marking the onset of the recent
recession.
Recession Ended in 3rd Quarter 2009
Initial Unemployment Claims
Thousands, 4-Week Moving Average
680
630
580
530
480
430
380
330
280
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Source: U.S. Department of Labor.
Data through March 2010.
3

4. Industrial Production is Growing
Industrial Production Index
115
110
105
100
95
90
Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10
Source: Federal Reserve Bank.
Data through February 2010.
Employment Starting to Grow
(Still Down 8.4 Million Since 12/07)
Employment Growth
Employment Growth
Monthly Change in Thousands
Monthly Change in Thousands
600
600
400
400
200
200
0
0
-200
-200
-400
-400
-600
-600
-800
-800
-1,000
-1,000 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10
Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10
Source: U.S. Department of Labor.
Data through March 2010.
4

5. How Long Before Back to Employment
Level at Start of Recession?
Jobs Created 11 M Jobs Lost with
Per Month in Marginally Attached or
Recovery 8.4 M Jobs Lost Prefer Full Time
200,000 42 months or 3.5 yrs 55 months or 4.6 yrs
250,000 34 months or 2.8 yrs 44 months or 3.7 yrs
300,000 28 months or 2.3 yrs 37 months or 3.1 yrs
400,000 21 months or 1.8 yrs 28 months or 2.3 yrs
Unemployment Rate Also Lags
Unemployment Rate
10.7
9.7
8.7
7.7
6.7
5.7
4.7
3.7
Mar-98 Mar-01 Mar-04 Mar-07 Mar-10
Source: U.S. Department of Labor.
Data through March 2010.
5

6. Consumers Don’t Feel Good About
Economy
Consumer Confidence
Index 1985 = 100
190
170
150
Present Situation Index
130
110
90
70
50
30
10
Feb-98 Feb-01 Feb-04 Feb-07 Feb-10
Source: Conference Board
Data through March 2010.
Consumers Don’t Feel Good About
Economy
Consumer Confidence
Index 1985 = 100
190
170
150
Total Index Present Situation Index
130
110
90
70
50
30
Expectations Index
10
Feb-98 Feb-01 Feb-04 Feb-07 Feb-10
Source: Conference Board
Data through March 2010.
6

7. Consumers have Begun to
Spend
Retail Sales
$ Millions
400,000
400 000
370,000
340,000
310,000
280,000
250,000
220,000
Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10
Source: U.S. Department of Commerce.
Data through February 2010.
Consumers have Begun to
Spend
Retail Sales
$ Millions
400,000
400 000
370,000
340,000
310,000
280,000
250,000
220,000
Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10
Source: U.S. Department of Commerce.
Data through February 2010.
7

8. Consumers have Begun to
Spend
Retail Sales
$ Millions
400,000
400 000
370,000
340,000
310,000
280,000
250,000
220,000
Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10
Source: U.S. Department of Commerce.
Data through February 2010.
Cash-for-Clunker Program Helped
Jump Start Economy
Total Auto Sales,
Thousand Units, SAAR
22,000
22 000
20,000
18,000
16,000
14,000
12,000
12 000
10,000
8,000
Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09
8

9. Will the Recovery Stall?
Total Auto Sales,
Thousand Units, SAAR
22,000
22 000
20,000
18,000
16,000
14,000
12,000
12 000
10,000
8,000
Sep-97 Sep-99 Sep-01 Sep-03 Sep-05 Sep-07 Sep-09
Will the Recovery Stall?
Total Light Vehicle Sales,
Thousand Units, SAAR
22,000
20,000
18,000
16,000
14,000
12,000
,
10,000
8,000
Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
9

10. What Does this Means for the
Economy?
• Not depression
• 1930’s unemployment rate >20% for 4
years (today, it’s 9.7%)
• Real GDP declined for 4 years
– 1929 -8.6%
– 1930 -6.4%
6 4%
– 1931 -13.0%
– 1932 -1.3%
– 2009 -2.4%
Change in Home Prices From
Year Ago, 2009 Qtr 4
Source: Federal Housing Finance Agency.
10

11. Federal Credit Supported New
Home Sales
New Home Sales
Thousands
1,500
1,300
1,100
900
700
500
300
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
First-Time Home Buyers Reach
Record Market Share (survey started in 1981)
• First-time homebuyers
47% of all home sales in 2009
41% in 2008
Previous high: 44% in 1991
• First-time homebuyers profile
Median age 30
Median income $61,600
Cost of home $156,000 (165,000 in 2008)
Source: National Association of Realtors Survey, 2009.
11

12. Anticipating Federal Credit Caused
Lower Trough in New Home Sales
New Home Sales
Thousands, SAAR
1,500
1,300
1,100
900
700
500
Lowest since 1963: Jan ‘09: 329,000
300
Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08
Federal Credit Supported New
Home Sales
New Home Sales
Thousands, SAAR
1,500
1,300
1,100
900
July ‘09: 419,000
700
500
Lowest since 1963: Jan ‘09: 329,000
300
Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08
12

13. Federal Home Credit
• Passed in February 2009
• O i i ll set t end i N
Originally t to d in November 2009
b
Federal Home Credit
• Passed in February 2009
• O i i ll set t end i N
Originally t to d in November 2009
b
• Tax credit extended and broadened
– 1st time buyer must sign purchase agreement 4/30/10
– Close 6/30/10
13

14. The Fed’s Goal: 3% - 3.5%
Real GDP Growth?
3.0% - 3.5%
Noninflationary
Economic
Growth
Unemployment Falls
Capacity Utilization Rises
Slower Deliveries
CHMURAECONOMICS&ANALYTICS
How Fast Can the Economy
Grow?
Annual Growth Rate Forecast
4.5 Labor Force
4.0
3.5
3.0
2.5
2.0
1.5
15
2.5
1.6
1.0 1.7
1.2 1.2
0.5 0.7
0.0
1951-1973 1974-1981 1982-1990 1991-1995 1995-2005 2006-2016
Source: CBO, January 2006.
28
14

15. How Fast Can the Economy
Grow?
Annual Growth Rate Forecast
Productivity +
4.0 3.8
Labor Force =
Potential GDP 3.3
33
3.5 3.2
3.0
3.0 2.7 2.8
0.8
2.1
2.5
1.4
2.1
2.0 1.5
2.1
1.5
2.5
1.0
1.7 1.6
1.2 1.2
0.5
0.7
0.0
1951-1973 1974-1981 1982-1990 1991-1995 1995-2005 2006-2016
Source: CBO, January 2006.
29
National Forecast
2009 Actual 2010 Forecast
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4
Quarterly Annualized Rates (%)
Real GDP ‐6.4 ‐0.7 2.2 5.6 1.8 2.2 2.2 2.5
Consumer Spending 0.6 ‐0.9 2.8 1.6 1.9 1.7 1.8 1.9
Residential Investment ‐38.2 ‐23.3 19.0 3.8 6.2 4.6 11.3 12.2
Nonresidential Invest. ‐39.2 ‐9.6 ‐5.9 5.3 4.6 2.9 4.5 8.1
Equipment &Software ‐36.4 ‐4.8 1.5 19.0 9.4 7.2 8.2 11.7
Government Expend. ‐2.6 6.7 2.7 ‐1.3 4.8 3.9 3.0 1.9
Net Exports, Goods &
Services ($Billion) ‐385.8 ‐329.8 ‐356.8 ‐348.0 ‐344.5 ‐345.3 ‐358.3 ‐375.9
Percentage Change From a Year Ago (%)
Consumer Price Index ‐0.2 ‐0.9 ‐1.6 1.5 2.2 2.1 1.6 1.0
Yields (%)
Federal Funds Rate 0.2 0.2 0.2 0.1 0.1 0.2 0.5 0.9
Prime Rate 3.3 3.3 3.3 3.3 3.3 3.3 3.6 4.0
10‐Year Treasury 2.7 3.3 3.5 3.5 3.4 3.3 3.3 3.5
30‐Year Mortgage 5.1 5.0 5.2 4.9 5.1 5.1 5.2 5.3
Source: Chmura Economics & Analytics
Note: Yields reported for the average of the quarter
GDP based on preliminary figures
15

16. Risks to the Recovery
• Higher taxes
– Federal debt
– Health care reform
• International investors pull out of U.S.
– Bond yields rise
– Further issues in real estate
• Inflation (Federal Reserve independence)
State Rankings, Employment
Year- over-Year % Change Feb 2010
0.5
-0.5
-1.5
Alaska +279 jobs
DC +228 jobs
-2.5
Virginia
#29
-3.5 -100,700 jobs
-2.7%
-4.5
Wyoming -13,000 jobs
Nevada -61,500 jobs
-5.5
16

17. Virginia Employment Declining at
Slower Rate than Nation
Employment Growth
Percent Change, Year-Over-Year
4.0
40
Virginia
3.0
2.0
1.0
0.0
-1.0
-2.0
United States
-3.0
30
-4.0
-5.0
-6.0
Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10
Source: Virginia Employment Commission and Chmura.
Nonfarm Employment: Northern
Virginia vs. the Rest of the State Since 2000 (in thousands)
Change From a Year Ago, In Thousands, 112 Net Gain in VA
163 Net Gain in NVA
150
-50 Net LOSS ROS
100
50
-
(50)
(100)
(150)
Jan-98
Sep-98
Jan-99
Sep-99
Jan-00
Sep-00
Jan-01
Sep-01
Jan-02
Sep-02
Jan-03
Sep-03
Jan-04
Sep-04
Jan-05
Sep-05
Jan-06
Sep-06
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
May-98
May-99
May-00
May-01
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
Data through February 2010. 34
17

18. Nonfarm Employment: Northern
Virginia vs. the Rest of the State Since 2000 (in thousands)
Change From a Year Ago, In Thousands, 112 Net Gain in VA
163 Net Gain in NVA
150
-50 Net LOSS ROS
100
50
-
(50)
2000 – December 2007 (in thousands)
302 Net Gain in VA
(100) 100 Net Gain in NVA
102 Net Gain in ROS
(150)
Jan-98
Sep-98
Jan-99
Sep-99
Jan-00
Sep-00
Jan-01
Sep-01
Jan-02
Sep-02
Jan-03
Sep-03
Jan-04
Sep-04
Jan-05
Sep-05
Jan-06
Sep-06
Jan-07
Sep-07
Jan-08
Sep-08
Jan-09
Sep-09
Jan-10
May-98
May-99
May-00
May-01
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
Data through February 2010. 35
Nonfarm Employment: Rural
vs. Metropolitan Areas
Since 2000
Change From a Year Ago, In Thousands
181 Net Gain in Metro VA
150 69 Net LOSS in Rural Areas
100
50
-
(50)
(100)
(150)
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
May-98
Sep-98
May-99
Sep-99
May-00
Sep-00
May-01
Sep-01
May-02
Sep-02
May-03
Sep-03
May-04
Sep-04
May-05
Sep-05
May-06
Sep-06
May-07
Sep-07
May-08
Sep-08
May-09
Sep-09
Data through February 2010. 36
18

19. Unemployment Rate is High in
Many Rural Areas
37
West Piedmont Workforce Area (Danville, Henry,
Martinsville, Patrick, and Pittsylvania) Skewed Toward Mfg
38
19

20. Employment Still Dropping in
Manufacturing Sector
39
10,000 Job Loss in Broadwoven Fabric
Mills …Top 10 Occupations Lost
Occupation Title Jobs
Textile Winding, Twisting, and Drawing Out Machine Setters,
g, g, g ,
Operators, and Tenders 1,297
Textile Knitting and Weaving Machine Setters, Operators, and
Tenders 1,150
Textile Bleaching and Dyeing Machine Operators and Tenders 552
Sewing Machine Operators 457
Inspectors, Testers, Sorters, Samplers, and Weighers 439
First-Line Supervisors/Managers of Production and Operating
Workers 370
Industrial Machinery Mechanics 280
Laborers and Freight, Stock, and Material Movers, Hand 269
Extruding and Forming Machine Setters, Operators, and Tenders,
Synthetic and Glass Fibers 257
Maintenance and Repair Workers, General 240
TOTAL 5,311
40
20

21. Occupations
• Are linked to transferable skills
– Move between industries
• Are linked to attributes/knowledge
• Take Away: Paradigm shift needed:
• People – not industries– are a region’s resources
41
Reasons for Longer-Term Shifts in Growth
• Infrastructure
– Highways
– Internet
– Quality of life
• Education
42
21

22. Broad Relationships Between Education and
Economic Well-Being Are Well Established
Median Weekly
• More education is Unemployment
Rate in 2008 (%) Education Attained
Earnings in
2008 ($)
associated with higher 2.0
20 Doctoral degree
D ld 1,561
1 561
1.7 Professional degree 1,531
wages 2.4 Master's degree 1,233
2.8
• More education is 3.7
Bachelor's degree
Associate degree
1,012
757
associated with a lower 5.1 Some college, no degree 699
5.7 High‐school graduate 618
unemployment rate 9 Less than a high school diploma 453
43
Broad Relationships Between Education and
Economic Well-Being Are Clear
Mean Real Earnings of Workers 18 Years and Over by Education Attainment
$45,000
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$20,000
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$15,000
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g
$10,000
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$5,000
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1975 1980 1985 1990 1995 2000
Source: U.S. Census Bureau, Current Population Survey
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44
22

23. Broad Relationships Between Education and
Economic Well-Being Are Clear
Mean Real Earnings of Workers 18 Years and Over by Education Attainment
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$10,000
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$5,000
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1975 1980 1985 1990 1995 2000
Source: U.S. Census Bureau, Current Population Survey
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45
Our International Competitive Advantage is
Education
Average Years of Schooling of Adults, Selected Countries
1990
14
2000 11.7 12.1
12
10 9.2 9.4
7.2
8 6.7 7.1
5.9 6.4 6.0 5.4
6.1
4.0 4.9 5.1
6 4.1
4
2
0
Brazil China Hong Kong, India Mexico Singapore South United
China Africa States
Source: World Bank Database.
46
23