What’s Going on in the Economy?

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UMASS

Michael D. Goodman, Ph.D.Associate Professor and Chair

Department of Public Policy, UMass Dartmouth

Editor, MassBenchmarks

September 21, 2009

While conditions are much better than they werea year ago, our credit markets are still recovering

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Source WtK’ sey & Company

Banks wisufficient liquid ty insqueeze-pay n a

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The worst may finally be over in the

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national housing marketS&PICase-Shiller Home Price Indices

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Main Street (aka households and small businesses)been really struggling to make ends meet....

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• In the spring of 2008,UMass DonahueInstitute/CHAPA HousingPoll, nearly half of

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Massachusetts residents(48%) expressed concernedthat they or an immediatefamily member will lose theirjob in the next 3 months.

Between July, 2008 andJuly, 2009, over 109,000 jobsin Massachusetts were lost,102,500 of which were lostbetween September, 2008

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WHICH MEAIISlyE GOT TO

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and April, 2009

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• . . as they contend with stagnant or declining income...

Percent Change Massachusetts Family Median Income — 1979-1989, 1989-1999, 1999-2006 ($2006)

25.020.015.0

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fueling a vicious circle that has prolongedthe downturn

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Regional home prices are expected to continue todecline through 2009 but have begun to bottom out

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Peak—Trough Expected Percentage Declinein Median House Price

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Source: New England Economic Partnership

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• . . and here in Massachusetts it appears the stateeconomy has hit bottom and is beginning a modest

recovery

Growth in Real ProductMassBenchmarks Current Economic Index vs. U.S. GDP

4.8 48 4.8

4.~ 3.6 ~ 3.8 3.7 3.6 Projected0 2.7 3.0 2.8

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-2.0 -1.4 -16 -1.0

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Source: U.S., Bureau of Economic Analysis; Massachusetts, MassBenchmarks

2006 2007 2008 2009

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However, for the next several quarters this will beof little consolation to the unemployed...

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• or to state and local governmentswho will likely remain in dire financial straits

for the next few years• Significant job losses in the retail, construction and financial

services sectors are reducing income tax revenue.

• Foreclosures result in losses to both financial institutionsand local property tax collectors.

• Given the dismal performance of the stock market, FY10 andFYI l’s state capital gains tax receipts will likely be much smallerthan FY09.

• Job losses and the declining in household wealth (housing andinvestments) will constrain household spending and byextension sales tax receipts (which will artially be offset

P by recent tax increases).-4

UASS