Executive Summary: NEEP New England Regional Outlook
Ross Gittell
NEEP Vice President
James R Carter Professor
Whittemore School of Business and Economics
University of New Hampshire
May 11, 2006

New England is expected to continue to grow at a slow rate. New England gross product growth is expected to average 3 percent per year over the forecast period, 2005 to 2010. This compares favorably to growth in the region during the first half of the decade of 2.4 percent per year, but is significantly lower than the growth averaging 5.5 percent in the last half of the 1990s. The forecasted regional growth rate over the forecast period is slightly below the national average of 3.1 percent.

Employment growth is expected to be significantly higher than the first half of this decade, but significantly lower than the last half of the last decade. Growth in total employment is expected to average below one percent per year, compared to the national average of 1.3 percent over the forecast period. This compares to average annual regional employment decline of .3 percent in the first half of the decade and growth of 2.1 percent per year in the last half of the 1990s.

Regional employment is not expected to return to its first quarter of 2001 peak level of 7.083 million level until the third quarter of 2008. In the Fall 2005 NEEP forecast peak employment was expected the return in the 2nd quarter of 2006. This highlights how the Spring 2006 forecast represents dampened expectations.

In the region the strongest economies are expected to be Connecticut and New Hampshire. Connecticut is expected to lead the region in growth in gross state product and per capita income. New Hampshire is the only state in the region expected to have overall economic and employment growth above the U.S. average over the forecast period. In addition, New Hampshire is forecasted to lead the region in employment growth in a majority of the main sectors of the economy. In many sectors of the economy, New Hampshire is the only state in the region expected to have employment growth above the national average. Vermont is the third state in the region with an economic outlook (primarily in terms of growth in employment and gross state product growth) above the regional average. Massachusetts is expected to continue to lag behind U.S. and regional employment growth. Maine’s economy continues to suffer from the loss of manufacturing employment and is expected to have growth lower than the regional average. And Rhode Island after a period of relatively strong growth is expected to have one of the weakest economies in the region.

In the region, total employment is forecasted to grow above the U.S. average in only one state, New Hampshire. In the Granite State employment is expected to grow at 1.4 percent per annum compared to the U.S. average of 1.3 percent per year. Vermont and Rhode Island’s average annual total employment growth is expected to be above the regional, but below the national average, at about 1 percent per year. Maine, Connecticut, and Massachusetts are expected to have the slowest growing employment in the region at approximately .8 percent annually.

In all the major North American Industrial Classification System (NAICS) super-sectors of the economy -- except information -- employment growth in the region is expected to be below the national average. The gap in the national compared to New England growth is expected to be greatest in construction and leisure and hospitality employment and least pronounced in manufacturing. In manufacturing, the decline forecasted for New England (.7 percent per year) is .3 percent greater than the expected average annual decline in the nation.

Growth in all super-sectors, except education & health services, is forecast to be higher than the average growth from 2000 to 2005. In most sectors, however, growth will remain significantly below the rates of the last half of the 1990s.

The region’s housing market is expected to soften. The region is forecast to go from median housing price appreciation well above to below the national average. Housing price growth is expected to decline from an average of over 10 percent per year in 2000 to 2005 (and compared to the U.S. average of 8.3 percent per year in this period), to about less than 1 percent year over the forecast period and compared to the US forecast of 3.2 percent per annum. Only Vermont is expected to have median housing price appreciation above the national average over the forecast period.

The three states in the region with the highest recent increases in housing prices – Rhode Island, Massachusetts and New Hampshire – are expected to have the slowest growth in housing prices, with Rhode Island expected to experience a slight decline over the forecast period.

The conference will focus on energy issues in the region. There is concern that rising energy prices and the increasing likelihood of energy shocks will have strong negative impact on the regional economy. This concern emanates from the high dependence of the region on outside sources of energy and the history of energy prices in the region above the national average.

Some of the most recent data from the U.S. Census and Energy Information Administration justifies concern. Households in the region spend a much higher percent of their income on fuel than the U.S. average, 1.7 percent of household income compared to U.S. average of .7. Five of the six states in the region (all but Maine) are among the top seven in the nation in energy prices per BTU.

Looking forward there is much uncertainty and many questions. What will be the impact of rising energy prices and shocks on the regional economy? Will the region be more or less vulnerable to changing dynamics in the energy market globally for its future economic well-being than other regions? Will the long history of high prices and pragmatic steps taken to promote efficient use of energy in the region pay off and help the regional economy? Or will the region’s lack of natural energy resources be a strong deterrent to future growth and prosperity? This will be the topic of discussion in the NEEP Spring 2006 conference.