Five Essential Trends That Shaped NH’s Economy In 2011

Chintermeyer

Here's our roundup of five big trends that shaped NH's economy in 2011

With Christmas and Hanukkah  wrapped-up, we’ve officially reached the pre-New Year’s lull.  This brief respite from the regularly scheduled holiday cheer is when many people take the opportunity to consider their accomplishments and failures over the past year, and resolve to do better in the future.  Other people just go to work for a few days and get really, really bored at their desks as they countdown to their next party.

Either way, it’s a bit of a restless period, isn’t it?

So here at StateImpact, we’ve decided to combat this inter-holiday malaise with a list.  We’ve been watching a lot of economic forecast presentations lately, and reading a lot of white papers.  So we took that information, along with some of our previous coverage, tossed it into the metaphorical pot, and boiled it down into a quick list of five essential trends that shaped the Granite State’s economy over the past year.  While it’s certainly not exhaustive, it provides some food for thought looking toward 2012.

And, as always, whether you think we’re absolutely right, dead wrong, or just have a question, we invite you to come on over and crash our comments thread.

  1. The Incredible Shrinking Government: This is the event that spawned numerous trends in New Hampshire (including #2 on this list).  Deputy Legislative Budget Assistant Mike Kane told StateImpact that early last session, the state estimated it could face a budget shortfall up to

    Lisbokt / Flickr

    Following deep budget cuts, the public sector has been shrinking

    $700 million.  By June, that number had narrowed dramatically, and the Legislature ultimately passed a budget with $467.6 million in cuts to the general fund.  One of the immediate consequences of the revenue shortfall and lower budget was a much leaner government–which translated to heavy public sector job losses.  As economist Dennis Delay with the New Hampshire Center for Public Policy Studies noted at the Legislature’s Joint Economic Session earlier this month, at the height of the recession, when the private sector lost about 5 percent of its jobs, the government added four percent to its workforce.  “It acted as a cushion for the losses we were seeing in the private sector,” Delay said.  “That has been reversed.  The public sector is now acting as a drag.  It’s slowing overall growth in the economy.”  From June through September of this year, Delay found that while private sector jobs grew by 1.4 percent, public sector jobs declined by 1.2 percent.

  2. A Slimmer Health Care Sector: Disproportionate Share Hospital fund payments, or DSH, is an incredibly complicated issue that’s had a big effect on the state’s economy.  (You can find a great summary of DSH here.)  But basically, under the old system, the state levied whatamounted to a fake tax on hospitals.  The state would send money to hospitals.  Hospitals would then turn around the same day and send that exact amount of money back to the state as a “tax” payment.  The state would then tell the feds how much money it had given to the hospitals–supposedly to care for low-income people.  And the feds would match half that “contribution” with Medicaid funds.  The state took that money and stashed it in the general fund.  No harm, no foul, as far as hospitals were concerned.  This year, however, that tax became real.  The Legislature wanted the money to help fill-in budget gaps.  Hospitals responded with a wave of early retirements and layoffs.  As of last month, the New Hampshire Center for Public Policy Studies reported 1,043 health care workers had been laid off, retired early, or simply not replaced. Ten of the largest hospitals are suing the state in federal court.  And health care–for the moment, at least–is no longer a reliable job growth sector.
  3. Banks Bet On Small Businesses: This was the 2011 trend that surprised us the most, given continued national coverage of the tight credit situation.  Prior to November’s New England Economic Partnership fall forecast conference, economist Dennis Delay wrote in his preview report, that the state’s banks “lent more than $150 million to small businesses…using US Small Business Administration loan guarantees” between September 2010 and September 2011.  That represents a 33 percent jump over lending levels for the previous year.  These are the highest SBA lending levels since FY 2006–prior to the recession.
  4. The Ongoing Problem Of Foreclosure: While the proportion of home foreclosures in New Hampshire is lower than the US average–2.5 percent compared to about 4.5 percent

    Colleen Lane / Flickr

    Although foreclosures are down from their 2010 peak, they're not down by much

    nationally–it’s still a significant problem for the state.  Economist Russ Thibeault noted at the Legislature’s Joint Economic Session that while foreclosures are down from their 2010 peak of 3,953…at 3,650 in 2011, they’re not down by much.  This year’s figure is also higher than the period from 2007-2009. Meanwhile, in the fall we reported on a paper released by the Boston Fed, which noted the New Hampshire foreclosure mediation program–designed to keep homeowners in their homes by working with the court system–was lackluster, at best.  (You can read that post here.)  According to the Fed paper, one major problem with the state’s program was that it gave lenders virtually all the power to determine who was, and wasn’t, eligible for mediation.  Another was that the state didn’t offer banks any incentive to work with homeowners on alternatives to foreclosure.  The New Hampshire Center for Public Policy Studies found that in about two years, the program looked at roughly 100 cases.  And by July of 2011, only 14 of those had been settled.  By the end of October, the program was all but shut down, with only pending cases continuing the review process.

  5. An Inhospitable Housing Market:  On the flip-side, Economist Russ Thibeault also told the Joint Economic Session that between 2003 home price levels and interest rates, buying a house has never been more affordable.  But with many banks demanding a 20 percent down payment, that puts a $200 thousand home out of reach for most families.  This lack of demand (and the uptick in foreclosures) has created an inventory of 15,000 to 16,000 unsold houses.   That’s about 15 months’ worth of inventory.  And that large supply, paired with low demand, kept housing prices relatively flat.  Meanwhile, developers have been skittish about adding to existing housing stock.  This year marked the lowest level of housing construction on record (which began in 1969).  Thibeault counted building permits and found that for the whole of 2011, New Hampshire’s new home construction is roughly the same as one month’s worth of building in the early 1970’s.

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