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It’s that time of year again. Like we do every January, Mainebiz has asked five prominent Maine economists what they think the New Year will bring for the Pine Tree State. Maine’s economy is expected to gain momentum in 2015, but slowly and modestly. The largest challenges? Count Maine’s aging population, rising electricity prices and the attracting and retaining of job talent among them.
Rector: Maine's economy should continue to grow in 2015. The national economy is gaining momentum, and those improving conditions will be reflected in Maine as well. Energy prices are one of the big factors this year — oil prices are currently at their lowest levels in years, but electricity prices are rising. Depending on how those two play out, Maine's economy could see bigger or smaller gains. Global economic conditions will have an effect as well.
Lawton: The continuing national recovery will slowly add to Maine's job growth, though the rate of growth will be less than the national average. The growth will be concentrated in the urban business services and consumption sectors and thus further exacerbating the urban rural divisions within the state. Growth will be concentrated in the Portland, Lewiston-Auburn and Bangor metropolitan areas, leaving rural areas to suffer the continuing pressure of maintaining schools, roads, small hospitals and other public infrastructure and services on an ever-shrinking and ever-aging population. This economic trend will be exacerbated by the fiscal pressures in Augusta to limit spending on 'welfare' and [municipal] revenue sharing. Declining oil prices will continue to relieve pressure on consumers, but also slow whatever incentive remains to pursue 'alternative' energy production such as wind, solar, tidal etc. Startup-and-create types of entrepreneurial activity will continue to bubble. The much higher rate of population growth coming from immigrant and minority cultural groups will provide lots of opportunities for new types of economic growth.
Colgan: Economic growth has picked up in 2014 and 2015 may be the best for employment growth since before 2007. As long as the national economy holds up, which it should do, Maine should get another year of modest growth.
Reisman: Maine will continue to shadow but lag the national economy with modest job and income growth. Structural unemployment as a consequence of mill closures will loom large. The con game masquerading as efforts to combat climate change will further damage Maine's business climate while promoting crony capitalism and the green road to serfdom.
Johnson: Lower prices for gasoline and heating oil will have a positive impact for households and some businesses through the first quarter of 2015. Otherwise, we will continue along the long-term trend of slow and unbalanced growth, with little real improvement in living standards for the median household or worker in Maine. Unemployment will not get low enough to drive wage growth for most low- and middle-income workers. Economic growth in the Portland area will continue to outpace the rest of the state, reflecting a national trend of urban service-based economies growing faster than rural areas that aren't mining oil and gas.
Rector: Too low to attach a figure to. The largest risk factor right now is with global economies: if other countries, especially those with strong ties to the U.S. economy, slide into recession, it could have a dampening effect on domestic economic growth. The recent situation with Russia's economic downturn is cause for some concern.
Colgan: Less than 10% at this point, but unforeseen events could change that at any time.
Reisman: 20%. Weakness in Europe, China and India could trigger a recession, but low oil prices, borne of weakening international demand, fracking, oil sands and efforts to contain Russia and Iran will buoy consumption spending.
Johnson: Between 5% and 10%.
Rector: It typically takes a long time for the policy changes brought about by elections to have an impact on the economy. We have started seeing the effects of policies implemented during the first LePage administration, such as regulatory reforms and income tax reductions. We can expect the administration to continue focusing on policies to improve the economy, including tax reform, lowering energy costs and reducing the size of government.
Lawton: [Gov. Paul LePage] will set the tone for fiscal policy — welfare reform, tax reform, budgetary priorities, especially regarding education — both K-12 and higher education. If the Democrats can respond with imaginative new ideas that fit the governor's ideas — more ways to get job experience and educational credits in high school, inventive use of broadband for K-12 education that enhances the offerings of small schools, ways to capture the energy and money wasted in fighting forced school consolidation — then state government might become productive rather than simply confrontational.
Colgan: Not in 2015. The longer term will depend on what the governor and Legislature decide to do.
Reisman: Yes. LePage and the GOP Senate majority will push for less expensive energy and more economic freedom, while the progressives and environmental left mutter about sustainability and try to protect the regulatory nanny state. More economic freedom means more economic growth and a more robust economy. Less economic freedom means happy progressives and environmentalists.
Johnson: Maine's economy is heavily influenced by global market forces, changes in technology, trade policy and federal fiscal and monetary policy. But state policy still matters. We can't cut our way to prosperity. Cutting income taxes for high-income and wealthy folks while giving big corporations costly subsidies paid for by wage-earning Mainers and small business owners is the wrong prescription. We must invest in Maine people and communities in ways that build a better-educated, healthier and more productive workforce; a fairer tax system that demands accountability and puts more money in the pockets of middle-class Mainers; and top-notch infrastructure that helps Maine businesses and entrepreneurs compete. With LePage in office for four more years, expect continued underinvestment in these areas, which will jeopardize current and future prospects for growth.
Rector: Maine will see private-sector employment growth in 2015 on the order of 6,000 – 7,000 jobs. Since we don't have the energy production that has been driving growth in places like North Dakota and Texas, most of our employment growth will come from service sector jobs — professional and business services and education and health care.
Lawton: Slow, steady growth among the usual suspects — health care, business services, retail trade. Manufacturing could see accelerated growth if businesses and educational institutions expand cooperative efforts to meet specific credentials.
Colgan: Maine has about 10,000 jobs left to recover before we get back to pre-recession levels, and we should make it most of the way back by the end of 2015 or early 2016. But Maine is also at the leading edge of the labor shortages that will characterize the economy for the next several decades, and our ability to add jobs is becoming constrained. There should be enough labor supply left from the painfully slow recovery to get us back to pre-recession levels but the forecast depends on getting at least some population growth.
Reisman: Maine will add about 6,000 jobs (1%), mostly in business services, health care and a tourism and hospitality boomlet fueled by cheap gas.
Johnson: Maine will add 6,000 jobs at most. Annual job growth may not match what we saw in 2014 for many years, which is sobering considering we still haven't recovered all the jobs we lost in the recession. In the short run, ongoing fiscal austerity at the federal level and the refusal by state policymakers to maximize federal funding opportunities will continue to be a drag on growth. In the longer run, our lack of population growth and our aging population limit aggregate growth, but per capita income and job opportunities matter most. Regardless, anti-immigrant rhetoric is not creating a welcoming environment for newcomers.
Rector: The housing market should still see a pretty good year in 2015, but there are a few areas to keep an eye on. Interest rates are likely to start increasing this year, which will have an impact on the affordability of mortgages. There are still properties making their way through the foreclosure process — this process takes a very long time in Maine — and this inventory will continue to limit increases in sales prices. Southern and coastal areas of the state will continue to have the stronger real estate markets.
Lawton: Shortages and rising prices in urban centers, especially in the south where retiring boomers with equity and non-job income bid up prices in desirable places to live. In rural areas, we'll see continued price declines, with more people 'aging in place' [while] would-be retirees and downsizers won't be able to sell their homes for enough to pay for smaller units.
Colgan: Median home prices are rising statewide, but existing home sales have slowed and new construction is barely growing. The state's population growth (currently effectively zero) lies at the heart of this, since the market overall has recovered fairly well. Next year may see a little growth in existing home sales and new construction over 2014.
Reisman: Maine's underlying demographics, debt and growth anemia don't bode well for the housing sector, but Maine leads, rather than shadows national sales and sales price measures. The Dodd-Frank financial regulation meant to prevent another mortgage bubble and too-big-to-fail bailout is ironically advantaging Wall Street over smaller regional banks.
Johnson: This year, despite a 10% increase in home sales, home prices have fallen in nominal terms. As mortgage interest rates slowly rise and growth in jobs, wages, and population remains slow, it's hard to see how home prices increase much at all next year. Year-over-year sales growth will cool off, falling below 10% in 2015.
Rector: Energy costs are a mixed bag in 2015. Crude oil prices have been plummeting recently and are likely to stay low for at least the first part of the year. This is good news for people heating with oil and anyone who needs to drive — heating oil and gasoline prices will stay low through the heating season and possibly longer. However, electricity prices are due to spike this year both for businesses and residents. Those heating oil and gasoline savings may end up going to pay for increased electricity bills, limiting the funds households and businesses have for other purchases and investments.
Lawton: Slow growth in the world economy and conflict within [the Organization of the Petroleum Exporting Countries, or OPEC,] will keep downward pressure on oil prices. Conflict over infrastructure building, both gas pipelines and electricity transmission lines will clog public utility dockets and keep Maine largely dependent on 'sticky' delivery systems that may lead to price spikes.
Colgan: Energy markets are extraordinarily turbulent. Oil prices have plummeted and natural gas prices (and 'busbar' electricity prices) are set to rise because of severe supply constraints in the Northeast pipeline systems. This is just the opposite of what people were looking at just one or two years ago. The effects of energy price changes are thus likely to be highly contradictory, with gasoline bills falling and home heating/electricity bills rising. We've been so used to energy prices going either up or down that this new world of prices moving up and down simultaneously — and then perhaps reversing — is going to be very confusing. On net, the drop in oil prices will have more of a positive effect on Maine than the rise in natural gas and related prices will have a negative effect.
Reisman: Electricity and natural gas prices will spike in 2015, partly because of EPA anti-coal, anti-carbon edicts and partly due to natural gas regulatory barriers erected by Democrats and climate change warriors. Oil will stay well below $100 a barrel, keeping gasoline, heating oil and propane relatively cheap. Cheap oil hurts the Russians and Iranians, and if prices stay below $80 per barrel, fracking and oil sands production will taper off. The environmental left will declare war on a Maine Public Utilities Commission appointed by LePage.
Johnson: Oil and gasoline prices will stay relatively low through the first quarter of the year, but expect petroleum-based energy costs to continue to rise over the longer run. These are finite resources that are getting harder and harder to extract.
Rector: The current low oil prices will help put more cash in people's pockets this winter, which will lead to increased spending in other areas. If gasoline prices stay low through the summer, we could see a very strong tourism season. Continued expansion of the International Marine Terminal in Portland will provide further opportunities for foreign trade, especially building on the relationships the LePage administration has helped to develop with Iceland and the North Atlantic region.
Lawton: Geographically, in the urban centers and surrounding suburbs. By industrial sector, in health care and business services.
Colgan: Health care employment continues to lead employment growth, but at a slower pace than in the past as the U.S. and Maine health care industries sort out the effects of a large number of changes under way. Professional and business services, and leisure and hospitality will be the next two largest job growers.
Reisman: Southern and central Maine; health care and education, construction, business and professional services, hospitality and tourism.
Johnson: Professional, scientific, technical, and business services sectors, which are mostly concentrated in Greater Portland.
Rector: Maine's demographics continue to be the state's greatest challenge, with electricity costs coming in a close second this year. One of the biggest factors in attracting young workers to the state is the availability of well-paying jobs. If businesses are spending more of their revenues on electricity, they have less money available to create those well-paying jobs. The administration's focus on keeping energy costs in check is an important part of creating an attractive environment for businesses and workers alike. Without an influx of new workers, Maine's available workforce will diminish in the coming years.
Lawton: The fiscal challenge of maintaining oversized and outmoded infrastructure in areas of population decline — K-12 schools, higher education campuses, hospitals, highways, telecommunications infrastructure (see FairPoint problems), even larger family homes. On the positive side, the largest challenge is for the business and educational communities to break out of their traditional 'we don't and can't do it that way' excuse for not changing their separate worlds and instead finding new ways to jointly engage in the challenge of providing our young — from pre-K to post-graduate — with new ways to acquire the knowledge, skills and experiences that will enable them to become both successful career-builders and engaged and knowledgeable citizens.
Colgan: Maine is becoming a state with more jobs than people, reversing its century-long status as a state with more people than jobs. The effect will be to raise compensation costs as employers try to attract and retain workers and to substitute capital (particularly information technology) for labor. This is unchartered territory for Maine and the rest of northern New England.
Reisman: One, dealing with consequences of an aging population. Two, finding a way to attract and welcome young immigrants, be they from Massachusetts or Mexico. Three, rejecting the green road to serfdom and choosing optimism, capitalism and freedom instead.
Johnson: Maine's biggest challenge is ensuring that the benefits of economic growth are more broadly shared, and specifically the pre-tax distribution of income and wages. Policies that strengthen worker's bargaining power, increase wage and labor standards and allow workers to reduce their hours will help create a stronger, more sustainable economy that works for everybody.
Rector: Continued improvement.
Colgan: Recovering. Transitioning. Confusing.
Reisman: Grayed. Frayed. Staid.
Johnson: Slow, uneven growth.