U.S.

Regional Check-Up TD Economics

www.td.com/economics

April 15, 2011

HIGHLIGHTS
• Led by improvements in manufacturing and business services, economic activity improved across TD Bank’s
footprint during the last two weeks of February and throughout March.
• Reports from the Beige Book suggest supply disruptions from the Japanese crisis have been relatively isolated,
limited to a handful of manufacturers and auto and electronics retailers.
• Local economies are starting to feel the real effects of fiscal austerity as state budgets bring forward deep
cuts, and reduced federal spending leaves some local programs underfunded.

REGIONAL TRENDS
New England
• High-value manufacturing and service sector activity continue to fuel New England’s expansion.
• Massachusetts’ producers appear more exposed to Japanese supply disruptions than other East Coast states.
Middle Atlantic
• March should prove a strong month for job growth in the Middle Atlantic.
• Harrisburg and Albany follow Trenton’s lead with state budgets focused on spending cuts not tax hikes.
South Atlantic
• A big $3 billion boost in transportation infrastructure spending is headed to Virginia.
• Florida home sales are on the mend (albeit gradually), but courts and foreclosure moratoriums are stalling a
broader real estate recovery.

REGIONAL COINCIDENT INDICES

M/M % Chg.
0.6
U.S.
0.4
South Atlantic *
0.2 Mid Atlantic ^
New England **
0

-0.2

-0.4

-0.6

-0.8

-1
May.08 Jul.08 Sep.08 Nov.08 Jan.09 Mar.09 May.09 Jul.09 Sep.09 Nov.09 Jan.10 Mar.10 May.10 Jul.10 Sep.10 Nov.10 Jan.11

Source: Philly Fed, TD Economics. *DE,MD,WV,VA,SC,NC,GA,FL; ^NY, NJ, PA; ** CT, MA, ME, RI, NH, VT

Alistair Bentley Beata Caranci Christos Shiamptanis

Regional US Economist AVP, Deputy Chief Economist Regional US Economist
(416) 307-5968 (416) 982-8067 (416) 982-2556
 U.S. Regional Check-Up TD Economics
April 15, 2011 2
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NEW ENGLAND -- HIGH-TECH OPPORTUNITIES & BUDGET PROBLEMS

The economy has continued to improve across New
England (NE) since our last Check-Up. On the upside, we REGIONAL LEADING INDICATORS*
continue to see strong growth from the region’s high value Index
industries. On the down side, the ongoing fiscal challenges 3

facing state and local governments continue to cast a shadow 2

U.S.
of uncertainty. 1 New England
NE’s manufacturing sector continues to impress. For 0
example, Organogenesis (a manufacturer of living human
-1
cells used in regenerative medicine) just announced plans to
build a $63 million dollar plant in the Boston area, because -2

its current facilities are expected to reach capacity within two -3

years. Cutting edge manufacturing like this remains one of -4

NE’s strongest suits. -5
Given the important role of high-value production in NE’s Jan.08 Jul.08 Jan.09 Jul.09 Jan.10 Jul.10 Jan.11
economy, supply disruptions from Japan may have a larger
impact on the region’s manufacturing industry than in many Source: TD Economics, Federal Reserve *based on Philly Fed State Index

other East Coast states (with the possible exception of auto

producers in the Carolinas and West Virginia). Data limita- 2010 NEW ENGLAND EXPORTS TO JAPAN
tions make it difficult to accurately assess the impact, but we Miscellaneous*
can draw some inferences. At just over 8% of state exports,
Massachusetts (MA) has the largest trade exposure to Japan
Computer and
on the Eastern Seaboard. Also, among manufacturing firms, Electronic
only NE producers cited concerns about potential supply Components

disruptions in the Beige Book (BB). For now, the impacts Chemicals
appear to be isolated, but the longer production schedules are
delayed, the bigger the sways in inventories and production
Machinery
we may see.
This week’s BB also signaled that advertising and consult-
ing activity have been growing very rapidly in NE. Our call All Others

in January that the region’s economic growth will outperform

the rest of the country was predicated on these types of pro- Source: Department of Commerce, *largely medical equipment
fessional industries performing well during 2011. Thus, we
remain hopeful that a broader recovery in real estate and the
SHARE OF EXPORTS TO JAPAN
job market will follow in the quarters ahead.
Yet all is far from well. The Red Sox’s have had a dread-
FL
ful start to the season, and public finances remain strained. GA
SC
In CT, Governor Malloy is embroiled in tough negotiations NC
with state unions in an effort to cut budget costs. If the ne- VA
WV
gotiations are not able to bring any concessions, some reports DC
MD
suggest that the state may have to cut upwards of $1 billion DE
PA
in program spending and aid to municipalities, obviously NY
NJ
adding further strain to already stretched local governments. CT
RI
Meanwhile, Governor Chafee is discussing some substantive MA
changes in Rhode Island’s tax system including a broaden- NH
VT
ing of the sales tax base and some possible reductions in the ME

corporate tax rate. 0% 2% 4% 6% 8% 10%

Source: Department of Commerce

 U.S. Regional Check-Up TD Economics
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MIDDLE-ATLANTIC -- SPENDING CUTS

The Mid-Atlantic’s (MA) economy continues to im-

prove, with strength from the usual suspects (manufacturing REGIONAL LEADING INDICATORS*

and retail sales), while improvements in housing, the job Index

3
market, and lending activity are tentative. So far, disrup-
2
tions following Japan’s earthquake appear minor, as there U.S.
was only a single mention from an electronics retailer of 1 Mid-Atlantic

potential inventory shortages in the Beige Book (BB). 0

Next week’s state employment report should bring some -1
encouraging news for the MA economy. Of late, regional job
-2
growth has been disappointing, particularly in NY and NJ
-3
(see chart). But, we are hopeful March will mark a turning
point in this trend. For one, national job figures sustained an- -4

other strong month of gains in March and naturally, stronger -5

national figures will support the regional numbers. Also, in Jan.08 Jul.08 Jan.09 Jul.09 Jan.10 Jul.10 Jan.11

this week’s Beige Book, one contact in New York reported

Source: TD Economics, Federal Reserve *based on Philly Fed State Index
“a marked pickup in hiring activity in March …described
as the best month in a number of years.” Stay tuned to our
PRIVATE SECTOR JOB GROWTH
state employment report next Tuesday for the details.
On the fiscal front, budget season in Albany and Har- 3%
Y/Y % Chg.

risburg has set the tone for the impending era of fiscal 2%
restraint. Following New Jersey’s lead, governments in 1%
the Empire and Keystone states have shifted gears, and are 0%
opting to tackle budget gaps entirely through spending cuts, -1%
not tax hikes. -2%
On March 31st, Governor Cuomo’s budget passed -3%
through the New York legislator surprisingly quickly and -4%
NJ
PA
largely unscathed. The budget does not raise taxes (in fact -5%
NY
some temporary hikes will expire), and it fills the state’s $10 -6%
US
billion gap through deep cuts to state spending – particu- -7%
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
larly to state school and health funding. Residents in New
York appear to be accepting this tough medicine and have Source: BLS
rewarded the Governor with some strong polling figures.
In PA, Governor Tom Corbett released his budget plan,
MARCELLUS SHALE DRILLING PERMITS: PA
which cuts state general fund spending from $28bln to
$27.3bln, and leaves tax rates unchanged (the proposal nota- 4.0
Permits (000's)

bly omits any tax on natural gas drilling which has exploded
3.5
in recent years owing to the development of the Marcellus
3.0
Shale formation) . While Democrats are pushing back on
the proposal, with Republicans in control of the house and 2.5

senate, it looks likely that Governor Corbett will get his way. 2.0

1.5

1.0

0.5

0.0
2007 2008 2009 2010

Source: Pennsylvania Department of Environmental Protection

 U.S. Regional Check-Up TD Economics
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SOUTH ATLANTIC -- LEGAL WOES

Encouraging signs of economic life are starting to emerge

from the South Atlantic (SA). Reports from the Richmond REGIONAL LEADING INDICATORS*
and Atlanta Fed were particularly upbeat on tourism, and Index
3
manufacturing. Meanwhile, improvements in jobs, housing
and lending were less consistent but are showing signs of 2
U.S.
modest improvement. 1 South Atlantic
Recently, lawmakers in Virginia passed a large trans- 0
portation infrastructure bill. The plan called for roughly $3 -1
billion in state borrowing to fund much needed road infra-
-2
structure, especially in the state’s Hampton Roads region and
among DC suburbs. Governor McDonnell estimates that -3

this plan could create upwards of 105K jobs over the next -4

six years. Of course, such estimates should be taken with -5

a grain of salt. But this large infrastructure plan amid the Jan.08 Jul.08 Jan.09 Jul.09 Jan.10 Jul.10 Jan.11

nation’s current bout of budgetary austerity is the exception

Source: TD Economics, Federal Reserve *based on Philly Fed State Index
to the rule. And this much needed transportation upgrade
should boost short-term growth while improving the longer
term competitiveness of the state’s trade sector. RICHMOND FED ACTIVITY SURVEYS

Buoyed by distressed sales, Florida housing sales activ- Index

40
ity continues to gain momentum, according the this week’s
30
Beige Book. This increase in activity is encouraging, and 20
coupled with existing home sales data for February, suggests 10
Q1 sales should increase by roughly 20%. Such activity is 0
vital to clearing the Sunshine State’s extensive inventory -10
of foreclosures. -20
Still, Florida’s court system remains overwhelmed by -30
foreclosures and this is slowing the recovery process. A -40
Manufacturing
recent report suggests that over 90K foreclosure proceeding -50
Service
are frozen in Miami-Dade county alone. Such legal backlogs -60
Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10
impede a broader improvement that will one day result in
rejuvenated construction activity. Source: Richmond Fed
Finally, uncertainty about the federal budget appears to
be taking a minor toll on the SA economy. BB reports sug-
FLORIDA: EXISTING HOME SALES
gest that some manufacturing orders from federal agencies
were temporarily stalled during March because of uncer- 20
Units (000's)

tainty about looming budget cuts and the possibility of a 18

government shutdown. Likewise, the broader impacts of 16
impending fiscal austerity are starting to emerge. In West 14
Virginia, some environmental energy research programs 12
related to the state’s large coal and natural gas reserves are 10
facing steep federal funding cuts. Meanwhile, earmarks 8

for a dredging study to expand Charleston harbor in hopes 6

of handling the higher traffic volumes anticipated from the 4

2014 Panama Canal expansion did not survive the latest 2

showdown on Capitol Hill. 0

Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10

Source: Florida Association of Relators

 U.S. Regional Check-Up TD Economics
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