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From Tailwind to Headwind: New Hampshire's Shifting Economic Trends

Executive Summary

Date: September 27th, 2012

For several decades, New Hampshire has stood out as an economic anomaly in the Northeast. With a highly-educated workforce, high rates of in-migration and a high median per-capita income, New Hampshire boasted a strong, vibrant economy that gave it distinct advantages over its neighbors.

Here, as elsewhere in the country, the Great Recession has disrupted much of the state economy. But it is a mistake to assume that the recession is the sole reason for the recent slowdown in New Hampshire’s economic engine, or that, once the impacts of the recession are behind us, New Hampshire will return to the pattern of steady, reliable growth of years past.

A more expansive analysis of the state’s economic and demographic trends – with a time frame of decades, not months or years – shows that the forces that helped create New Hampshire’s advantage have largely run their course. As a result, the model that defined the state’s economy since the 1980s – consistent population growth, increased productivity, and a more resilient economy than our competitors – no longer holds. After benefiting from nearly three decades of economic tailwinds, New Hampshire now faces a strong headwind: net out-migration, an aging population and decreased labor productivity.

The outcomes of these changes may not necessarily all be negative. Slower population growth will likely mean less congestion and less pressure on natural resources. And some of the core advantages upon which New Hampshire’s economy is founded – proximity to Boston and a beautiful natural environment, for example – are not disappearing any time soon. But, at the least, the shift outlined in this paper demands a recalibration of the assumptions upon which much state and local policy is based. In short, we can no longer assume that New Hampshire will continue along the economic trajectory it has for many years.

There is no single, simple response to this new set of circumstances; policymakers will have to weigh various options. These include investing in human capital (an area where we rank relatively high when you consider educational attainment), redesigning the state’s tax structure (where New Hampshire enjoys one of the lowest per-capita tax collection rates in the country but maintains high corporate taxes), or investing in improved infrastructure and transportation (an area in which the state ranks relatively poorly). The likely return-on-investment of these and other options should be part of that decision-making process, as well.  

In this analysis, we document long-term trends in various dimensions of New Hampshire’s economy and outline some possible goals for the state’s future economic development. A follow-up report will address in greater detail the potential policy responses in pursuit of these goals. It will also include an assessment model to help us better understand the forces at work in the state’s economy, with a focus on how New Hampshire fares in relation to comparable states.

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