Posted by: Josh Lehner | April 15, 2014

Tax Day 2014

Today is the personal income tax filing deadline, and I know you are nearly as excited as we are! As you know, Oregon is a personal income tax state, making up 87 percent of the General Fund this biennium. While 2013 saw a big improvement in the Oregon economy, our office’s and other states around the country’s expectations are for modest growth this year due to the pull-forward of investment-type income into 2012 as federal taxes were raised on high income households.

However when you combine a more volatile underlying economy, such as Oregon has, with an income tax, which is even more volatile, the opportunity always exists for an “April surprise,” either to the up or downside. Our office has experienced a number of those over the years. Nevertheless, so far, so good in terms of collections and expectations. However, as can be seen in the graphs below, the vast majority of income tax payments have yet to arrive at the Department of Revenue and/or be processed, at least in terms of the dollar amounts. It makes for an interesting time in our office as we are effectively in wait and see mode for the next few weeks, but at the same time our colleagues at the Department of Revenue are sending us the latest data on income tax returns.

For more on these graphs, please see Karen Weise at Businessweek who wrote about these trends and patterns last week after seeing our graphs from last year.

The first graph shows cumulative final personal income tax payments since the start of the year. Data is updated through yesterday (4/14/14). Only about one quarter of expected final payments have been processed so far, however by mid-May we should have a good idea where the final number(s) will land.


On the refund side of the ledger, about 60 percent of expected refunds have been processed at this point (data through last Friday, 4/11). Typically filers who receive refunds file earlier in the tax season. This is likely due to a) they’re getting a refund and want their money and b) these are usually wage earners with reasonably simple tax returns; the more complicated returns are usually filed at the deadline (with or without an extension).


Our office’s next quarterly forecast is scheduled to be released on Wednesday, May 28th.


Posted by: Josh Lehner | April 11, 2014

Oregon Spider Chart

Oregon’s economy is recovering. Job growth has picked up as have wages and the unemployment rate is falling (for both good and bad reasons). Even still, the labor market is not 100 percent healthy as we still have too much unemployment, in particular among the long-term unemployed, the hiring rate is not fully back and workers are not confident in the economy to quit their jobs, for fear they will not be able to find another and the like. Given that no single measure can convey the full situation, the Federal Reserve Bank of Atlanta developed an elegant spider chart last year that lets you visualize the improvements in the labor market across a wide variety of indicators. Below is our office’s Oregon version of the same chart, or at least including similar metrics.

What this chart shows is pre-recession peak levels of each measure along the green line (100%) and each measure’s recessionary trough at the red dot (0%). Over time as these measures improve along with the economy from the worst of the recession, they move outward from the center. Once the measures reach the green line, that indicates it has fully regained the level (or rate) last seen prior to the Great Recession.


10 of the 12 measures are Oregon specific ones, with the quits rate and jobs plentiful measures being national as no local data is available. Overall, the labor market is getting there. The leading indicators have improved the most, but now employer behavior is picking up. The number of help wanted ads is all the way back as employers are looking to hire. While hiring rates have improved, as too has total employment, average hours worked is lagging somewhat relative to these other measures. Where the labor market has shown the least improvements are in the confidence and utilization measures, which can broadly be considered the “feel good” part of the recovery. We are not to that point yet, but progress is being made, albeit slowly.

Posted by: Josh Lehner | April 9, 2014

Price to Rent Ratio, an Update

With growing demand for housing and a limited supply, prices are rising considerably in the past two years for both owning and renting. Below is an update of our office’s standard price to rent ratio that uses the FHFA home price index and the Owner’s Equivalent Rent from the consumer price index data (per SF Fed methodology). This data show that in the past two years (late 2011 – late 2013) home prices in Portland rose 12.4 percent and rental inflation increased 7.1 percent. This results in a rising price to rent ratio (indicating that buying is becoming more expensive relative to renting). Salem home prices rose 3.2 percent based on the same data, and has a more stable price to rent ratio in recent years.


The home prices and rental inflation factor used above are trying to gauge the overall price movements of the housing stock and it does a pretty good job of that. However, one interesting item of recent research has been to try and focus on the current market prices of what it takes to buy or rent today. Instead of average rents or prices over the entire housing market, examine just what it takes to find a place to live in today’s market. For new owners/renters/movers, are purchase prices rising faster than rents, or vice versus?

Luckily here in Oregon we have the great Multifamily NW apartment reports with rental price per square foot data, which is a fabulous resource and one I have been trying to find a way exploit more. It also includes data for more than just Portland so matching the rental price data with the recently sold home price data from Zillow, we can create price to rent ratios for Salem, Eugene and Bend as well. This measures price changes on a per square foot basis. One can do the same analysis but with just Zillow data, however their rental data only begins at the end of 2010 so there is not as much history.

PriceRentZillowMFNWExamining the housing market in terms of what it takes to find a place to live today, it shows a much more stable relationship between buying and renting. Although both are rising very fast, they are more or less moving in tandem.

On the outlook, our office is still looking at moderated price increases as eventually a supply response will come (more on this soon). Permitting for new apartment construction is up considerably post recession and I think the headline from the latest Barry Apartment newsletter out of Portland says it all: “Construction Ramps Up As Developers Play Catch Up.” At the least it appears there is no longer acceleration in price increases, even though they are still going strong.

Next week the Spring 2014 Multifamily NW apartment report will be released and we can see just how strongly rents increased in early 2014, as we know home prices continued upward. Future work will include exploiting the neighborhood level rental price data for Portland, as Zillow homes sold data is available as well.

Posted by: Josh Lehner | April 7, 2014

Graph of the Week: Income, Rents and Zip Codes

I have been spending a lot of time at the zip code level of all things housing lately, including prices, rents, sales, and supply in Oregon. Our office has lots of good work coming on that, however, one item that popped up recently was the impact of rising rents on folks across the income spectrum. FiveThirtyEight’s Ben Casselman examined inflation across income groups, based on consumption patterns and found overall the inflation may be rising fastest for the basket of goods the poor and the rich buy (for different reasons) than it is for those in the middle of the income spectrum. The primary reason inflation may be higher for the lower income households is due to rising rents (housing and utilities account for 45% of spending, compared with about 37% for the wealthiest households), based on the BLS inflation and consumer expenditure survey data.

To try and get at the same issue but looking though a different lens, I cross referenced the Zillow rental data by zip code with 2008-12 American Community Survey data on median household income (Spreadsheet: Zip Code Rents). While we know home prices and rents are rising quickly, we also know they’re not rising uniformly across areas. Different cities are seeing larger or smaller increases and neighborhoods within cities are not seeing the same increases, due to various aspects like perceived livability, trendiness, available supply and the like. Putting this all together, we see that rents are actually rising fastest in wealthier zip codes and slowest in lower income zip codes.


While this look at rising rents is a bit more granular and detailed, unfortunately it still does not fully address the underlying question of how rising home prices and rents are directly impacting individuals across the income spectrum as each zip code has both higher and lower income individuals in it.

Bringing it full circle back to Oregon, rents in Portland are rising faster than in Albany and within Portland rents for zip codes in and around downtown are rising faster than, say, east Portland. Adding in spatial analysis and maps may bring another level of understanding to the issue and the impact of rising prices. Our office’s housing affordability measure is hovering just in the threshold range of affordability, but drilling down to the zip code level reveals certain areas are more expensive relative to the median household’s ability to pay than others (more on this later). It’s a complicated issue with different neighborhoods within a city seeing different impacts, but one worth tracking and our office will address some of these topics with our future work on housing at the local level.

Posted by: Josh Lehner | April 4, 2014

Getting There. Financial Crises Edition.

Friend of the blog, Bill from the indispensable Calculated Risk, asked for an update on the financial crises comparison graph now that the U.S. has nearly regained all of the Great Recession’s lost jobs. The private sector is back but the public sector is still down considerably. Expectations are that the U.S. will be back to pre-recession levels in the next 2-3 months (although this leaves to the side the fact that the population has grown).

Just as a reminder the graph compares employment loss for Carmen Reinhart and Ken Rogoff’s so-called Big 5 financial crises with the U.S. Great Depression and Great Recession. Using Reinhart and Rogoff’s great work on historical financial crises, our office previously looked into comparing the Great Recession with these historical financial crises to see how the current cycle stacked up. Overall the Great Recession was your “garden-variety, severe financial crisis” as Rogoff once said, but in terms of employment, the U.S. has actually done fairly well when compared with these other, major crises. Not good enough overall to avoid mass unemployment and lackluster growth, but in the context of historical financial crises, the U.S. employment picture is better than most.


Posted by: Josh Lehner | April 2, 2014

Update: Job Polarization in 2013

New occupational data for 2013 was just released by the Bureau of Labor Statistics. Overall 2013 was not only stronger than previous years, since we already knew job growth accelerated, but the pattern of growth across occupations was also more encouraging.  Below is an update on job polarization in Oregon, following the same methodology and sources as our research report last year.

In 2013 Oregon outperformed the nation and the average state just a little bit overall but significantly when it comes to the high-wage and upper middle-wage occupational groups. This is the business cycle kicking in, or the state’s beta kicking in. Oregon tends to outperform during expansions (and fall further in recessions) and the data show this at the occupational level, particularly among the upper middle-wage jobs. These include construction and installation, maintenance and repair occupations which are increasing with the improving economy and housing rebound but also other occupations tied more to the public sector like protective services (firefighters, police officers) and teachers. These gains are also directly tied to the improving economy and stronger cycle as public sector budgets follow the general economy, albeit generally with a lag.


In terms of each occupational group in expansion, the graph below clearly shows the polarization pattern of strongest growth at the high- and low-wage levels. However if you compare with the graph from last year (with data through 2012) the middle-wage occupations have shown improvement. Additionally we have made one, relatively minor, methodological change in terms of the health support occupations. See below for a full explanation.


Finally, even as growth in Oregon has spread beyond the Portland Metro in the past year or two, it still largely remains within the other metropolitan areas of the state, namely Bend and Medford but also Salem as well. Rural Oregon, while seeing some job growth, remains further below pre-recession levels than the state’s metropolitan areas.


Overall, Oregon’s labor market in 2013 saw an improvement relative to the lackluster growth so far in expansion, however the state is still digging out from the Great Recession and has a lot more room for improvement.

* You may remember that health support had previously shown some large declines relative to everything else and the U.S. overall, which in consultation with the Bureau of Labor Statistics largely turned out to be a data and classification issue. Many of these jobs are now showing up in personal care as personal care aides, and not occupations like home health aides or the like, even though they effectively are the same job, or at least type of job. Given that the data clearly show that these are offsetting each other, our office is now including personal care aides in health support and not personal care. Somewhat confusing, I know, but this does capture the underlying trends better.

Posted by: Josh Lehner | April 1, 2014

Graph of the Week: Gold Mining in Oregon

Our office fields a wide variety of research requests, many of which we are unfortunately unable to help with due to time, staff, data availability, research topic and the like. However, recently we were asked about historic gold mining and production in Oregon. After some quick research and between our colleagues at the Oregon Department of Geology and Mineral Industries, which has what is commonly referred to as Bulletin 61 (pdf), and the U.S. Geological Survey’s Mineral Yearbooks, it turns out the data is available back to the 1880s. As our office is friends with nearly all things data and all things research, putting these together yields the following for Oregon gold production in troy ounces and the latest installment of the Graph of the Week. Keep in mind that these are reported gold production figures and are very likely an under count of actual production.


The two primary regions of the state that experienced a gold rush were Southern/Southwestern Oregon and Northeastern Oregon. During the late 1800s, Oregon accounted for 3-4 percent of U.S. gold production, based on what I could find (historical data can be spotty). From around 1900 through the 1940s, Oregon accounted for 1-2 percent of U.S. gold production and since the 1950s, hardly any reported gold mining at all. There has been mining but the specific amounts are withheld due to confidentiality/disclosure issues. In correspondence with the USGS, they write that the last time they saw commercial gold production from Oregon was in 1994 with most of it placer production and the last lode mine information was 1987.

So there you have it. While historic gold mining is way outside of our office’s wheelhouse, we try to help out the best we can and thought I should share what I was able to find. This is but a scratch on the surface of a much bigger, historical topic. The more I started to look into it, the more I found to discover so I’ll sign off here on an interesting part of Oregon’s history.

Posted by: Josh Lehner | March 25, 2014

Alpha, Beta and State Comparisons

We know Oregon’s employment growth accelerated in 2013 and while the U.S. continues to add jobs at a 1.5-2 percent annual rate, Oregon is now up around 2.5 percent. This marks the strongest growth rate differential between Oregon and the average state in 7 years. Oregon’s economy is usually more volatile than the U.S. overall as the state falls further in recession but tends to grow more quickly in expansion. If the timing between business cycles is long enough (or the growth strong enough) Oregon typically comes out ahead on net, even with the more pronounced swings. Our office routinely discusses these two aspects of the economy with the Governor’s Council of Economic Advisors and we borrow from the finance jargon when talking about the state’s alpha (stronger on net) and beta (more volatile). The graph below plots Oregon’s employment beta* as it shows Oregon’s net growth rate position relative to the nation. When the orange line is above zero, Oregon is growing more quickly, when the line is below zero, Oregon is growing more slowly or losing more jobs than the average state.OregonBetaWhile Oregon’s trajectory has improved quite a bit and the state currently ranks among the Top 10 fastest growing in the country, there is also more ground to make up locally as the state fell further in recession than most others. Specifically, Oregon experienced the 7th largest job loss across the country and while¬†we are getting there in terms of regaining these losses, Oregon is not yet back to pre-recession levels of employment, let alone underemployment and other measures of labor utilization.

EmpStateComp_0114To sum up current conditions, Oregon is once again growing more quickly than the U.S. overall and making up lost ground after falling further in recession. This is, by and large, the typical pattern the Oregon economy follows. Should the expansion last long enough, expectations are for Oregon to come out ahead when all is said and done. The state is clearly not there yet, but the trajectory has improved to the point where we are getting there.

* This is our office’s quick and dirty beta measure. The official, statistical measure is a single value and does not show the time series aspect as the graph above, but the concept is clearly the same.

Posted by: Josh Lehner | March 21, 2014

Oregon, Alcohol and Demand

Mark recently gave a presentation to the Oregon Liquor Control Commission in which he detailed consumption trends by age, income, occupation, city size and the like, based on the consumer expenditure survey data our office has been diving into a lot recently. The purpose being to examine how each of these various aspects of the economy impact demand for products. Additionally, our office has devolved developed a preliminary Oregon “alcohol cluster” in terms of employment, and our colleagues in Washington have shared with us their latest sales and price data, post-privatization. What follows is an abridged version of some of the information, with a more complete set of slides at the end.

  • Overall spending on alcohol is influenced by the business cycle and is discretionary. As one’s income rises, so too does spending on alcohol, making it a normal good in the economic parlance.
  • Spending varies across occupations as well, so just as job polarization impacts employment and economic growth, it likewise has an impact on patterns of consumer spending, which does include alcohol.
  • Alcohol spending increases with population size up to a point, but does decline in the largest cities and metropolitan areas (more than 5 million people).

One of the most interesting items Mark worked on was an age-adjusted spending outlook. Taking the consumption spending pattern across age groups and then applying that to the population in Oregon, both historically and according to our office’s forecast, yields the following. This pattern was a bit counter intuitive to our prior assumptions. We know that older households spend a lot less on alcohol, but the millenials are large enough in numbers (and 25-34 year olds spend the most on alcohol overall) to largely offset the expected spending declines of the Baby Boomers themselves moving forward, even as the overall share of spending continues to fall.


In terms of local employment, you no doubt have heard about the state’s renowned craft beer scene, highly rated pinot noirs and budding craft distilleries. Based on some preliminary work, here is our first estimate of the Oregon alcohol cluster. Besides the manufacturers, this includes their wholesalers, distributors, specialty retail shops, in addition to drinking places (bars). Since the beginning of 2008 (essentially the onset of the Great Recession), employment in these industries has increased in Oregon 35 percent, or about 4,000 jobs. The comparable U.S. alcohol cluster has seen growth of about 7 percent. These upward trends have bucked the broader Great Recession induced losses and have added a considerable number of jobs in recent years.


Unfortunately, due to data difficulties, these numbers in aggregate are an under count of the actual number of jobs. Many of Oregon’s breweries are actually brewpubs and are classified under restaurants and not beverage manufacturing. It is a very tall task to separate out this data from the broader restaurant information, but for more on the latest in Oregon breweries, see the great work from Employment Department’s Damon Runberg.

Finally, we asked our colleagues up in Washington for the latest on alcohol sales in their state. What follows is an update to our previous look at what happened post-privatization in Washington. Overall, prices increased in the state 10-15% in terms of retail sales. Consumers purchased more products initially, likely due at least in part to the novelty of being able to purchase in many more locations. Since then, sales have been relatively flat.


Full set of slides are below.

Posted by: Josh Lehner | March 20, 2014

Tobacco and Taxes

Continuing with our occasional series on the state revenue streams, today I’ll briefly discuss tobacco taxes and focus primarily on cigarettes.

In terms of overall spending on tobacco and supplies, the consumer expenditure survey data shows a typical pattern across the country. That is, by and large, slowly declining spending (and revenues) but a big change following a tax increase. In 2009 the federal government raised the tax per pack of cigarettes from $0.39 to $1.01. This was the driver in the increase in spending, not that suddenly more individuals started smoking in 2009.


Locally, we are seeing the same sort of pattern. As discussed previous in comparing border tax issues with Oregon and Washington, tax policy differences between the states results in behavioral shifts. Both states have seen the downward trend in cigarette packs sold, however the movement around these trends is the interesting part. When Washington raises their tax (the red line goes up), sales in Washington decline more sharply while sales in Oregon level off or hold relatively steady. The opposite is true when Oregon raises taxes. This implies quite a bit of cross border activity in sales (primarily Washingtonians buying in Oregon). Our colleagues at the Washington Economic and Revenue Forecast Council find that roughly half of the change in sales following an Oregon tax increase is accounted for in cross border sales — that is about half of the decline in sales is due to less Oregonians purchasing and half due to less Washingtonians buying in Oregon. These tax law changes, and behavioral patterns, do result in revenue forecast errors, as discussed in more depth previously in The Lund Report.


As part of the special legislative session near the end of 2013, one of the bills passed (HB 3601) raised the Oregon cigarette tax per pack from $1.18 to $1.31. To help put that increase in context, notice the decrease in the red line above. The tax differential between Oregon and Washington is still nearly as large as it has ever been, however there will be a behavioral response. To gauge this behavioral change in advance, I compared the static impact of the tax increase — that is, there will be no behavioral response — with that of the official revenue impact statement from the Legislative Revenue Office. As seen below, expectations are that the higher tax will bring in more revenue overall, just not quite as much as the static impact would suggest. The tax increase went into effect January 1, 2014 and as we get more sales data, our office will adjust this impact accordingly.


Finally, the graph below highlights how cigarette taxes are distributed for use. For more details, including other tobacco tax revenue (cigars, snuff, etc) and the outlook please see Table B.6 in Appendix B of our quarterly forecast.


Overall in terms of the outlook, our office’s expectations are for the slow decline in cigarettes sold to continue moving forward. The recent increase in cigarette taxes will likely not decrease this trend too much, given the relatively small changes plus the differential with Washington remains large. However, as discussed previously when looking at spending patterns by age, retirement age households spend 48 percent less on tobacco and smoking supplies than due to those in their late 50s or early 60s. Like many revenue streams moving forward, the aging demographics will weigh on growth as the Baby Boomers move into their retirement years in the coming decade.

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