Posted by: Josh Lehner | December 16, 2014

Oregon Employment is Back …. to Pre-Recession Peak

Oregon just passed a big milestone in the recovery, having regained all of its lost jobs from the Great Recession. As we wrote last month: “Of course, reaching pre-recession levels is not an end goal, but it is an important milestone.” See that report for a good, big picture summary of the recovery so far. The bonus good news is that our office can now retire this graph comparing job losses across recessions. We have made it out. Even a hair quicker than expectations and ahead of the 1980s recovery. Of course the economy is still not firing on all cylinders, even if the recent data flow is more positive and encouraging.

ORRecEmp1114

Furthermore, our office can now start talking again about the strength of the net expansion. That is, how many jobs are we adding above and beyond pre-recession peak levels. It’s been 3 years since we have showed this graph, but it’s dusted off now, upgraded to the latest version of Office and ready to go. In 5 of the previous 6 expansions, Oregon’s net growth has outpaced the nation. The exception being the 1980s recovery when Oregon lost 4 times the number of jobs as the typical state (in percentage terms) and even then, we nearly caught up. In 5 of the previous 6 expansions in Oregon, the state has added 15% or more in terms of total jobs, above and beyond pre-recession levels. The exception being the housing boom recovery, which was by far the weakest and most lackluster expansion on record, prior to the Great Recession. This recovery has been slower still. However it appears to be gaining speed both in the second tier metros across Oregon and, more broadly, nationwide. The economy is now on the upswing and Oregon is growing faster than the average state, per our usual pattern. Yes, Oregon still lags the average state relative to pre-recession peaks, however that gap is closing fast and Oregon has already made up 60% of the gap.

EmpNetExpansion

Lastly, how do these strong job reports relate to the kicker given we are so close today? The short answer is that we are still not forecasting a kicker, even with big employment reports the past 2 months. The reason is we have stronger job and stronger wage growth built into the forecast already. Our office is also expecting a big April for income tax collections. The combination of stronger growth and a big April bring us nearly to the kicker threshold, but not over it. To breach the threshold we would need to see exceptional growth. Yes, these jobs reports, if they are correct, are exceptional, however we have yet to see a corresponding jump in withholdings out of paychecks. Withholding today is growing faster than much of the recovery, however not quite as strong as the job numbers indicate. At least not yet. Our office is still in a wait and see mode regarding the kicker.

Posted by: Josh Lehner | December 12, 2014

Household Debt Deleveraging, State Edition

One very important economic measure is that of household debt (relative to income) and it’s impact on consumer spending and economic activity more broadly. As economists have discussed quite a bit in recent years, the typical American household became overburdened by their debt during the housing boom. This became even more apparent once the bust came, with falling employment and income. As our office has pointed out previously, the process of household deleveraging has been underway both nationally and here in Oregon, even at the county level. Unfortunately the underlying debt data by state is not readily available like it is at the national level. However, our friends at the Federal Reserve Bank of New York have quietly rolled out an update to their data for 2013q4. Below is a snapshot of this household debt, relative to income for each state. It is important to point out that about three-quarters of household debt is mortgage debt. Thus states with higher home prices, or a higher share of households with a mortgage, tend to have higher overall debt burdens, even relative to income.

HHDebtStateMap13

More importantly, how have these numbers changed over the years? Are households across the country really back at sustainable levels of debt? A couple of points. First, yes, household debt overall and relative to income is lower than during the housing bubble era. Second, much of this improvement has come in mortgage debt, however it is not like households have made double payments in recent years. We know a significant portion of the decline is due to foreclosures. The silver lining to losing the house is you also lose the debt. Third, with very low interest rates the costs of financing debts is also very low. The Fed’s debt service and financial obligation ratios are at or near all-time lows. So the effective level of debt, measured by what a household has to pay to finance it, is even lower today than the headline numbers indicate.StateHHDebt99to13

All told, after falling for five straight years, the debt to income ratio in the typical state held steady in 2013. In fact, more states’ debt to income ratio increased by more than 1 percentage point than decreased by a similar amount for the first time since 2007. These new, state level numbers do indicate and back up the national trends. It does appear that the process of household deleveraging has ended.

StateHHDebtChange

Posted by: Josh Lehner | December 11, 2014

Education, Migration and the Service Class

Beyond the commonly heard refrain that the Great Recession has ushered in a new, larger educated service class, which turns out to be largely untrue, another common worry is that of the type of migrant (or degree field, like STEM, humanities, etc) that cities attract. Is your regional economy attracting enough of the “good” degrees?

Well, what constitutes “good” is certainly open to interpretation. However, below I compare educational attainment, degree field and migration across the largest MSAs in the country. I use the IPUMS-USA 2013 ACS micro data. Due to data limitations, I use only in-migration (and rates) and not net migration. This is unfortunately but also something I cannot readily fix at the moment and the two measure are highly correlated in most cases. Additionally this is just one snapshot in time.

The first graph shows there is a positive relationship between local educational attainment and in-migration rates of college graduates. What’s interesting here from a Portland perspective is that PDX’s migration rates are equal to cities with much higher educational attainment. Overall Portland is pretty average in terms of educational attainment, relative to other big cities, however our migration trends are very strong.

EducMig2013The second graph divides the college graduates into two camps: those with a Business, STEM or Health degree and those that have a degree in a different field. This is a rough cut to separate degrees and while not perfect, does provide a reasonable starting point. I think. Here, Portland has an above average concentration of All Other degree and a below average concentration in Business/STEM/Health degrees. This result is very similar to previous work done by EcoNorthwest for the Portland Business Alliance. Note: You add together the x and y-axis values to get total bachelor’s or higher share of population.

DegreeType2013Third, combining these two calculations shows in-migration rates by broad degree group across the largest metros in the country. Here is easy to see which cities have high (or low) migration rates. Portland is significantly above average for both broad degree groups (5th highest in-migration rate overall). Although it is weighted more towards the All Other. For those that are worried about degree field, the good news is that while Portland is currently below average for educational attainment in Business/STEM/Health degrees, the growth and migration differential is such that ground is being gained on the other large metros.

MigDegree2013Apologies for the death by scatter plot.

This post initially included some additional state level work on jobs requiring a degree vs those that do not. Our office will continue to work on this topic and republish it, along with a better, more clear explanation of what our findings really show.

Posted by: Josh Lehner | December 9, 2014

Oregon Wage Growth by Industry and County

With wage growth starting to pick up in Oregon it can be useful to figure out where wages are growing. NPR has a nice graph showing industry growth nationwide and we have been asked if we had an analog for Oregon. What I’ve done is take the QCEW data for the first half of the year and compare real (inflation-adjusted) growth across Oregon. First up is wage growth by industry. Similar to the NPR graph, stronger real wage gains are happening more at the top and bottom ends of the labor market. As our office has detailed before, job polarization is impacting the labor market, particularly in terms of the number and availability of jobs. However, wage growth per employee is also showing at least some of these patterns.

IndustryWageGrowth14

Secondly, I used the same methodology but looked at average wages by county in Oregon. Our office has talked a lot about the economic recovery and job growth across Oregon, however not much about local level wages. This focuses just on private sector wages for the first half of 2014. The gray counties are at or near the statewide average of inflation-adjusted real wage gains of 0.7% while the red and blue counties are comparatively weaker or stronger, respectively.

CountyWageGrowth14

To get a better, bigger picture look one would likely need to compare the 2014 data to, say, 2007 averages to see how the recession and expansion have impacted wages at the local level. However, statewide the economic news is brightening. The labor force response is in full swing (more job opportunities attracting more workers back into the labor force, looking to land one of these jobs.) As the labor market begins to tighten, we are now seeing some real wage growth. It’s still low, but it’s faster than the rate of inflation and our baseline outlook is for this to continue moving forward. Possibly, finally, some good news for wages on the seventh anniversary of the Great Recession’s start date.

Posted by: Josh Lehner | December 8, 2014

Vehicle Miles Traveled, Age Edition

Our office oversees the state’s Highway Cost Allocation Study each biennium and one of the topics discussed, obviously, is the issue of vehicle miles traveled. Nationally VMT is effectively flat, while VMT per capita is down. In Oregon we’ve seen similar, yet more pronounced, trends. One contributor to this decline is the fact that younger individuals are not driving to the same degree as previous generations. In fact they’re not even getting driver’s licenses to the same degree either. There are a number of pet theories out there as to why (cost of driving or insurance, connecting with friends online instead of cruising, etc) but regardless of the exact reason(s), it’s a fact. So it was a surprise this morning to see a new report from City Lab titled It Turns Out That Millennials Do Drive. Well, yes, of course they drive. But I think the thrust of the argument largely misses the mark. The report shows that the share of Millennials that commute to work by car/carpool is largely the same, albeit down somewhat in a few metros. However the real story for the transportation system isn’t necessarily the mode of transportation, but the usage of the system. In particular VMT and VMT per capita. For a rough cut, I am using the National Household Travel Survey data. As shown below, the trends are clear. The percentages listed are the changes from 1995 to 2009. Even if the share of folks driving to work is largely the same — it is, if you look at the Census and ACS data — the amount of driving is way down, which is the real story here. It has big implications for things like the gas tax, which is not raising the amount of revenue needed to keep up with infrastructure replacement/repair costs.

VMTage

Posted by: Josh Lehner | December 3, 2014

The Educated Service Class

The Great Recession has damaged the labor market. Of that there is no question. However, has it given rise to the educated service class? Those workers with a college degree that are stuck in jobs that don’t require a degree. This is a true fear out there, that it is happening, particularly in places like Portland. However, as I’ll show below, it really doesn’t seem to be the case. Yes, younger, even college educated workers, tend to be underemployed more than 30 and 40 year olds, however in both good times and bad these shares tend to even out with age. With that being said, graduating during a recession does negatively impact your wages and earnings and recent research shows that underemployment impacts earnings and career prospects as well. However, it does not appear that the Great Recession has given rise to a new, larger and permanent educated service class that many fear. At least not any more so than we have seen in the past decade.

Overall, in both good times and bad about half of young, college educated Americans work in a job that requires a degree*. Another 35 percent, or so, work in jobs that do not require a degree, while the remainder are either unemployed or not in the labor force at all. What is surprising here, at least to me, is that these shares appear to be remarkably steady over the past decade. Wages and earnings may suffer or gain with the business cycle but occupational sorting does not appear to do so.

DegreeJobSharesHowever, the manner in which individuals move within these categories in any give year depends a great deal upon which portion you are in to begin with. Since the ultimate goal is the best fit for each worker (labor matching) it is no real surprise to see that over 90% of those in a degree job, remain in a degree job the next year. However the percentages are drastically different in you are in a non degree job and presumably underemployed. Here, even though 2/3 of such workers remain in a non degree job, this share is considerably lower than for the other group. Furthermore, a worker with a college degree and working in a non degree job has nearly 4 times the probability of leaving the labor force entirely than transitioning into a job that does require a degree.

TransProbTable

What is similarly surprising here, is that these relationships and transition probabilities are stable over time as well. The bright side is that the probability of a worker moving from a non degree job to a degree job is consistently higher and about double that of a worker moving in the opposite direction. Additionally, these transitions from a non degree job to a degree job happen more frequently at a younger age, which makes sense given they may still be working their college job and/or recently relocated to a new city and the like.

DegreeTransitions

Even as these shares and transition probabilities have been pretty stable over time, they are not perfectly equal each year. Overall the share of degree holding individuals employed in degree jobs is down from the housing boom peak, however this adjustment has come entirely among the youngest workers. This is where the potential concern ultimately rests. Do these patterns hold moving forward? Does this permanently impact the careers and earnings of the Millennials? Unfortunately, the Clark et al research (linked above) shows that it likely will, based on workers entering the workforce in the 1980s and 1990s. However their work focuses on the underemployed. However that’s not where the adjustments have been made in recent years. The share in non degree jobs is roughly the same; the adjustment has been made in higher rates of unemployment and those not in the labor force. How exactly will this impact the Millennials’ careers? It’s certainly not going to help, although the silver lining for the medium term is that much of the increase in NILF is due to going back to school, in this case graduate school. That should be a good thing, ultimately.

DegreeSharesYoungest

Ultimately it does not appear that the Great Recession ushered in a new, larger educated service class. That’s the good news. Younger, college educated, individuals are somewhat less likely to be in a degree requiring job today, however their rate of underemployment does not appear to be substantially higher either. That’s the OK news. The adjustment has come in higher unemployment and less labor force participation, which isn’t good either. It will certainly be important to monitor these developments moving forward, particularly as peak Millennials are about 22 and 23 years old today. That is, the largest bulge of Millennials are currently aging out of their college age years and into the start of their prime working years. Overall, as the economy continues to grow, and as the Baby Boomers continue their march into retirement, more job openings will occur, into which the Millennials and Gen Xers will step. The research on earnings for those graduating in recessionary times and those underemployed paint a bleak picture for wages. That’s the bad news. However in terms of labor matching in a big picture, it will likely even out as the Millennials move into their 30s.

Notes: I cross reference BLS education requirements by individual occupation with the Current Population Survey data from the Annual Social and Economic Supplement (March). There is a series break as 2003-2010 is based on one set of occupational definitions and I use a 2010 BLS educational requirement definition for these years. 2011-2014 is based on slightly different/updated occupational definitions and I use a 2012 BLS educational requirement definition for these years. Overall just minor differences, but they do exist.

Posted by: Josh Lehner | November 24, 2014

Demographics Matter. (Graph of the Week)

Demographics matter. Quite a bit, to be sure. It has even been said that demography is destiny. This is one thing I have really learned about in this job. Specifically the age cohort component models that Kanhaiya, the state demographer, uses for his work and the associated forecasts he does. It helps you think through the process and impacts of these big, generational shifts that have long lasting impacts, rather than some short-term impacts around business cycles or specific industries or firms.

In this edition of the Graph of the Week we look at the college age population in the U.S. as an example. The generations are easy to spot. The Baby Boomers reached their peak college years in the late 1970s and early 1980s, followed by the much smaller Generation X in the 1990s. Recently Millennials hit their peak college years.

CollegeAgePop19702030

The decline in the number of college age adults from the relative peak in 1980 through the trough in 1995 was 18 percent or nearly 1 in 5 fewer college age adults relative to just 15 years earlier. These changes can and do have tremendous impacts on the economy, housing, workforce and even sports.

In terms of these changes on housing, young adults typically live in multifamily rental apartments. It is no surprise that MF consisted of a larger share of new homes built back in the 1970s, 1980s and again in more recent years. Preferences matter, but so too do demographics. On the flip side, it is also not a surprise to see many more SF homes built during the 1990s and 2000s when the large Baby Boomer cohort was in their prime working ages, peak earning years and had families. Of course, many other factors were at play as well, especially regarding the housing bubble.

In terms of educational attainment and college enrollment, many discussions in recent years focused on the fact that enrollment surged due to the Great Recession. There is no doubt this played a key role, given the dearth of job opportunities in the economy. However, the timing also coincided with the largest subset of the Millennials entering their college years as well. So the ranks at colleges and universities swelled for both reasons, which are also somewhat temporary factors. Demography is now working against our institutions of higher education, as is a stronger economy. These trends can and are being offset by a larger and larger share of young adults attending college, in hopes of landing a high-wage job in the future.

Finally, one other place where these big demographic factors can come into play is athletics. It is common for sports fans to discuss the great talent and depth of the NBA in the late 1980s and early 1990s, only to lament the perceived decline in both following Micheal Jordan’s retirement. However, both the top talent and depth of good players is back in recent years. It is quite likely that at least some of these swings are due to demography. As mentioned above, the number of college age individuals was nearly 20 percent lower in the mid-1990s than in the early 1980s, therefore the big pool from which these high-quality, professional athletes emerge was much smaller. To be a top talent in the late 1980s one had to beat out competitors from a much bigger pool than someone in the late 1990s. Let’s call this The Demographic Theory.

A similar story can be told regarding NFL quarterbacks. In recent years many commentators have tried to figure out why there appears to be many more young quarterbacks who appear ready to play in the NFL from their first or second year. Historically QBs would sit and learn the system and the league, however in recent years this has not been the case. While some of the reasons given for this trend (better coaching and systems at earlier ages, better training, teenagers today are better at multitasking, etc) make some sense, I suspect at least some of it has to do, again, with demography. The pool of athletes is much larger today than 15 years ago, so not only are there more individuals to choose from, but to reach the highest level, one has to outperform a larger number of competitors as well.

Of course, all of this does not rule out individual greatness in athletics either. During the baby bust of Generation X, there were and are quite a few exceptional talents. To name just two that became professionals during the mid- or late-1990s, I would go with Kobe Bryant and Peyton Manning. Clearly demography cannot explain their talent, but it can impact the broader landscape in terms of the depth of talent elsewhere, aside from such great players.

Posted by: Josh Lehner | November 21, 2014

South Central, Southeast Oregon, Nov 2014 Edition

This post continues with our regular series on the regions within Oregon. For more, see the regional tab at the top of the page.

SEOregonMap

The region varies considerably in both climate and industries as one heads east from the Cascades to the Idaho border in this southern swath of the state. To the west lies the majority of the population and nonfarm employment in Klamath. A large timber and related industries concentration in addition to tourism-related sectors play an important role and the county is home to the state’s only national park, Crater Lake. To the east the landscape opens up and the population becomes more sparse, until you hit the eastern edge of the state where another population base is located in Ontario in the Treasure Valley. Overall these four counties contain just under 3 percent of the state’s population, 35 percent of its landmass and nearly 15 percent of all agricultural sales and 8 percent of agricultural employment.SEOregon_Shares1214

SEOregon_LQ2013

The region has undergone deeper recessions and/or taken a bit longer to recover than the state overall for each business cycle in the past 35 years. Today, the job losses from the Great Recession are now worse than at the same point point following the early 80s recession. This pattern over each business cycle is similar to those seen in Southern Oregon and the South Coast, as discussed previously. The one except being the severity of the 2001 recession due to large losses in Klamath — and related to the drought at that time as well. The only two regions to suffer tough economic times in 2001 in the state were the Portland Metro with its concentration in high-tech and Southeast Oregon. All other regions only experienced a minor hiccup in economic growth.SEOregon_Recessions1214

SEOregon_Unemp1214

For more information on Southeast Oregon please see the great work the Employment Department does, including monthly analysis. Specifically see Region 11 and Region 14 for more details on their website.

Posted by: Josh Lehner | November 20, 2014

Northeast Oregon, Nov 2014 Edition

This post continues with our regular series on the regions within Oregon. For more, see the regional tab at the top of the page.

NEOregonMap

Forests, agriculture and formidable terrain cover much of this region that stretches east of the Cascades to the Idaho border and the Columbia River and Washington to the north. Covering nearly 20 percent of the state’s landmass, yet home to 3.7 percent of its population, the majority which live near or along I-84 in Hermiston, Pendleton, La Grande and Baker City. The region’s dominant industries are highlighted by animal and agricultural related employment, in addition to key transportation sectors.

NEOregon_Share1214

NEOregon_LQ2013

The region as a whole experienced a less severe Great Recession than the state with job losses of approximately 4 percent compared with 8.5 percent statewide. The unemployment rate spiked as job losses mounted, but not quite to the same degree as the state. However the labor market recovery that began in 2010 stalled and the region has seen no net job gains in recent years.

NEOregon_Unemp1214

Northeast Oregon experienced a severe early 80s recession that took 10 years to fully regain the jobs, however the 1990 and 2001 recessions had only minor impacts on local employment. The region took a hit during the Great Recession, however only about half as large as the state overall, but has yet to really gain momentum so far in recovery. NEOregon_Recession1214

For more information on Northeast Oregon please see the great work the Employment Department does, including monthly analysis. Specifically see Region 12 and Region 13 for more details on their website.

Posted by: Josh Lehner | November 18, 2014

Oregon Employment, An Update

In light of today’s preliminary employment figure for October — it’s quite large — I thought it may be useful to step back here and look at the recovery. First, given the data flow, in particular withholdings out of Oregonian paychecks, our office has been skeptical of the summer slowdown in the preliminary employment reports. Not that we dismiss them entirely, but as we discuss in our forecast documents, we use them much like the other economic indicators available to us. The reason being is these initial estimates are volatile and can be subject to substantial revisions. As such, when you combine the relatively weak months of employment growth since the start of the summer with this big October, it brings the Oregon economy largely back to where our office thought it was to begin with. Oregon is now one-third of one percent away from reaching pre-recession peak employment, or 5,700 jobs.

Of course, reaching pre-recession levels is not an end goal, but it is an important milestone. Many other social and economic factors have changed in the past seven years, including population growth which has continued. As we have discussed before, the employment-population ratio for Millennials and Gen X is about 40-50 percent recovered, even if total employment has for the U.S. and nearly has here in Oregon.

OREmpRecComp1014

In terms of how this slow recovery has impacted our office’s primary duties of forecasting the economy and revenues, it has actually been on track for the most part in recent years. The graph below shows our office’s return to peak date for each forecast over the six years since I’ve been here. By the summer of 2010, our office had a slower than usual recovery built into the outlook, with a return to peak in 2014 or 2015. The specific timing shifts somewhat based on the quarterly forecast, but overall it has been pretty stable. More importantly for policymakers, the revenue outlook, absent law changes, has been pretty stable as well.

None of this is to boast, as the economics profession did not exactly wrap itself in glory in advance of the crisis. However, as we did learn about the nature of financial crises, and the important implications that housing and government have on smaller and rural areas, it does help inform our outlook on the economy. For the past 4-5 years, the recovery we have seen has largely been the recovery expected. Slow, disappointing and lackluster relative to previous expansions, however neither our office nor the economic consensus was forecasting anything stronger either.

OREmpForecasts1214

In terms of the outlook from here, our office is expecting more of the same for the next couple of years. Job growth in Oregon of 2.5-3.0 percent per year, which is about one percentage point faster than the typical state, or maybe three-quarters of a percentage point faster. Given the slowdown in employment data over the summer, we built in a near-term acceleration into the outlook to get the state back to the growth seen about 9 months ago. The reason being is that while the jobs data slowed down, other indicators did not. This preliminary October employment figure is another indication that the expansion certainly continues and likely did not slow, at least very much. Oregon’s recovery continues ahead at about three-quarters throttle.

Our office does not have fundamentally stronger growth in the baseline. To get to the typical Oregon expansion of 3-4 percent job growth, we would need to see a return to normal labor market dynamics of stronger job growth leading to higher wage gains and more Oregonians looking for work as well. This would also help drive stronger population growth overall, boosting economic growth as well. We’re actually starting to see some of these dynamics return to more normal patterns, however it is still too early to tell whether or not the economy will get all the way back to these historical cycles. Expectations are that we will not, however it is encouraging to see some of these underlying changes occurring, and for the better of the regional economy.

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