Posted by: Josh Lehner | October 16, 2014

Destination Oregon

Today Mark is delivering a speech at the Oregon Economic Forum on one of the state’s greatest advantages: migration. In both good times and bad, people want to live here. While there are pros and cons, on net this is fundamentally fantastic for the state and local economy. Migration trends are not just a Portland, or metro Oregon phenomenon either. Much of rural Oregon, including the hard hit timber counties, continues to see an influx of migrants from out of state or from abroad. Mark’s speech, along with the great underlying data work from state demographer Kanhaiya Vaidya, will be the foundation for a larger report in the near future. Below are a copy of Mark’s slides and click here to download.

 

For more on the demographic outlook in the state, see our main website. Stay tuned for the report in the coming month(s).

 

Posted by: Josh Lehner | October 9, 2014

Betting the Minimum. Gaming in the U.S. and State Revenues.

Our office is releasing a new report today on gaming in the U.S. and state revenues. Below is the executive summary.

Download:   Report   |   Slides   |   Data

Atlantic City, New Jersey has been in the headlines for their troubled casinos, with 4 closures and a bankruptcy over the past year. The gaming industry’s troubles are not isolated to Atlantic City alone. Across the country, gaming firms are under pressure from increased competition and weak sales growth following the Great Recession.

What sales growth firms have seen has largely come at the expense of other gaming venues. New casinos or games in previously untapped cities and states are driving overall growth, masking the underlying industry trends. This is particularly pronounced in the Northeast. Mature gaming destinations, of which Atlantic City is an extreme example, continue to suffer declines or exhibit no growth. Regional sales have shifted to newer venues in Maryland, Pennsylvania and New York. Even in locations with minimal competition, sales have increased more along the lines of population growth than economic measures like jobs or income.

GamingRevenue

These trends are not only issues for the casinos and businesses that operate gaming facilities, but also for the state and local governments that reply upon tax revenues from such operations. Unlike gaming revenues, most government tax instruments, including personal income and sales taxes, have rebounded along with the economy. Without sales growth, programs and agencies tied to gaming revenues have faced continued budgetary pressures.

The outlook for the gaming industry and associated tax collections in established markets is not exactly robust, barring a major change to consumer behavior or a significant improvement in economic conditions. As in the recent past, new gaming establishments are likely to fare well in the near term. However, as the novelty wears off and competition continues to increase, sales will slow.

Three broad factors influence the outlook for spending on gaming: real income growth, population growth and consumer tastes. Even if tastes remain unchanged, and younger generations gamble to the same extent as did the Baby Boomers before them, demographics will weigh on sales going forward. Most Baby Boomers are currently in their peak gaming years, and will spend less going forward. This decline in sales will be offset to some degree, but not entirely, by additional spending on the part of the Millennial population cohort. To the extent that Millennials choose to pursue other entertainment or recreational activities as they enter their peak earning years, demand for gaming will erode further.GamingDemographicsMany of the challenges facing the industry will occur over the extended time horizon. Near-term trends are more positive. Demographics remain in the industry’s favor for at least the next few years. Also, a stronger economy bodes well for consumer spending more broadly, including discretionary items.

The good news for the industry is that entertainment spending, and gaming expenditures, have stabilized as a share of household budgets, albeit at lower levels than in the past. While fundamental demand for gaming appears to be more in line with population gains than broader economic indicators, such an outlook brings with it sizable upside risks. A pickup in near-term sales growth is not out of the question, with the driver likely to be a stronger economy with more broad-based income gains or a shift in consumer preferences in gaming’s favor.

Download:   Report   |   Slides   |   Data

Posted by: Josh Lehner | October 8, 2014

Special Request for Website Testing

We have a special request for testing a new website about the state’s 10-Year Plan. Below is a brief message from DAS, the Office of the Chief Operating Officer and the Chief Financial Office.

Oregonians should know what their state government is up to and how it affects them. That’s why we’re developing a new website that brings together the 10-Year Plan for Oregon – describing what state government is doing – with key data in a variety of areas – measuring how we are doing. Our goal is to make the information as accessible as possible and we need your help.

We’re looking for volunteers to test the usability of the new website. Testing should only take about 30 minutes and could be done from your own computer. We would simply send you a link to the website, ask you to find different pieces of information, then gather your feedback regarding how easy, or difficult, things were to find. Testing will occur any time on October 27 or 28, at the convenience of the volunteers.

Once the new site goes live, I know a lot of you will use it either for your job or for finding information about the state budget and outcome areas. As an early tester you can let DAS know about the usability of the site. If you are interested, please email us by clicking here or copying and pasting OEA.info@oregon.gov into an email.

Posted by: Josh Lehner | October 7, 2014

Graph of the Week: Oregon Business Size

Our friends at the Oregon Employment Department recently released the latest overview of firm size in 2014 on their blog. This edition of the Graph of the Week takes advantage of their work.

I think there are some misconceptions about firm size, job growth and the like. I hope to address a few more of these issues in the coming months, particularly around start-ups. In the mean time, the latest firm data shows that businesses with 100 or more employees account for just 2 percent of firms statewide, however they employ half of working Oregonians and pay nearly 60 percent of the wages. It’s important to keep in mind that large and relatively large businesses play an integral role in the economy. Yes, start-ups are important and entrepreneurship is vital for innovation. However their biggest impact is when one (or hopefully more) of these start-ups is successful and grows quickly, adding employees as sales take off. Thus they become a (relatively) large business. Part of this creative destruction process, as highlighted previously, is that young firms have both a high job creation rate and a high job destruction rate, as many new firms do fail. The successful ones — those able to grow into a large business — end up employing a majority, or a plurality, of Oregonians.

FirmSize2014

For a more in-depth look at firm size in Oregon, see this informative OED article by Phoebe Colman.

Posted by: Josh Lehner | October 2, 2014

Leading Indicators & Help Wanted Ads

Two key economic aspects most individuals focus on our jobs and wages. So far we’ve seen job growth accelerate in Oregon but wages have typically advanced only at the rate of inflation. So a lot more Oregonians have jobs, but their wages have not really gone up much. In terms of leading indicators, one of the best ones is the initial claims for unemployment insurance. This is a great indicator of the firing rate, or layoff rate. However, layoffs have not been an economic issue in a few years now. The issue has been the hiring rate, or the pace at which firms add employees. Even with the acceleration in Oregon, job growth is still below the typical expansion the state is accustomed to.

In terms of leading indicators for hiring, one measure our office uses is the number of help wanted ads. Theoretically (and usually in practice) businesses advertise that they are hiring before they actually hire. So, how many help wanted ads are there? Using a relatively new methodology (documented here) that combines historical newspaper data with modern online ads data, here is an update.

HelpWanted0914

This likely bodes well for future economic and employment growth. Much of the recessionary losses have been regained. However, one potential issue economists have debated at the national level, is that job openings have increased substantially faster than actual hires. See Calculated Risk for the most recent graph. Some argue this is a sign of structural unemployment and a skill mismatch between available workers and what businesses want or need. It sounds reasonable and there is always some level of structural unemployment in the economy. However if you dig into the job vacancy survey data, as our office did recently, it really indicates that structural unemployment is not the major issue today.

Lastly, I forgot to post an update here on the blog for the leading indicators with our most recent quarterly forecast. A more complete write-up is available in our forecast document, as it always is, but here is an updated graph showing both our office’s Oregon Index of Leading Indicators (OILI) and the University of Oregon one as well.

LeadingIndicators0714

Posted by: Josh Lehner | October 1, 2014

How Do You Like Them Apples?

Last weekend, my family and I went to a local orchard and picked apples. Besides being fun and delicious, it turns out that October is national apple month, which I did not know. Anyway, it got be thinking more about apples, how much the northwest produces (Washington mostly, but Oregon as well) , exports and also about the huge variety of apples out there. Plus all of this gives a nice excuse to blog some data outside our office’s core functions. I have managed to combine USDA data from a few different sources (historical data here, more recent years here).

The first graph shows the amount of apples used for fresh produce or processed (dried fruit, juice, etc) along with the price farmers receive for the crop. Fresh apples are now at an all-time high while processed apples have stabilized in recent years, albeit down from their 1990s levels. Overall, if you add the two green lines together, it shows that apple production has basically remained unchanged in recent decades, even as the composition has shifted. Prices have risen in the past decade, partly due to the mix of type of apples and their use, but also due to harvest levels, acres planted, demand for apples, and the like.

AppleUtilization2013

In terms of where apples are produced, it’s no surprise that Washington dominates (about 60 percent of the utilized production). Oregon, however, ranks in the Top 10 and accounts for about 1.2-1.4% of the national total. According to the 2007 Census of Agriculture (see map), the largest concentrations of orchards in Oregon are in Umatilla County, a little in the Gorge, in the Willamette Valley and on the Idaho-Oregon border near Ontario.

Fresh apple exports totaled over $1.2 billion in 2013, while so far in 2014 they’re slightly behind that pace. Here, Washington accounts for about 75 percent of the exports and Oregon just 0.4 percent in 2013. Fresh apple exports have increased substantially in the past decade, at least in dollar value, however it is hard to tell how much of the increase is due to higher apple prices versus more pounds actually being exported.

Overall apple produciton has actually been pretty stable in recent decades, however the varieties or types of apples grown has shifted. Long-standing leaders such as Red Delicious and Golden Delicious have seen declines of 30-40 percent, while Granny Smith apples have held steady. Gains are seen in most other varieties with Fuji and Gala in particular increasing market share, so to speak.

AppleVariety2011

Another key feature of agricultural sector more broadly is it’s impact on local and regional economies. Way back when we first examined Portland, Seattle and the Rest, one of our working hypothesis was that strong apple harvests and higher prices helped rural Washington counties during the Great Recession. We still think this is likely one reason (plus they didn’t have a housing bubble), and it shows the importance and influence the sector has. Similarly, good agricultural harvests have helped the Columbia Gorge here in Oregon and higher wheat prices in recent years have helped Eastern Oregon as well.

Lastly, one the greatest benefits of apples is that you can do this.

ApplePie2014

Posted by: Josh Lehner | September 30, 2014

Oregon Personal Income, 2014q2

This morning the BEA released new personal income data at the state level, along with annual revisions. Overall, it brings more good news for the Oregon economy but also fits in on both sides of those two economic narratives. In aggregate, Oregon has now hit an important milestone in that inflation-adjusted personal income excluding transfer payments is now back to pre-recession levels. That’s a mouthful. What it means is that the fundamental income underlying the economy is now back to pre-recession levels. The reason we sometimes exclude transfer payments — which serve a vital role during recessions — is that they are usually tied more to the need-based aspects of the business cycle and to an aging population with increased Social Security, and the like. The former aspect usually recedes during expansions while the latter increases steadily over time.

RealInc2014q2

The table shows the various components that make up personal income. Overall in the second quarter, Oregon’s income growth was the 6th fastest in the country over the past year and 12th fastest if focusing on the growth from the first quarter to the second quarter. These gains follow the state’s strong employment growth (relative to other states) in the past couple of years.

PersInc2014q2

In terms of how some of the major components have fared over the business cycle, the graph below shows changes in inflation-adjusted income for four of the major types of income. Both wages and supplements to wages (effectively, benefits) are now back to pre-recession peak levels. Employment isn’t far behind either. The good news here is that benefits have shown the same amount of growth as wages. Another indicator that shows the recovery has not created just so-called bad jobs (part-time, no benefit, low pay, etc).

RealIncType

The spike in dividends, interest and rent at the end of 2012 was the pull forward impact of federal tax changes in 2013 when the Bush tax cuts expired for the highest income earners. Lastly, nonfarm proprietor’s income has done well. This income can be thought of as small business income — partnerships, practices, sole proprietors and the like. Now, not all small businesses have fared well, but some certainly have. These gains likely also reflect the long term trend away from C corporations into so-called pass through entities like S corporations and LLCs and the like.

Posted by: Josh Lehner | September 26, 2014

Those Two Economic Narratives

Right now there are two main economic narratives out there. The first is that the economy isn’t getting better, that for most people and most households, the recovery has been minimal, at best. The second is that the economy really is getting better overall, that job growth is picking up, wages are growing and fundamental improvements are being seen. The truth of the matter is that both are correct. These are not mutually exclusive storylines, even if they may appear to be. Below are a few graphs illustrating these trends.

Narrative One: No Real Progress

Examining median family income from the Census Bureau and median family net worth from the Federal Reserve shows that progress, such that it is, has barely kept pace with inflation. Median income in 2013 remains over 7 percent below pre-recession levels and median net worth is 40 percent lower. Much of the net worth for the typical family is tied to their home. With the housing crash, net worth fell, however the foreclosure crisis has held down gains in recovery as fewer people own their home today than a decade ago. Much of the wealth gains in recent years have been tied to asset markets and less to housing. So, for the typical worker or family, the recovery has brought gains in-line with the rate of inflation, but not significantly faster.

MedianFamily2013

Narrative Two: Sizable Improvements Overall

Another way to characterize the economic recovery is that progress is being made overall. More individuals have jobs and wages are growing. The unemployment rate is falling, for both good and bad reasons. Given the demographic and structural trends, it can be helpful to focus on the so-called prime working age groups to see this progress. Below I have updated the data showing the employment-population ratio for 25-44 year olds. Here you can see that even with a lower labor force participation rate, more college enrollment and the like, the share of individuals with a job really is increasing. Oregon’s trends track the national average, although given the small sample size in the state, our data is more noisy from month to month.

Epop2544_0814

While Portland, and it’s younger generations in particular, has been a hot topic lately (see the NY Times and a nice response from Joe Cortright), the city really is in the middle of the pack in terms of the employment-population ratio. Portland is right at the median of the 50 largest metros in the country. Ranking below Denver, Minneapolis and San Francisco, among others, but above places like Houston, Seattle, New York and L.A.

Epop2013ACS

In total, the economy truly is getting better, with more individuals with a job, and wage growth is slightly faster than inflation. However, when it comes to the median worker, or the typical family, not much progress has been made. Both narratives are correct and they do coexist in today’s economy. In our office, we tend to focus more on the second narrative largely because our primary task is forecasting the total state economy and revenues from the economic activity. We focus less on the distribution of those gains (or losses) and more on the aggregate. That does not mean it’s a better way to characterize the economy, however it is important to understand both narratives to get a more complete picture of the progress, or lack thereof.

Posted by: Josh Lehner | September 24, 2014

Housing Market Update

Just a quick, partial update on the ownership side of the housing market. Still planning on releasing a more thorough look in the next month, including the rental side as well.

The number of homes sold across the U.S. was up and the highest in six years, according to the latest data released this morning. That’s good. While the overall housing market, particularly on the ownership and construction side of things, stalled out in the past year or two, it may be picking up again. The good news is that examining the fundamentals within the housing market yields even more favorable news.

First, with rising home prices, and more improtantly rising home equity, the share of homes sold for a loss is falling. During the depths of the housing and foreclosure crisis, 1 in every 2 homes sold in Bend or Medford was sold for a loss. In Oregon overall and the U.S. (not shown) it peaked at about 1 in every 3 homes. These figures have improve considerably in the past 2 years, along with the housing recovery. Today the figures are about 1/3 to 1/2 smaller than their peak shares.

HomesSoldLoss0814

Another good sign that the market is finding some semblance of balance is the sales to list price ratio. This indicates a couple of things. First, it means buyers are generally pricing the homes right, in terms of attracting buyers. Second, this does also reflect stronger competition for homes. Given the low inventory on the market, bidding wars have been more commonplace in recent years, with homes being sold above asking price in sought-after areas or neighborhoods.

HomesSalesAsking0814

Lastly, price appreciation is beginning to slow. Overall that’s also good. The cyclical rebound in home prices appears to be over or about over in many locations. Prices today are, more or less, back to historical trends if you were to cut through the boom and bust nature of the past decade. As such, our office’s forecast continues to call for home price gains in the coming years to be more in-line with overall inflation.

HomePriceForecast0914

The fundamentals underlying the ownership side of housing appear to be getting back in balance, given recent trends. Not back to pre-recession levels, but back in some equilibrium, which is at a lower level so far. Inventory is rising, albeit slowly. With underwater homes becoming fewer in number, expect inventory to climb. As the economy continues to recover, with more employed individuals, household formation will likewise continue to pick up. Home prices are set to rise further, however the very strong appreciation rates are likely behind us. However that does not rule out a near-term price correction in some markets, where prices may have risen a little too fast, too quickly. Overall, just as the economy is getting there, so too is the housing market.

Posted by: Josh Lehner | September 23, 2014

Central Oregon, Sept 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.

Central Oregon, situated in the hub of the state, has experienced tremendous population growth in recent decades, helping drive the regional economy.

CentralMap

These gains are not only tied to housing and related industries – which are strong in Central Oregon – but also a much higher rate of self-employment. In a region that has generally had an unemployment rate higher than the state and nation, in addition to a lower labor force participation rate, self-employment, either by choice or by necessity, can go a long way.

CentralShare

Like much of the state, Central Oregon has experienced two severe recessions: the early 80s and the Great Recession. Although the housing bust in the area is the second worst regional downturn in recorded Oregon history (post WWII), trailing only the early 80s downturn in Coos Bay. The good news is following three years of zero job growth from 2009-2011, employment in Central Oregon has increased at nearly a 5 percent rate since.

CentralRecEmpCentralUnemp

Some of this growth is fueled by a return of population growth, in particular domestic in-migration, and the increased housing activity that goes along with it. The region is home to about 5 percent of the state’s population but last year it built 16 percent of the state’s single family homes. Given the lack of new construction during the Great Recession and initial part of the recovery, even in a location such as Bend, existing inventory is very low. As population growth has returned, so too has the need and demand for more homes.

CentralPopConstThe region’s demographics skew slightly older. Deschutes and Jefferson have above average shares of under 18 year olds. However all 3 counties have above average shares of the population 65 and older, which is at least partly due to retirement aged in-migrants moving to Central Oregon.

Finally, the top 10 industries in Central Oregon are shown below. These are location quotients for 2013 and measure the relative concentration of these industries.

CentralLQ2013For more on the region, see the Oregon Employment Department’s website for Region 10 and the extensive list of recent articles by regional economist, Damon Runberg. For more on our office’s regional coverage in Oregon, please see here.

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