Posted by: Josh Lehner | October 24, 2014

That 80’s Feeling, Housing Edition

I have been asked to speak at the Home Builders Association 2015 Housing Forecast in two weeks at the Oregon Convention Center. I have lots of new and hopefully interesting housing analysis that I will be publishing on the blog over the next two weeks, however I am updating some of our standard housing graphs and thought I would share.

As discussed before, Oregon’s economy today is very similar to where it was back in the mid-1980s. Namely, we are digging out from a severe recession and while activity and growth has returned — even at above average rates relative to the nation — we’re still not back to where we once were. The same applies to housing starts. Both the late 1970s and the mid-2000s were housing booms (and bubbles) in Oregon, followed by sharp corrections. Back then, it took nearly 9 years before starts returned to their long-run average. Today we are in year 7 of a similar bust.

Housing80s

As hard as it may be to believe, Oregon today is actually in a relatively better position in terms of construction jobs than back in the 1980s.

Housing80sEmp

Stay tuned in the coming weeks for some of the new research ahead of the presentation.

Posted by: Josh Lehner | October 21, 2014

Jobs, Population and Unemployment

There are a lot of half-truths out there when it comes to the economy and our office tries to provide the full picture when available. For example, our work on job polarization showed that the economy was not just adding low-wage jobs, but also lots of high-wage ones as well. Another half-truth is that the unemployment rate is declining for bad reasons. Undoubtedly some of the improvement has been for bad reasons (fewer Oregonians looking for work) but it really has improved for good reasons as well (more jobs). Which brings us to the Graph of the Week and the question of whether or not job growth in the state is not only strong enough to bring down the unemployment rate but whether or not it keeps up with population growth.

It turns out that even with the relative slowdown in hiring in recent months, job growth is strong enough to keep up with population growth [1]. Today, the state needs to add approximately 1,000 jobs per month to meet population increases. Furthermore, these job gains should be putting downward pressure on the unemployment rate.

JobsPopulationUnemp

After a period of strong job growth coming out of recession then comes the population and labor force response. Our office has been discussing this dynamic quite a bit over the past year. Even as jobs have returned in greater numbers, the unemployment rate is not falling due to more Oregonians looking for work. Another way to say this is that earlier in the recovery the improvement in the unemployment rate overstated the economic strength as individuals left the labor force. However just indicating that the unemployment rate today is unchanged for much of 2014 similarly understates the economic strength as more Oregonians are looking for work.

Moving forward, there are two important factors to the outlook. The first is that our employment forecast calls for job growth to continue to outstrip population demand for the next 5-6 years. (Or until the next recession hits) This means that the progress being made on measures like the employment-population ratio for prime working age adults will continue. Much of the gains in recent years and in the near future are just trying to make up the lost ground due to the Great Recession.

Secondly, the blue line in the graph does not exhibit the same surge in population/labor force in the coming years as in past expansions. For one, this is partly by design (see footnote below). Additionally, much like our overall economic and revenue forecast, our population growth outlook over the coming decade is lower than in past expansions. As the Baby Boomers age into their retirement years, this will place downward pressure on net growth rates. As such, while today Oregon needs to add about 1,000 jobs per month to keep up with population growth, by 2020 this will increase to only about 2,000 jobs per month. This is largely due to that fact that about 60% of the employment change in the coming decade is to be generational churn rather than net job creation.

____________________________________________________

[1] Given the decline in the labor force participation rate during and after the Great Recession, I actually fix the participation rates by age cohort at their 2007 levels for all years since. The exception is the 65+ cohort where rates have risen with the aging Baby Boomers. I allow for the 65+ cohort participation rates to continue to rise gradually over the next decade, following the BLS and OED labor force projections. Doing so means the numbers are not pulled down by the Oregonians dropping out of the labor force, even if they truly would like a job. (This is a common critique of the headline unemployment rate.) As such, from 2007 through the forecast period, the job gains needed to keep pace with population growth represent more of an upward bound. This means the cyclical bounce in participation and the labor force response is, by definition here, removed. I would argue this is important to due, and it shows that even if you leave to the side the issue of structural or cyclical issues in the participation rates, job growth today is more than population growth.

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.

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