Posted by: Josh Lehner | October 4, 2011

Return to Recession?

With all the talk about the possibility of returning to recession, I thought it may be useful to highlight a few graphs our office uses when discussing the Oregon economy and what Oregon recessions look like. First up is a graph comparing different Oregon Indexes. Note that the four indexes graphed below are indexed their 2005 levels on the left axis, while the probability of recession – as calculated by Univ of Oregon Professor Jeremy Piger – is on the right axis.

Both our office’s OILI and Professor Duy’s University of Oregon Index have turned down the past five months, which does not bode well for the near term labor market in Oregon. We have also seen payrolls in Oregon flatten in recent months, as has the state’s coincident index which is calculated monthly by the Philadelphia Fed.

While we are not currently forecasting a return to recession in our baseline forecast, if we were to return to recession, what would it look like? The next graph illustrates where the job gains have been thus far in the recovery. In total, since employment troughed in December 2009, Oregon has added a net 31,400 jobs through August, 2011.

Expectations are that any future job losses would not simply be a mirror of the job gains over the past twenty months given industrial composition and consumer spending patterns. That being said, the graph below shows which industries typically get hit the hardest during Oregon recessions. The goods producing industries decline the most, while services are typically less volatile – at least historically. With that being said, the state has added nearly 10,000 Leisure and Hospitality jobs in the past 20 months and if consumers retrench further, those jobs are likely to victims of the recession.

Note 1: To get as close as possible to an apples to apples comparison for current and historical data, Services, as defined in the above graph, includes Professional and Business Services, Education and Health Services, Leisure and Hospitality Services and Other Services.

Note 2: The pessimistic scenario in our latest forecast does call for a moderate recession in which the state, essentially, loses the 30,000 jobs we have gained since the trough. That is what Mark was referring to in The Oregonian article, of which, we are placing a 40% probability of happening. For more information regarding our alternative scenarios, please see PDF pages 57-60 (or document pages 55-58) in our most recent forecast document, available HERE (large PDF file).


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