Posted by: Josh Lehner | December 29, 2015

2016 Outlook: Labor Force Participation and Middle-Wage Jobs

Among the myriad economic trends to watch in 2016, two in particular stand out to me: labor force participation and middle-wage jobs. The reason is both have turned the corner in recent years — even if the conventional wisdom about them has not — and they’re indicative of the growing breadth or coverage of the expansion, something that was clearly missing in the early years of recovery. The good news is the new year should bring continued improvement for both measures of the economy.

First, labor force participation, which is important but can be misleading. It’s important because more workers, or more potential workers can raise the overall productive capacity of the economy, generating stronger growth. Conversely, fewer workers can shrink the capacity of the economy. However the massive demographic shifts in the U.S. and in Oregon are driving much of the underlying participation trends, which you cannot do anything about in the short-term. The LFPR is essentially at its lowest point in recorded history with data going back to the 1970s. However, given the demographics, the LFPR should be at its lowest point, or close to it. What matters from an economic perspective is what our office has been calling the participation gap — the difference between the demographically-adjusted LFPR and the actual LFPR.

LFPR1115

The household survey has been noisy in 2015, to put it nicely. However, given that job gains continue to outpace population growth, and is expected to continue to do so for at least 2016, our office expects some continued improvement in LFPR, including revisions to the 2015 data. We are not looking for a robust rebound, but about a 1 percentage point increase over the next year – part of the labor force response. As the demographically-adjusted LFPR is falling by 0.4 percentage points per year, this combination will cut Oregon’s participation gap nearly in half by the time 2017 comes around. The gap will still exist — in fact our baseline forecast does not have it fully closing as some of the Great Recession damage is likely permanent — but comparable in size to the gap back in 2007. (See here for more on Oregon’s LFPR.)

The second important trend to watch in 2016 is the growth in middle-wage jobs. Broadly speaking this includes occupations that pay roughly $30-50,000 per year — based on our office’s job polarization research (HERE & HERE, e.g.) — and represents the middle part of the income distribution, and employ roughly 60 percent of Americans and Oregonians. This group entails most blue collar occupations like truck drivers, plumbers, construction and production workers in addition to white collar ones like office support staff, sales teams, teachers and community service workers.

Middle-wage jobs accounted for more than 8 out of every 10 lost jobs during the recession. While both high- and low-wage jobs are currently at historical highs in terms of employment, middle-wage jobs are not. In fact they have recovered just about half of their recessionary losses. However growth has returned and appears to be accelerating a bit. We’ll have to wait a few more months for the official 2015 data, but rough estimates based on mapping industry data back to occupations shows sizable gains in Oregon this past year.

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Even as it appears 2015 was actually a good year for middle-wage jobs, our office does not expect them to fully regain their recessionary losses until 2017. Much of the growth in recent years has been more on the white collar side, as the blue collar occupations experienced larger losses and fewer gains. However, construction is now on the upswing, along with the housing market.

In our original report, our office discussed the drivers of middle-wage jobs. Some are driven largely by population growth. As migration flows have returned to Oregon and household formation increases, so too does the demand for housing, home repairs, health care, entertainment, teachers, and community services. The uptick in population growth bodes well for these middle-wage jobs in the near term.

The second group of middle-wage jobs can broadly be considered as business support occupations. From the report:

Administrative Support, Sales and Transportation all act as suppliers of labor and services to other businesses or employees. With increases in business operations, including headquarters, the demand for such occupations will increase even if technological advancements continue to eliminate a portion of these jobs. This provides an opportunity for continued investment into activities that foster both an entrepreneurial business climate and also recruitment and retention efforts of existing firms. The loss of significant headquarter operations in Oregon over recent decades has decreased the demand for some of these business support firms and workers.

All told, the outlook for the number of middle-wage jobs in Oregon is relatively bright today. However, over the longer term the relative share of jobs is expected to continue to decline as high- and low-wage jobs see stronger growth.

Posted by: Josh Lehner | December 17, 2015

Housing Inventory

Demand for housing in much of Oregon has returned in full force with population growth picking up and household formation increasing. So far the supply side of the market has not kept pace — for a variety of reasons — resulting in the nation’s lowest vacancy rate, rising prices and eroding affordability. What follows is a brief rundown of housing inventory and the future pipeline for the Portland MSA, although the state’s other metropolitan areas see similar trends.

Median sale prices are at record highs. While it is widely known that inventory is low, most usually discuss the months of inventory metric. However, not only is that low (2.0 in October) the actual number of active residential listing with RMLS is at a literal low with data back to 1999. Never in the past 15+ years have there been fewer active listing in the metro. The last time the market had a somewhat similar number of listings — 2005 — the population was 275,000 less than it is today with approximately 100,000 fewer households. Few homes for sale with strong demand is the recipe for high housing costs.

RMLSInventory1115

What about the pipeline for the future? Like the nation, the recovery in new construction is somewhat mixed. Multifamily construction is all the way back to pre-recession levels and has been so for some time. However single family construction remains low, with only sluggish growth in recent years. It is improving, expected to continue to do so, yet remains well below historical production rates. Even so, local permit data shows that the market is roughly 50 percent multifamily and 50 percent single family.

As our office detailed before, some of this is due to the changing tastes of consumers, some due to demographics and some due to financial conditions of buyers, developers and creditors. Not all single family is owner-occupied either, as a larger share of homes today are rentals than before the crisis.

Yet, some of low levels of new construction is also due to supply constraints like land use restrictions and the lack of available, ready-to-build lots. The lack of developable land is a national issue as well, not just a local one. Lending dried up for land development along with the financial crisis, resulting in a dearth of lots today. It takes time and money to get land ready for new construction. The good news is such lending activity is picking up, which should boost the housing supply in the future to meet the demands and needs of a growing population.

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On the multifamily side, the pipeline continues to look strong. The best numbers come from Barry & Associates who track apartment construction across the region. They look at both proposed projects and those under construction. We know active construction and the projects that have applied for permits remain at relatively high levels. However, as Mark and Patrick Barry show, the number of proposed units continues to be robust.

PDXBarry15

Low levels of new construction relative to population growth in recent years means that the market needs all of these proposed housing units and more to maintain some level of affordability. Portland, along with other fast growing places like Denver and Seattle, have historically been able to build just enough housing to keep prices from reaching the levels seen in the most expensive markets. With population growth accelerating in recent years as migration flows return with an improving economy, let us hope this pattern continues and affordability worries ease. As economists, our office is hopeful that the supply response is coming, given the prices and the demand.

Posted by: Josh Lehner | December 15, 2015

Oregon Wage Gains

One of our state’s key economic features in recent years is that the robust job gains have also been joined by strong wage gains. Oregon’s average wage, while still below the national average, is at it’s highest relative point in a generation, or at it’s highest relative point since the mills closed in the 1980s. Oregon is showing signs of a deeper labor market recovery than in the typical state.

However, what is driving the wage gains? Is it due to actual wage increases for workers or is it simply the fact that via job polarization we’re adding a lot more high-wage jobs, thus the shifting industrial mix is pulling up the average?

The gains are entirely due to workers seeing increases and not the industrial mix shifting. I was surprised at the results as I figured it would be partially due to both. If anything, the industrial mix actually pulls down the statewide average just a hair. Below, the dark blue bars are actual average wages in 2007 and 2014. The light blue bars take the 2014 industrial structure and apply 2007 average wages, and take the 2007 industrial structure and apply 2014 average wages. You can see that the results are nearly identical to the dark blue bars, hence the conclusion that the industrial mix is having a negligible impact on wages.

AvgWageDecomp14

Some really interesting and good data work from Employment’s regional economist Damon Runberg also sheds light on wage gains in Oregon. He set out to see if the data matched the narrative that no, workers are not better off today. Damon started with the workers who reported wages in all 4 quarters in 2005 — over 1.3 million — and tracked those folks over time. One did not have to be continuously employed to be counted — if you lost your job in the recession but began working again in subsequent years, you are counted here. Two-thirds of the original 2005 cohort reported wages in 2014, with an inflation-adjusted median wage gain of 7.5% from 2005 to 2014. That increase is nearly identical to previous cohorts as well that underwent an economic expansion and recession.

OEDWages05Cohort

Of course there are some caveats. By only looking at people who held jobs in the years following 2005, by definition, it ignores those who have been unable to find work or dropped out of the labor force or moved away, and the like. This is considered survivorship bias, where we only track those that “survived” and measure their outcomes and not necessarily the outcomes of the total population.

That does not mean it’s not useful, on the contrary I find this research very helpful. Precisely because it focuses on the same people over time. Our office generally compares big aggregates, or totals, over time, so being able to drill down on individual workers is quite useful. Most importantly it does confirm that workers are seeing increases, both in aggregate and at the individual level.

Of course not all workers have seen equal gains. Our office focuses on averages since that data is readily available (take total wages and divide by employment) and average gains have been larger than median gains. This is indicative of the skewed income distribution in our country and state.

Furthermore, there are other economic and demographic trends that are impacting wage increases as well. Retiring Boomers are being replaced by younger (cheaper) workers, which holds down overall wages. The share of workers reporting no increase in wages in the past year remains higher today than before the recession. And similar to Damon’s work, median hourly earnings for those working nationwide are increasing faster than the more commonly reported average hourly earnings which does not control for the changing mix of workers.

All told, wage gains in Oregon are relatively strong, particularly compared to the nation. It is a great sign and shows a deeper labor market recovery which is needed following the aftermath of the Great Recession.

Posted by: Josh Lehner | December 11, 2015

Low-Income Oregon Children (Graph of the Week)

This edition of the Graph of the Week continues our recent discussions surrounding income trends and poverty (or even material deprivation). It comes from some really fascinating, detailed Census data work Kanhaiya Vaidya, the state demographer, did recently. The graph shows the household composition for all low-income Oregon children — defined as those below 200% of the federal poverty level. What strikes me is that the vast majority of low-income children live in multiple adult household (married, cohabiting, roommates, etc). The most common is not the stereotypical single mother of three.

LowIncomeChildren1113

This work arose during the last legislative session when policymakers were examining the so-called “benefit cliff”. This refers to the fact that many benefit programs are based on an individual, or household, or family’s income. As income goes up, benefits go down. Not all of these programs have perfectly smooth exit paths, although many are close, thus resulting in a drop in overall purchasing power once a particular income threshold is passed. As our office has written previous:

…as a family moves from around $20,000 per year to $40,000 or $50,000 per year, they face very high marginal tax rates. The reason for this is that many of the benefits and need-based programs are means tested, so as a family earns more, their benefits are phased out. One can broadly consider this income range from $20,000 to $50,000 as the transition zone, where the purchasing power or spending power for a family does not increase as much as their market based income does, due to the phasing out of benefits.

The work Kanhaiya did focused on trying to figure out what a representative low-income household in Oregon looks like, so that policymakers could run a few different scenarios or case studies to examine the benefit cliff implications. It was largely focused around the impact of an increase in the minimum wage, however the context is much broader than that. The end result of this work was a research paper produced by the DAS CFO’s office (Budget and Management), along with assistance from DHS/OHA, LFO, LRO and our office. I cannot find a link to the paper online. Email if you want a copy.

Posted by: Josh Lehner | December 7, 2015

Another Housing Bubble?

Home prices are rising quickly across the state and have surpassed their previous peak in many areas, although not all. Such prices — particularly in places like Bend and Portland — have many asking the question of whether or not we are in the midst of another housing bubble. The evidence is far from conclusive (I know, I know, most said the same thing a decade ago) but at the least we are currently avoiding the worst aspects of a classic housing bubble, which is truly great news.

First, why do I say the bubble evidence is far from conclusive? Yes, prices are all the way back in many places, but so too are jobs and more importantly incomes are much higher in aggregate. Not every household has higher incomes today, but many do. Furthermore, we have a lot more households in the state today — particularly among the higher income brackets — but not enough new construction to keep pace with the demand. The rise in home prices is being driven by an increase in demand and overall lack of supply. This process has pushed prices up, but the underlying reasons are different today. There is much less speculative buying and developing and more importantly lending, in today’s market.

Now, that does not mean there is no room for prices to soften or even decline in the future. While the sales price to household income ratio is likewise back to bubble levels, which is concerning to me, overall affordability today is better given the low interest rates*. As such, households are able to finance these mortgages without overextending themselves relative to their ability to pay, and many are locking in these payments for 30 years. As such, median housing cost trends look great for owners in recent years, not so much for renters. (This was left on the cutting room floor from earlier work for Multifamily NW and the Home Builders.)

ACSPDXCosts

It is this last part when it comes to examining mortgage debt that is encouraging. Recent work by the Federal Reserve Bank of San Francisco shows that while national home prices are increasing again, mortgage debt relative to income is not. Below I show an Oregon version of their work. The housing cost measure is the home price to rent ratio, which is a better gauge of any potential bubble than just home prices. In a tight market, both rents and prices are increasing but that is primarily due to the tight market itself, not a bubble**. When sale prices diverge considerably from rents, then it is more indicative of a bubble.

HomePricesDebt15

The fact that mortgage debt relative to income remains subdued is very good news. When it comes to financial crises, what makes them worse than the typical recession is the large debt burdens. In many historical cases, including the Great Recession, this comes in the form of household debt, mortgages in particular. When the home price bubble bursts, households are left with very high debt burdens for assets (homes) of relatively little value. It makes it challenging to pay off your debt and consumers retrench to try and rebalance their household finances. This clearly has repercussions more broadly, as we saw in the Great Recession when credit markets froze and financial institutions would not lend as no one knew what their assets were worth and whether their counterparts could make good on the liabilities and the like. It goes without saying the economy is better off without financial crises. This is one reason why the SF Fed work above is important to monitor. At least so far, it does not appear that Americans or Oregonians are getting out over their skis in today’s housing market like they did a decade ago. They may do so again in the future, but not yet.

* It will be interesting to see what higher interest rates do to the housing market. Obviously it will raise the cost of financing a home, potentially pushing prices down somewhat, or at least slowing their appreciation. At the end of the day, most households care about the size of the monthly payment, not necessarily the sales price in isolation. Interest rates are the interlinking piece here, obviously. If prices do soften, or even decline a bit, I do not think that is necessarily indicative of a bubble either, given that higher interest rates on a slightly lower sales price results in the same monthly payment for a household.

** High prices by themselves do not a bubble make. However should the market change, prices will too. An increase in supply would soften prices and rents, as would a decrease in demand.

Posted by: Josh Lehner | December 2, 2015

Oregon Economic and Revenue Forecast, Dec 2015

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

Full employment is finally within sight. It is not here yet, and the current economic expansion is far from perfect, but a long stretch of modest gains in recent years have cumulatively delivered significant progress across the economic spectrum. The number of actual jobs and job openings posted by businesses have never been higher. Combining this with an unemployment rate that is back to normal, at least on paper, indicates that workers are finally becoming a bit scarce. The result is businesses must now compete on price (wages) to attract and retain the best employees. Finally, after years of lackluster wage gains nationally, average hourly earnings for all workers are now increasing faster than inflation. More income for U.S. households will not only feel good but should allow for continued improvement in household finances.

Oregon’s economy continues to make significant gains. Job growth has slowed just a bit from early 2015 rates, yet remains more than strong enough to bring the unemployment rate down and account for the influx of new workers as population growth picks up. More importantly, Oregon’s stronger-than-the-nation’s wage gains have continued through the fall. Overall, the state has regained and retained its traditional economic advantage in expansion relative to the nation. Job growth over the past year in Oregon is more than one percentage point faster than in the typical state. This advantage is primarily due to the state’s industrial structure and migration trends, both of which remain strong today.

JobsPop1215

Unfortunately, there are always risks to the outlook and warts to the expansion. The significant deterioration in manufacturing, driven by weak global demand, a stronger U.S. dollar and the pull-back of investment related to oil and gas, has eliminated one pillar of growth. Even with the sizable gains in the labor market, there remains large levels of underemployment and a wide disparity between urban and rural economies. Ongoing growth will help, but so far has failed to close these gaps. Even so, most economists and forecasters are relatively bullish about the near term, with many expecting the economy to reach full employment in 2016.

Oregon’s General Fund revenues are growing strongly. Over the first four months of the 2015-17 biennium, personal income taxes, lottery sales and corporate taxes all grew at double-digit rates relative to last year. Although much of this growth was expected, gains in corporate taxes and lottery funds outstripped what was called for in the September forecast, leading to an upward revision to the outlook. Total available resources – combined General Fund and Lottery – are now expected to be $56 million larger over the current biennium than what was expected when budgets were drafted.

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The revenue outlook is stable, yet uncertain. Volatility in equity markets is injecting a great deal of risk into the forecast. Oregon’s budget depends heavily on personal income tax collections tied to realizations of capital gains. These collections are extremely volatile, with revenues subject to the sometimes unpredictable behavior of investors. Many analysts believe equity markets will take a step backward soon after monetary policymakers begin to raise interest rates this winter. A 10% drop in stock prices will typically lead to a decline of twice that rate or more in the amount of net capital gains reported on tax returns. This negative impact on personal income tax collections is often delayed for several months after investors pull their assets out of equity markets. During a sell-off, the volume of trades increases, and paper gains from past years become subject to tax. Afterward, taxable capital gains face considerable downward pressure, with paper earnings from past years having been tapped, and with losses being carried forward into future tax years.

Revenue growth in Oregon and other states will face considerable downward pressure over the 10-year extended forecast horizon. As the baby boom population cohort works less and spends less, traditional state tax instruments such as personal income taxes and general sales taxes will become less effective, and revenue growth will fail to match the pace seen in the past.

See our full website for all the forecast details. Our presentation slides for forecast release to the Legislature are below.

Posted by: Josh Lehner | November 24, 2015

High-Tech: Software, Outposts and Critical Mass

Oregon’s high-technology sector is being disrupted. Industry growth in the past decade is entirely concentrated in software, while Oregon’s historical strength in hardware is no longer the driver of job growth. Hardware remains the state’s comparative advantage, pays a large number of employees very high wages, and drives much of the state’s GDP growth due to its productivity. However, relatively flat employment in hardware — like manufacturing overall — has been, and is the new up. Conversely, software companies are driving job growth in the sector, much of which is concentrated in Multnomah County. See here for more on the sector definitions.

Tech15HardSoft

The Oregonian’s Mike Rogoway has two recent interesting articles on this software growth and the fact that many of these firms are outposts, or non-Oregon headquartered firms. Underpinning his interesting articles is work our office has done, but only with the help of our friends in Research at the Employment Department and in Research at the Department of Revenue.

To help understand the outpost topic a bit further, we asked Mary Fitzpatrick at the Department of Revenue to crunch corporate tax return data for a core set of high-tech industries. She was kind enough to run through all the tax return data and match it up with withholding records for a few different years. The graph below shows the non-Oregon domiciled firms’ share of the tech sector total. Essentially, it shows what share of the total is from out-of-state companies. Due to the lagging nature of corporate tax returns, the latest year available is 2013. This predates many of the software outposts, however the graph will serve as a historical baseline moving forward, from which we will compare trends. Thanks Mary! There is one big caveat here in that these calculations exclude Intel. This was my decision and done on purpose for a few reasons, see note below for why.

TechDOR13

So, that’s a lot of interesting data work, but why should we care about where a company is headquartered? In a lot of respects we shouldn’t. These companies are actively choosing to locate here, bring their outside investments and increase employment, all of which are great, help grow the regional economy and are certainly welcomed. However, as Mike writes:

What Portland doesn’t have is a single big-name tech company of its own.

Even growing outposts are less likely to house the highest paid jobs at most companies, they don’t provide the economic spillover that locally run technology companies do and they may be less likely to engage in philanthropic and community activities than locally run operations.

And Oregon knows from painful experience that when times get tough the outposts are the first to feel the pain. Hynix’s factory in Eugene went vacant for seven years after the chipmaker shut it down and laid off 1,400; Hewlett-Packard has been downsizing campuses in Corvallis and Vancouver for years.

Any potential concern comes from the headquarter hub versus spoke issue. During the next downturn, or any high-tech industry correction, to what extent will the companies downsize or cut their spokes (outposts)? Typically, headquarter operations perform the best and firms consolidate to gain efficiencies during tough times. This means cutbacks or closures in the outposts.

Ultimately, [State Economist Mark] McMullen said, Portland needs a cluster of homegrown skills that can sustain the local scene when the corporate parents’ fall on hard times.

“The hope is we can get the foundation built before, inevitably, they pull back,” he said.

Oregon’s reliance on tech outposts “is not optimal,” in [Elemental Technologies Sam] Blackman’s words, but the recent spate of deals doesn’t necessarily make the issue any worse. It’s bringing money and jobs into the local economy, he said, and setting up entrepreneurs to start again with new companies.

That very last part of what Mr. Blackman said is really important. Essentially, has software in Oregon reached critical mass? Oregon started from a very small software base just a few years ago (unlike hardware) and is growing very quickly. The concern is whether or not Oregon’s software sector can rebuild and thrive following the next downturn, or will the workers leave when the jobs dry up? We know that Portland’s tech talent cluster is both significantly above the U.S. average but below the country’s largest tech centers. Portland ranks 14th highest among the 50 largest MSAs in the country. The regional economy is obviously better off with a more diversified base, including these good, high-paying jobs.

TechTalentNew

In our economic advisory meetings the other week, every advisor who had an opinion on this topic was upbeat and optimistic. Each believed Portland (and Oregon) has reached critical mass in the sector. That’s great news and if true, indicates the potential downside is limited. Not eliminated of course, as no industry truly is recession-proof. As I said to Mike:

“Still think it’s a risk moving forward, but maybe less of a risk than feared,” Lehner wrote. “We just want to be able to retain all those workers if the firm goes under. We want them to stay and rebuild/start something else.”

With the software sector hitting critical mass, and the broader cluster thriving today, this should be the case moving forward.

Note: The evolution of Intel here in Oregon is, in my mind, well known. Their employment totals, big investments in new facilities and the like are publicly known and regularly discussed when it comes to the Oregon economy. Given the company is the state’s largest private employer (across all industries), they dominate the numbers when focusing on just one portion of the economy. While it is hard to undersell the importance of Tektronix (historically) and Intel (today) to the regional economy and growth in the high-tech sector, the main purpose of this research is to try and examine how everyone else is doing. Exuding the large outlier from the analysis helps focus on the underlying trends impacting the other 3,300 or so companies.

Posted by: Josh Lehner | November 19, 2015

Oregon County Population 2015

The 2015 population estimates for Oregon were just released by Portland State University and we have now surpassed 4 million residents. 4,013,845 to be exact. PSU’s Population Research Center has created a really cool new site to show how we got here, with data going back to the 1800s. They detail some race/ethnicity, age, gender, place of birth and the like. Do check it out for yourself.

Population growth — and migration in particular — is one of the two fundamental reasons Oregon’s economy outperforms the typical state over the business cycle. (The other being our industrial structure.) With population growth continuing to accelerate, it bodes well for the near term economy as these new Oregonians increase demand for housing, consumer services and the like. It does take some time for the labor market to absorb the working age migrants into employment, however eventually it does. For example, the state today is about a year away from the number of jobs catching back up with population growth, relative to the onset of the Great Recession.

Given population growth is so important for both Oregon and the regional economies within the state, the graph below shows county level population change over the past decade. The light blue line is the statewide growth rates, which acts as a benchmark to compare a given county to statewide trends. Central Oregon (Crook, Deschutes, Jefferson) is special and they get their own graph at the very end.

Warning: this is a lot of charts, but the trellis graph is a neat way to show relative patterns and comparisons across myriad measures all at once.

CountyPop15

As I said, Central Oregon is special in that their growth rates are literally off the charts in the past 15-20 years. Their boom-bust-boom pattern is something else. Notice the y axis below is substantially different from all other counties. See here for an update on the regional economy which has returned to full-throttle, booming growth.

CentralCountyPop15

Posted by: Josh Lehner | November 17, 2015

Housing Forecast Takeaways

I just wanted to share a few of the key takeaways, at least for me, from the Home Builders Association of Metropolitan Portland’s recent housing forecast event.

Portland State’s Dr. Gerry Mildner — who runs the Center for Real Estate at PSU — had a great high-level look at some policy options and considerations about land use and the housing market. He included one of my favorites from urban economics – bid-rent curves talking about demand for land vs willingness to pay. With that being said, my biggest takeaway was the following graph, which shows the type of housing low-income households actually live in across the U.S. I knew there are myriad housing programs available, and too much demand relative to supply (not everyone who applies gets assistance). However I also did not know that essentially half of all low-income households live in purely market rate units.

MildnerHUD

Dr. David Crowe, the chief economist for the National Association of Home Builders, also gave a really interesting presentation, as usual. His work has really influenced our office over the years, particularly when it comes to demographics and housing (see here from a couple years ago, more recently our peak renter work flows from that earlier analysis). He did touch on stronger household formation, population growth and some demographics. However, I really liked the following graph that shows the housing rebound across states (below) or across metros (shown in the presentation) really is tied directly to local job growth. Historically housing has led the economic recovery — as the Fed cuts interest rates after inflation falls, it unleashes pent-up demand, driving the old v-shaped recoveries. Obviously, as David put it, “this is not your grandfather’s recovery”. Housing did not lead us out of the Great Recession and remains only partially recovered today. Yet the biggest driver in new construction is the strength of the local economy and job growth, which creates the demand for homes.

CroweStates

My presentation really was a summary of recent blog posts, including the return of migration flows into Oregon, much of our household formation on net has occurred at the higher end, and whether the housing market may be reaching peak renter due to demographics. I also discussed some broader economic topics (full-throttle job growth, strong wage gains, job polarization) and our office’s forecast. The one item that was somewhat new, was the following graph. I updated previous work I did with University of Oregon’s Tim Duy on home prices and new home construction across the largest metros in the country. This is updated to include the new 2014 American Community Survey data.

DuyLehner14

In conversation with Tim he brings up a really good point. This chart is interesting both for what it shows and what it does not show. Specifically, among the 50 largest MSAs in the nation, there is no market that builds a lot of housing and is really expensive. What is missing from the graph is income, or the ability to pay. Price to income trends (affordability) is key, but even so, supply and demand clearly do have an impact on the housing market.

Posted by: Josh Lehner | November 10, 2015

Material Deprivation, Poverty, Child Care and Inflation

An interesting topic arose at the PSU Census Data User meetings two weeks ago. Essentially, it boiled down to the differences between the official poverty measures used and something more akin to material deprivation. Trudi Renwick, from Census’ Poverty Statistics Branch, walked us through a bit of the differences there. Poverty is based on how much money is needed to afford a defined basket of goods and services. Material deprivation is more a measure of physical hardship or being able to afford typical products in society — Trudi mentioned things like indoor plumbing and refrigerators.

Since nearly every American has those items, poverty today is better in a material deprivation sense. In fact, via the New York Times summarizing work from World Bank economist Branko Milanovic, “… the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.” However, just because Americans in poverty today have access to a toilet and even a smartphone, does not mean they have an easy life.

This discussion brings to mind two of my favorite graphs which do help shed light on these issues. The first graph shows the adoption of new technology over time. I pulled this specific graph from the Harvard Business Review, who grabbed it from the New York Times.

consumptionspreads

There is a lot embedded in the graph. The rate of adoption is picking up, that is newer technologies spread to a wider swath of the population at a faster pace today than a few generations ago. Some technologies take a longer time to adopt than others and there are certainly plateaus to adoption. For a few simple reference points, Derek Thompson in The Atlantic wrote:

— In 1900, <10% of families owned a stove, or had access to electricity or phones

— In 1915, <10% of families owned a car

— In 1930, <10% of families owned a refrigerator or clothes washer

— In 1945, <10% of families owned a clothes dryer or air-conditioning

— In 1960, <10% of families owned a dishwasher or color TV

— In 1975, <10% of families owned a microwave

— In 1990, <10% of families had a cell phone or access to the Internet

Today, at least 90% of the country has a stove, electricity, car, fridge, clothes washer, air-conditioning, color TV, microwave, and cell phone. They make our lives better. They might even make us happier. But they are not enough.

The other graph the issue of material deprivation and poverty brings to mind is the following, also via the NYT. The graph shows the inflation rate for a particular good or service, relative to the overall increase in the consumer price index. Simply put, this illustrates that many physical products like TVs and phones have become much more affordable over time, hence why so many more people have them. Conversely, categories that are generally accepted to help one escape poverty itself, have risen faster than everything else. College-educated workers earn more, but the costs of obtaining a degree have skyrocketed. Similarly, child care is expensive and parents need child care to be able to work and earn money, which could then put them above the poverty line. Such services are relatively harder to afford today given price trends, yet are needed for parents and households to earn more money.

NYTinflation

I find both of these graphs very informative, interesting and applicable to the discussion surrounding material deprivation and poverty. In particular, whenever I see inflation for different goods or services, or hear discussions surrounding poverty, I have this second graph in the back of my mind. Thankfully, for the vast majority of Americans, material deprivation is no longer the primary hardship. Unfortunately, poverty certainly remains a very big, and outsized economic issue.

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