Posted by: Josh Lehner | November 13, 2014

Economic and Revenue Forecast, December 2014

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.

On the eve of the Great Recession’s seventh anniversary, the U.S. economy has regained all of its recessionary losses across a host of top-line economic indicators. Employment, personal income, stock prices and GDP are all at or near record levels. However, below the surface, not all is well with the economy.

Although aggregate measures of economic activity have bounced back, the U.S. economic recovery is not yet complete. In particular, there is still slack in the labor market, with many workers unable to land the type of job that they are aiming for given their individual skill-sets. Other workers have become discouraged and have left the labor force altogether.

In Oregon, the overall number of jobs has yet to return to its pre-recession peak, but will no doubt do so before the 2015-17 biennium begins. As has historically been the case, Oregon’s recession and recovery have shown more of a boom-bust cycle than what has been seen in other states. After suffering relatively severe job losses during the recession, Oregon is now experiencing above-average job growth. Employment growth in Oregon accelerated in 2013, and has outstripped growth in the typical state ever since.

In general, Oregon’s largest population centers have fared the best during the recovery. The Portland area was the first to start adding jobs in 2010, and has grown steadily ever since. There are now 15,000 more jobs in the Portland area than there were before the recession began. Oregon’s smaller metropolitan areas did not begin to expand until the second half of 2012, but many have been adding jobs at a rapid pace since. Leading the way has been the Bend metropolitan area along with other areas that were the hardest hit by the housing downturn. Oregon’s rural communities have yet to see much of a recovery to date. With public sector payrolls stabilizing, the typical rural area finally started netting a few jobs over the past year. Despite recent improvement, most rural areas have just begun to repair the damage done by the recession.

The outlook calls for recent job gains to persist for two to three years before longer-run demographic trends weigh on growth rates. The character of the forecast remains the same as three months ago, with employment growth rates relatively unchanged through 2016 and some upward revisions to the out years.

OregonPop2014

The outlook for General Fund revenues in Oregon remains on track for now, with collections closely matching the Close of Session forecast that was used by the legislature when crafting the 2013-15 state budget. Although revenues have mirrored the Close of Session forecast to date, an increasingly strong outlook for April 2015 tax payments, combined with revenue increases enacted during the 2013 Special Session, together suggest that biennial tax collections will approach the 2% personal income tax kicker threshold.

An improved job market is fueling growth in tax revenues. In recent months, growth in personal taxes withheld from paychecks has returned to rates similar to those seen during the peak of the housing boom.   In addition to gains in taxable labor income, corporate tax collections grew rapidly through much of the year, prior to running out of steam in the fall.

Somewhat offsetting this strength in the labor market, weakness in taxable investment income is holding back tax collections. Wealthy taxpayers submitted their amended and extended tax returns this fall, exposing the fact that the 2013 tax year was even weaker than it appeared in April. The April 2014 tax filing season was not a good one for states like Oregon that depend heavily upon personal income tax revenues. Year-end personal income tax payments tied to investment income fell sharply in response to higher federal tax rates put in place during 2013. Many Oregonians cashed out capital gains and other investments in 2012 in anticipation of upcoming federal tax rate increases, leaving fewer gains to be realized for tax purposes going forward.

The 2013-15 biennium is far from over, and therefore significant uncertainty remains. One more income tax filing season remains between now and the end of the biennium. As such, many risks to the outlook remain.

The primary downside risk facing the near-term revenue forecast is the uncertain future of the nationwide economic expansion. Should contractionary monetary policy or economic weakness among our trading partners derail the U.S. economy, the strong expected growth in Oregon’s tax collections will not be realized.

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.

General Fund revenues have closely matched expectations thus far during the 2013-15 biennium. For fiscal year 2014, actual revenues exceeded the Close of Session forecast by less than $10 million (0.1%). However the combination of a somewhat stronger outlook, plus the legislative actions taken during the 2013 Special Session, result in General Fund forecast for 2013-15 of $15,912 million. This represents an increase of $11 million (+0.1%) from the September 2014 forecast. The December 2014 forecast for the 2013-15 biennium is $270 million (1.7%) above the Close of Session forecast.

 

201315BN

For the full document, slides and forecast data please see our main website or view our presentation to the Legislature below.

Posted by: Josh Lehner | November 10, 2014

Graph of the Week: Transition Probabilities

Just a quick update on the probability of unemployed Americans finding a job, ahead of our next quarterly economic and revenue forecast release on Thursday. According to the latest data from BLS, these transition probabilities really have improved quite a bit in the past year. Even surprisingly so, given that much of the headline data flows suggest a continuation of the slow growth recovery seen to date. Gains are seen even among the long-term unemployed as well. However, as Conor Sen detailed the other day, a lot of progress is being made below the surface in terms of slack and the like. Should this progress continue, eventually it should show up in higher real wages (we think), although we’re not quite there yet. Do read Mr. Sen’s work for a good summary of the stronger improvements seen in the past year or two.

While there remains those two economic narratives out there that progress is being made in aggregate but not for the typical worker or household, examining some of these more recent data points suggest that fundamental improvements are being made. Top line numbers suggest the economy has fully regained its recessionary losses in terms of jobs, real personal income and the like, however, fundamentally the data suggest that we’re about 40-50 percent back in terms of the employment-population ratio for prime working age adults and items like these transition probabilities. The economy is not fully healthy, but the trajectory of these improvements is better today than at any point since the onset of the Great Recession and stronger than the conventional wisdom may have you believe. It’s been seven years next month since the onset of the Great Recession, but we’re starting to get there, we truly are. I think.

UnempTransProb1014

Along similar lines, this is what our office has been discussing quite a bit this year in terms of the labor force dynamics. Stronger job growth here in Oregon has and is providing more opportunities for the unemployed. As the labor market begins to tighten, wages are picking up, at least back to housing boom era rates (which themselves were not the greatest) and we are now seeing the growth in the labor force. The combination of higher population growth, household formation, the Millennials aging into their prime working ages and those previously not looking for work rejoining the labor force, are reversing much of the losses seen in recent years, at least here in Oregon.

Note that the percentages on the right indicate the share of recessionary losses regained as of October 2014. For example the transition probability for those unemployed 5 weeks or less peaked at 38 percent in May 2007 and fell to 29 percent in November 2009. Today’s rate of 35 percent is 71 percent of the way back from the bottom to the pre-recession peak rate.

Posted by: Josh Lehner | November 6, 2014

Portland Housing Pt 4: Outlook

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a multi-post series focusing primarily on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and by neighborhood in Part 1. Part 2 covered underlying trends in construction and demographics. Part 3 went over housing affordability in Portland, while today Part 4 provides an outlook.


The linchpin in the housing outlook for the region is population growth. It is no secret that Oregon, and Portland in particular, receive in influx of migrants each and every year. The magnitude of these flows are impacted by the economy and relative home prices, however even in bad times, people choose to live here. Moving forward, our office’s population growth rate forecast, much like our overall economic outlook, is lower than in past expansions, but that does not mean growth will stop. In fact, the number of new inhabitants in the Portland MSA is expected to be 30,000-35,000 each year for the next decade. Every one of these new residents will need a place to live.

HousingPopForecast

With population growth picking up, and more importantly household formation, the outlook for new construction is stronger as well. Based purely on the population forecast, the number of new housing units needed annually in the Portland area is about 13,000. This is based on the assumption of 2.5 persons per household, whereas historically the ratio of new construction to population growth has been lower at about 2.3 persons per household. That level of building would add approximately 1,000 more units per year, however that is not the baseline outlook.

HousingStartForecast
It does remain an open question as to the type of housing needed, or preferred. Economists and real estate experts agree that a larger share of multifamily is to be expected, certainly relative to the single family boom of the 1990s and 2000s. With credit availability still tight and a changed perspective on ownership following the bubble, expectations are that the higher share of the population in rental units will continue. Even so, there are some indications or warnings that the multifamily, rental apartment market in Portland may be overbuilt in a few years. From a population growth perspective, the region needs those units, however from a developer’s position, more units may eventually result in higher vacancy rates and/or lower rents. It will be important to closely monitor these developments and how the market adjusts.

One key aspect here for ownership, particularly among the Millennials, is job tenure. Owning a home can be a good financial decision but it also anchors one to a specific location and involves large transaction costs to buy or sell. Should changing jobs more frequently, or the so-called gig economy, become more prevalent moving forward, then owning a home makes less financial sense as it does not provide the same flexibility as renting.

Finally, our office’s outlook for prices is moderation. Historically home prices have increased slightly faster than the rate of inflation. Of course the housing bubble was a giant exception. Nevertheless 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.

HousingPriceForecast

As the economy continues to recover, with more employed individuals, household formation will likewise continue to pick up, along with overall population growth. Home prices are set to rise further, however the very strong appreciation rates are likely behind us. This does not rule out a near-term price correction in some markets, where prices may have risen a little too fast, too quickly. All of these dynamics are good indicators that the market is working, and getting more healthy. Overall, just as the economy is getting there, so too is the housing market.

Part 1 covered the housing bubble’s impact on ownership. Part 2 covered underlying trends in construction and demographics. Part 3 went over housing affordability.

Below are the full set of slides from our office’s housing work, including many additional graphs and figures.

Posted by: Josh Lehner | November 4, 2014

Portland Housing Pt 3: Affordability

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a multi-post series focusing primarily on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and neighborhood in Part 1. Part 2 covered underlying trends in construction and demographics. Today, Part 3 will go over housing affordability in Portland, while Part 4 provides an outlook.


In terms of home ownership affordability, our office’s metric shows that affordability is back to the relatively stable levels seen in the 1990s for the typical family in Portland. The strong rebound in home prices, even with relatively low interest rates, clearly show that the record level of affordability is gone and unlikely to return.

One other important aspect when it comes to affordability is the size of the down payment. If one is able to afford to put 20 percent down, by and large, the costs of owning a home are generally below the standard affordability thresholds. Ownership costs rise approximately 25 percent if one moves from 20 percent down to 5 percent down. The increased size of the loan balance, plus mortgage insurance, raises costs considerably. By our office’s rough metric, those only able to put down 5 percent are typically right on the cusp of affordability. This is one reason why the old home ownership pattern typically saw households buy starter homes, then move up to a more expensive, usually larger, home when their income increased and family needs changed as well. While this pattern of ownership very well may return again moving forward, it certainly came undone during and after the housing bubble.

HousingAffOwner

One other issue with affordability at today’s prices are the types of households that can afford the median home sold today or, conversely, the price each type of household can afford. Here there is both good and less good news. If one looks at the distribution of homes currently for sale, via our friends over at RMLS, the current inventory closely matches the income distribution of families in Portland. This was actually a bit of a surprise to me because it indicates that there is not a large mismatch between the supply of homes for sale and the ability of local households to afford those homes. See slide 15 below for more. The less good news is that the 20 percent down versus 5 percent down affordability issues rear their head again. This indicates at least a bit of a mismatch in the market of would-be sellers and would-be buyers. Add on top of this tighter underwriting standards (largely a good thing), plus large transactions costs, plus the fact that homes in most zip codes in Portland are not all the way back to peak, and the like, and it is not hard to tell a convincing story for why the ownership side of the housing market has not fully healed.

On the rental side of the market, demand and prices are at all-time highs, and housing costs as a share of income are back to pre-recession levels. More and more individuals are renting today than ever before. The outright number of Oregonians in owner-occupied housing is actually down from their housing bubble peaks, while the rental population has surged. Some of this switch is by choice — consumer preferences, Millennials living downtown or in town centers, etc — but some is by necessity — foreclosures, tighter underwriting standards, etc.HousingRentPop

Given the low levels of new construction in recent years, this increased demand has resulted in a very low vacancy rate that is among the lowest in the country. As such, rents are rising quickly.HousingAffRent

With these trends and market shifts, it is no surprise to see new multifamily construction really accelerate in recent years. Slightly less than half of all new construction permits in the Portland Metro over the past three years have been multifamily. This is the largest share since the late 1980s.

One interesting and possibly troubling issue is that almost all of the new construction is coming at the top end of the market. Examining rents across the MSA from Multifamily NW reveals that average rents for all types of apartments are in-line with the median incomes for nonfamily households (usually roommates). That’s good news and furthermore, the graph above shows rents in the 25-30 percent of income range, which is not exceptionally high for most households. Of course these are region wide averages and some locations are much higher than others.

However, the new apartments, which are largely located in close-in and sought-after neighborhoods, are coming in at twice the average price per square foot. Overall these units require incomes that are 2-3 times the median nonfamily income to keep at an affordable share of income. Such incomes are in the $60,000 to $90,000 range. See slide 16 below. Even so, these new developments are filling up.

One key question moving forward is how, exactly, these new units will impact the broader market. The academic literature is somewhat mixed in terms of how new construction filters through the existing housing stock (or doesn’t as the case may be). However many of these papers assume new construction is built at the price point needed in the market. In today’s environment, these high rents are needed to obtain financing for building the apartments in the first place. It will be important to continue to monitor these trends to see how rents, and the various sub-markets (by price or by location) respond in terms of overall affordability.

Part 1 discussed the housing bubble’s impact on ownership. Part 2 covered underlying trends in construction and demographics. Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

Posted by: Josh Lehner | October 29, 2014

Portland Housing Pt 2: Construction and Demographics

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a 4 part series focusing on the Portland Metro, our office’s new housing work covered the bubble’s impact on ownership by year and by neighborhood in Part 1. Today, Part 2 covers underlying trends in housing supply and demand. Part 3 will go over housing affordability in Portland, while Part 4 will provide an outlook.


Beyond the housing bubble’s impact on prices and ownership in the past decade, it has tremendous impact on the level of new construction. However, unlike the U.S. as a whole, the Portland MSA actually did not overbuild very much during the boom, relative to underlying population gains. The graph below shows the number of housing permits per population change. The average over the 1980-2004 period was one housing permit for every 2.3 person increase in population. This is somewhat lower than the number of people per household as reported in the 2000 Census (2.51 statewide, 2.56 in Portland). Even so the ratio did not increase much during the housing boom. This indicates that the level of new construction in the region was not far out of line with historical patterns, relative to the fact that more and more individuals continued to move to the region.

HousingPermitsPop

While there was not much overbuilding during the bubble in Portland, the housing bust has clearly been disproportionate to the boom. Relative to the population gains to the metro area, a rough accounting from 2000 through 2013 finds that the number of new housing units built is about 2/3 to 1 year behind historical patterns. 2014 is so far on pace to be similar to 2013. While this under building relative to population growth is certainly manageable with a few years of stronger housing starts, it does indicate the housing market today is likely supply constrained, helping to drive prices higher for both ownership and rental units.

Furthermore, indications of housing demand, if anything, are accelerating. Even as household formation has slowed nationally, it appears to be picking up in Oregon. As the economy continues to improve — even faster than the typical state — the old, strong flows of in-migration to Oregon, and Portland in particular, are beginning to reappear.

HousingHHFormationNow, the types of housing needed to meet this new influx of demand may be different. The Portland MSA continues to be a magnet for young, and mostly educated migrants. See here and here for more. As such, the region has a very large Millennial cohort, relative to the rest of Oregon and the nation. Ages 25-34 are very important in terms of setting down roots as this range is when most individuals, get married, buy a house, start a family, begin their careers in earnest and the like. However, at first, many are renters and not owners. As such, about half of all housing units built in Portland in recent years have been multifamily and even with high rents in these new buildings, vacancies are low. Economists and housing experts are in agreement that moving forward, a relatively larger share of new construction will be multifamily instead of single family, however, as will be discussed in the outlook section next week, the exact details are unknown.

HousingPopAge

It is important to point out that Millennials (and Generation Xers) in Portland and Oregon are just as likely to be employed as elsewhere in the country. Portland is not (just) a place where young people go to retire. As these cohorts age, and the economy continues to improve, it should be expected that many transition into ownership over the coming decade, although it may be a higher share of condos and not purely detached, single family as in the 1990s and 2000s.

Part 1 covered the housing bubble’s impact on ownership. Part 3 goes over housing affordability and Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

Posted by: Josh Lehner | October 29, 2014

Portland Housing Pt 1: The Bubble Impact on Ownership

The Portland housing market is tight. Increased demand, with higher household formation and population growth, coupled with limited supply currently on the market are driving prices higher for both ownership and rental units. The median price of homes sold in the metropolitan area is effectively back to housing boom peak numbers, per RMLS. The rental vacancy rate is among the lowest in the country and prices are at an all-time high. The housing bubble, obviously, had a tremendous impact on the market and the bust has been disproportionate to the boom. While new construction has picked up in recent years, it has yet to fully regain the lost ground during the downturn, relative to underlying population growth. The good news is as housing supply continues to increase, eventually it should put downward pressure on prices, raising affordability.

In a 4 post series focusing primarily on the Portland Metro, our office’s new housing work covers the bubble’s impact on ownership by year and by neighborhood today. On Friday, Part 2 covers underlying trends in construction and demographics. Part 3 will go over housing affordability in Portland, while Part 4 will provide an outlook.


Some economists point to the swings in home prices as the defining feature of the housing bubble era, and with good reason. However I would argue that it’s more than just the price swings, but how they actually impacted the pattern of homeownership is more important and I don’t mean the overall homeownership rate.

As shown below, the share of homes in Multnomah County last sold during the boom is disproportionately high relative to what one would have expected ahead of time, if sales had been relatively steady each year. Some owners sell their homes after 5 years, or 8 years, with the median homeowner being in the same home 15 years. Using these ownership duration figures, based on work from the National Home Builders Association, one is able to construct what a typical ownership pattern would or should look like. That’s the dashed, dark blue line below. In actuality, ownership patterns in Multnomah County are in the solid, light blue line. The differences here are immense. It works out to 1/3 more homes last sold during 2003-2007 and still owner-occupied, or at least not resold, then if the sales pattern had been more stable. So it is not just the price swings themselves, but the fact that more households bought during the boom and have yet to resell or move. Some by choice, some by necessity or being underwater. In fact, while most areas within the Portland MSA have seen strong price appreciation in recent years, nearly back to peak levels, only about 20 percent of individual zip codes are actually all the way back, per data from Zillow. The price swings have a big impact on the incentive on when/if current homeowners sell. This overall pattern has big implications for the housing market in terms of existing homes for sale, neighborhood effects and remodel work, among others.

HousingMultOwn

In terms of the existing stock of homes, which types are most impacted by the housing bubble? Examining the current value of each home in Multnomah County reveals that those homes last sold during the boom and have yet to be sold again, are disproportionately in the starter home ($150,000 – $250,000) and McMansion ($450,000 – $600,000) price range. This makes intuitive sense as well. During the boom, there was strong competition for each type of home, with many households trying (and succeeding, at least at first, based on the lack of underwriting standards) to obtain their own piece of the American Dream. Homes in the lower price tier experienced the largest boom and bust pattern based on S&P/Case-Shiller home price data, which reflects the strong demand and competition for entry level homes, even by those who traditionally may have been unable to afford or meet underwriting standards. McMansions also experienced strong demand as middle income families sought to move up into a higher priced home, and many higher-end subdivisions or communities were built throughout the region in these price ranges.

Besides prices and types of homes, the bubble’s impact on ownership has had disproportionate impacts on neighborhoods and geographic regions within the Portland Metro. As discussed previously, the graph below shows the share of homes in each neighborhood that last sold during the boom on the vertical axis and the pace of home sales on the horizontal axis. Here one can see which neighborhoods have a relatively large share of these bubble era home sales, and also which ones are currently seeing sales either above or below average pace. Many of Portland’s close-in neighborhoods, where recent demand has been strongest, have seen strong sales in the past year or two and/or have a lower share of homes last sold during the bubble. Many of the outlying regions are seeing the opposite pattern. As demand continues to be strong in both the central city and in town centers across the region, the pattern makes sense. The hardest hit suburbs and exurbs are generally the last to share in the housing recovery, if at all yet.MultnomahTurnover0314

Another way the bubble’s impact on ownership works through the housing market is remodeling. If an owner remains in the home for a longer period of time than they may have expected when they bought, they turn to making the best of the situation. If one cannot move, maybe by choice (the owners do not see another/better option in their desired neighborhood) or by necessity (underwater), they concentrate on improving the existing home the best they can, or afford. In other words, instead of upgrading their homes via moving up into a better one (see: expensive), owners upgrade the quality of the existing housing stock.

Examining housing permit data from the City of Portland reveals that projects that can broadly be considered remodel work, are nearly all the way back to peak levels, at least in nominal dollar terms. New home construction is about half-way back, but remodeling has been much stronger. At the national level, the NAHB Remodel Index is at an all-time high and in terms of U.S. GDP, home improvements have been larger than actual new construction for much of the economic expansion.

HousingPDXRemodel

On Friday, Part 2 will cover underlying trends in construction and demographics. Part 3 goes over housing affordability and Part 4 provides an outlook.

Below are the full set of slides from our office’s housing work, including both upcoming material and many additional graphs and figures.

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.

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[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.

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