Posted by: Josh Lehner | June 16, 2014

Oregon Household Formation

Household formation is key economic indicator as it represents, as Derek Thompson at The Atlantic writes, “more people getting jobs, getting apartments, getting married, having kids, and (in all likelihood) spending more money to furnish their new households and express their independence.”

However, the Great Recession, with a housing crash and soaring unemployment, effectively stopped household formation in its tracks. With jobs scarce, many individuals and families doubled up in apartments, fewer got married and the birth rate fell further. The good news, for the economy and housing in particular, is that household formation is rising again and is poised to pick up further as the economic recovery strengthens.

Even with the dearth of new construction from 2008-2012, very slow household formation due to the poor economy resulted in fewer units needed annually and the existing inventory – which was high at the time due to overbuilding in some markets and foreclosures – was slowly worked down. Nationally, Jed Kolko, chief economist for the real estate website Trulia, estimates that relative to pre-recession trends, there were 2.4 million “missing” households in 2013. That is equivalent to roughly two years of normal household formation. In Oregon, the number of households in early 2014 is about 50,000 below pre-recession trend levels[1] which, similarly, is about 2 years of typical household formations in the state.

The difference in the graphs is the top one comes from the Current Population Survey’s Annual Social and Economic Supplement which occurs each March, but only provides one data point per year. The second graph comes from the underlying monthly CPS data. Both are noisy given the small sample size for Oregon — about 1,000 households each month — but the trends are similar over time, as expected.

HHFormation0614

Not only were families forced, economically, to double up during the recession as workers lost jobs and households were foreclosed upon, but more young adults continued to live at home as they were unable to afford to move out onto their own. In Oregon today there are approximately 80,000 more young Oregonians – 18 to 34 years old – living at home above and beyond the levels seen prior to the Great Recession. Through much of the  1990s and early 2000s about 20 percent of young Oregonians lived at home. Today it is nearly 30 percent. A silver lining, however, is that nearly 60 percent of this increase, nearly 45,000 individuals, are for young Oregonians who are enrolled in school and thus not participating in the labor market. The other 40 percent or so are living at home for other reasons, likely economic. One interesting note is that while a tough economic climate has made job finding mroe difficult, most young Oregonians with college degrees are not living at home. The number has nearly doubled, from a low of 8,000 to a current level of about 15,000 however this accounts for less than 2 percent of the living at home population today.

These findings are also consistent with the recent Oregon Employment Department report on youth in the labor force that found that the share of so-called idle youth did not increase substantially due to the Great Recession.

YoungAtHome19802013

The combination of an improving economy and favorable demographics as the Millennials continue to age into their prime working years should result in stronger household formation moving forward. Already in Oregon growth has picked up in 2013 and early 2014 and net migration from other states has tripled in the past two years, making 2013 the strongest since 2008. While housing has not added much economically in the past 9 months, moving forward expectations are growth will once again resume as demand continues to increase.

PopGrowth0614

[1] Depending upon your exact assumptions this figure is between 30,000 and 70,000 households below trend. This amounts to roughly 1-3 years of typical household formations.

Posted by: Josh Lehner | June 11, 2014

State GDP Revisions

One more on State GDP. As stated in the previous post, the BEA underwent a comprehensive revision that added various categories including R&D and Intellectual Property Products to the total. Overall this raised the U.S. GDP by about 3 percent, while the growth rates remained largely the same. This impact was not even across states in terms of raising the level of state GDP. Below are the comparisons of 2012 nominal GDP to the just released revised versions of 2012. It is important to keep in mind that these revisions include the new categories but also the typical, annual revisions that incorporate more data.

StateGDP_12Revisions

Posted by: Josh Lehner | June 11, 2014

State GDP 2013

Today the U.S. Bureau of Economic Analysis released preliminary State GDP figures for 2013 along with comprehensive revisions for data from 1997-2012, following the major National Income and Product Account revisions at the national level a year ago or so. What follows are our office’s quick, high level look at State GDP growth.

First, here are what the revisions did to Oregon’s nominal GDP (see correction note at end). Over the 1997-2012 period, the revisions added, on average, 3.9 percent to Oregon’s total nominal GDP. In recent years, from 2009 to 2012, the revisions have been larger at 5.4 percent on average.

RealGDPrevisions

The primary reason for this — most likely — is what BEA has done with the revisions. Nationally, and now locally, BEA has started including items such as R&D expenditures and Intellectual Property Products as components of GDP. These categories, R&D in particular, are quite large here in Oregon given our very productive, and expanding high-technology firms. Specifically, BEA cites the following in their press release.

— Results of the 2013 comprehensive revision of the national income and product accounts and the 2014 comprehensive revision of the annual industry accounts, which included the recognition of research and development (R&D) expenditures as capital, the capitalization of entertainment, literary, and other artistic originals, the expansion of the capitalization of the ownership transfer costs of residential fixed assets, the use of an improved accrual accounting treatment of transactions for defined benefit pension plans, and improved methods for computing financial services provided by commercial banks

While the revisions adjusted the level of GDP across the country, it really didn’t alter the pattern or rate of growth very much. In 2013, overall growth slowed across the country with the average state growing 1.8 percent in 2013, following 2.5 percent growth in 2012. The median state slowed as well, albeit not very much, from 1.9 percent to 1.8 percent. Oregon likewise followed this trends, with growth slowing from 4.0 percent in 2012 to 2.7 percent in 2013. Oregon is still growing faster than the average or median state, however our growth advantage slowed last year. Over the past 15 years or so, Oregon’s state GDP typically grows 1-2 percentage points faster than the nation and the latest figures are largely consistent with this.RealGDPGrowth2013

Oregon’s growth ranking, realtive to the other states, is 14th for 2013. This is down from the Top 5 rankings the state experienced in recent years, however it is not out of the historical pattern during expansions.RealGDPRank2013

The following table shows the growth rates in recent years by industry in Oregon. Much of our state GDP growth comes from our very productive manfuacturing sector — high-tech in particular — and as the growth rates within that sector have slowed, so too has the statewide total. It should be pointed out that slowing was expected given that it is not every year at a massive, capital-intensive expansion takes place, such as the recent (and on-going) Intel expansion.

RealGDPIndustryGrowth_2013

Lastly, in terms of per capita real GDP changes since the start of the Great Recession, Oregon trails only North Dakota.RealPerCapitaGDP2013

For more on why Oregon does well on state GDP, please see our previous posts on Historical Economic Performance and Manufacturing Employment and Output.

Correction: Original post had incorrectly calculated the Oregon revision amount. It had originally stated 8.3 percent for real GDP, however this also included a benchmark year change from 2005 to 2009, which had not been properly accounted for. The corrected figure of 3.4 percent for nominal GDP is more accurate and stated above.

Posted by: Josh Lehner | June 6, 2014

U.S. Jobs Are Back … To Pre-Recession Levels

With the May jobs report, the U.S. economy is now back to pre-recession peak levels of employment. While this is the longest post WWII recovery the U.S. has experienced — by a good margin — it is important to keep in mind that financial crises are different. When comparing the Great Recession against other advanced economies’ financial crises in recent decades, the current U.S. cycle has outperformed in terms of employment, even as most other measures of financial crises were just as bad — home prices, stock prices, GDP per capita, government debt and the like.

FinanacialCrises0514

 

Posted by: Josh Lehner | June 4, 2014

Oregon’s North Coast

Continuing our quarterly series on Oregon’s regional economies. This post originally appeared in our office’s June 2014 quarterly economic and revenue forecast document.

NorthCoast

Oregon’s North Coast – stretching from the Columbia River to the Yachats River – is home to an economy that has strong concentrations in both agriculture – dairy, fishing and timber – and travel and tourism.

Like much of Oregon, the North Coast has experienced two severe recessions: the early 80s and the Great Recession. Regional unemployment did not spike quite as high as it did statewide during the Great Recession and job losses were not as deep, however job growth has stalled in the past 18 months. This stall is evident in all three counties, however Clatsop (-4.3%) and Tillamook (-5.4%) are closer to pre-recession peak levels than Lincoln (-7.9%) today. Overall the region is about 6 percent below, compared with comparable statewide figure of 2 percent.

NCoastRecession0614NCoastUnemp0614

While the region has a strong agricultural base, it is highly specialized in fishing (62% of commercial fishing value statewide), dairy products (Tillamook County) and timber (mostly logging).

NCoastShare

Much of the region is easily assessable for the state’s largest population bases in the Willamette Valley – a 1-1.5 hour drive for most – thus making the region a top destination for both out-of-state and in-state travelers. Lodging sales per capita and the share of homes classified as vacant for seasonal, recreational or occasional use (aka second homes) lead the state by a good margin.

NCoastTourismAs such, the regional economy’s top location quotients (measuring employment concentrations) largely follow the agriculture and travel and tourism sectors.

NCoastLQ2013

The region’s demographics, much like rural Oregon in general, skew slightly older however Clatsop is relatively close to the state averages, including being among the Top 10 in working age population. Clatsop’s natural rate of population increase is positive in recent years, unlike Lincoln, Tillamook and many of Oregon’s rural counties, particularly the South Coast.

For more information on the North Coast please see the Oregon Employment Department, in particular regional economist Eric Knoder and workforce analyst Shawna Sykes‘s work for Region 1 (Clatsop, Columbia, Tillamook) and Region 4 (Lincoln, Linn, Benton).

Posted by: Josh Lehner | June 2, 2014

State Comparisons, Spring 2014

The economic expansion continues across nearly all states. In April, 47 states saw job gains over the year and 48 states’ coincident indexes rose as well. About half of states have seen the pace of job gains accelerate at least a little relative to a year ago. Nevada, Arkansas and Oregon have seen the largest acceleration in the country over the past year, as measured by job growth. In terms of the strongest acceleration in recent years, only Nevada, Oregon, Florida and Delaware have seen growth improve by 1.5 percentage points or more since 2011 and 2012. The first three states were hit hard by the housing downturn and as the housing recovery took hold – at least prior to stalling out – it is no surprise to see these states among the Top 10 again.

However, while nearly the whole country is expanding, the strength of recovery is certainly not even, and most states’ rate of growth remains subpar. So far in expansion the number of states at any given time that is experiencing job growth greater than 1% over the year is effectively on par with the share seen during the housing boom (Oregon counties show a similar pattern), but lower than during the expansions in the 1980s and 1990s. What makes the aftermath of the Great Recession even weaker are the number of states seeing 2% or 3% job growth, which are half as many as during the housing boom and a quarter to a third the number from the 1990s. While the overall, national job growth rate is effectively matching the housing boom, the strength of growth is not as geographically diverse.

EmpGrowthStateShare0414

Even so, while fundamental economic activity is continuing across states, one area where 2014 will certainly disappoint is personal income tax collections. Despite a very robust stock market in 2013 and strong home price appreciation, the outlook for taxable investment income remained subdued. Many Oregonians, and Americans across the country, cashed out capital gains in 2012 in anticipation of the federal tax increases, leaving fewer gains to be realized for tax purposes both in 2013 and going forward.

As such, fiscal year 2013 saw an increase in growth across nearly all states and the expected hangover in fiscal year 2014 can be seen in the revenue forecasts as reported by the National Association of State Budget Officers’ fiscal survey of states. Note that the fiscal year 2014 figures are forecasts and not actual collections at this point.

NASBO_1214

Based upon Oregon collections so far and informal conversations with many other states, our office summarized the tax season in our forecast document as such:

The April 2014 tax filing season was not a good one for states like Oregon that depend heavily on personal income tax revenues. Year-end tax payments fell sharply across the U.S., with the typical state seeing collections fall on the order of 25% during the peak processing season. Oregon’s personal income tax collections were not immune to this weakness. Sharp declines in late April and May have fully erased early gains posted during what began as a strong 2014 season for Oregon’s tax collections.

Much of the recent weakness in year-end personal income tax payments can be traced to investment earnings and other nonwage forms of taxable income … Although the response of taxpayers to rising federal tax rates turned out to be larger than expected, the decline in tax payments on the part of Oregon’s wealthy households was fully offset by smaller than expected refund payments returned to wage earning households. Overall, personal income tax collections in Oregon continue to closely match the forecast. Unlike the case in some other states that depend on personal income taxes, no large emergency budget adjustments are called for at this time.

Finals0614

This post has been adopted from our office’s latest quarterly economic and revenue forecast.

Posted by: Josh Lehner | May 29, 2014

Oregon’s Labor Market Outlook

Along with improving economic growth will come a tighter labor market in which employers will need to compete for the best workers. This typically results in rising wages, which will entice even more individuals into the labor market due to increasing job opportunities and higher wages.

Much of the decline in the labor force participation rate is structural, however some is cyclical and due to the poor economy. As the Baby Boomers are just now entering into their retirement years, the overall participation rate was set to decline regardless. Even as older Americans today – the country’s largest, most educated and productive generation ever – work more than in previous generations, their participation rate is still less than one-fifth that of the typical 40 year old. On the other end of the spectrum, young Americans are enrolling on school in larger numbers than past generations, thus weighing on the overall participation rate as well – although higher educational attainment will be an economic boost in the future. With that being said, some of the participation rate decline is cyclical and due to the poor economy. As job opportunities increase and higher wages entice more workers back into the labor force, there will likely be a cyclical rebound in the participation rate, albeit a small one. Nationally, IHS Economics expects the participation rate to increase approximately 1 percentage point and the employment to population ratio to improve nearly 2 percentage points. In Oregon those increases are expected to be a bit stronger at 1.5 and 2.3 percentage points, respectively. These large improvements in Oregon stem from the fact that stronger job growth in the state coupled with stronger population gains will provide the additional capacity and demand above the expected national rebounds.

LFPREmpPop0614

This has been adopted from our office’s latest quarterly economic and revenue forecast.

Posted by: Josh Lehner | May 28, 2014

Economic and Revenue Forecast, June 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.

A broad consensus of economic forecasters and industry leaders both in Oregon and elsewhere in the U.S. has become increasingly optimistic about the pace of the recovery. Oregon is once again a leader in terms of job gains, with the pace of statewide growth now matching the best years of the housing boom

U.S. job growth thus far in 2014 is on pace to be the strongest since 2000 and the major weights on the recovery have been lifted. To borrow a phrase from Federal Reserve Chairwoman Janet Yellen, the U.S. economy paused in early 2014, due in part to bad winter weather. However, most economic indicators have thankfully picked back up in the spring. Household balance sheets are largely back in the black, housing is poised to reaccelerate and corporations’ financial positions remain quite strong. As the nationwide expansion continues to pick up momentum over the next two to three years, the feel good nature of the recovery may finally appear.

In Oregon, the economic acceleration the state experienced in 2013 has continued into early 2014. Oregon was spared some of the weather-related problems seen elsewhere in the U.S. Statewide job growth is currently at the strongest pace since 2006. This improvement was largely expected as the two major weights on the economy lifted: housing and government. Growth statewide picked up primarily due to regions outside of the Portland Metropolitan Area joining in the recovery. In the first quarter of 2014, 4 out of 5 Oregon counties saw job gains over the year, marking the same share as during the mid-2000s expansion. Although the rate of growth for many counties remains below previous expansions, most regions of the state are experiencing gains today. As the recovery continues, the housing market regains its footing and the net in-migration the state is accustomed to picks up, economic conditions should improve across much of Oregon.

PdxStateGrowth

The additional job growth assumed in the June 2014 forecast will bring with it additional state tax collections in fiscal year 2015 and beyond. As such, although recent tax collections have mirrored the outlook, the revenue forecast has been revised upward somewhat as well.

The April 2014 tax filing season was not a good one for states like Oregon that depend heavily on personal income tax revenues. Year-end tax payments fell sharply across the U.S., with the typical state seeing collections fall on the order of 25% during the peak processing season. Oregon’s personal income tax collections were not immune to this weakness. Sharp declines in late April and May have fully erased early gains posted during what began as a strong 2014 season for Oregon’s tax collections.

Despite declining year-end tax collections, the outlook for personal income tax 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 budget. Unlike the case in many other states that depend on personal income taxes, no large emergency budget adjustments are called for at this time.

Despite increased optimism, the 2013-15 biennium is still young, 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. On the upside, if asset markets continue to boom or if Oregon’s traditionally strong migration trends and labor force growth reappear, a short-term spike in revenues remains possible during the coming months. Although the bar is set high in fiscal year 2015 with strong revenue growth expected, it would only take about $70 million in unanticipated revenue to trigger the kicker law at this point.

KickerCalc0614

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.

Posted by: Josh Lehner | May 23, 2014

Oregon Wage Growth

Just as job growth has accelerated and continues to improve, so too has wage growth. Right now both wages as reported by BEA and withholdings out of paychecks are growing at nearly 6 percent overall in Oregon. This rate of growth is nearly back to the rates seen during the housing boom, but remains below the 8-10 percent rates the state saw during the strong 1990s expansion.OregonWages0614Unfortunately for many existing workers, this pick up in wage growth is due to the improving landscape for jobs overall and not due to average wages rising quickly. As seen below the average wage in Oregon is growing at about 2-3 percent per year, which is roughly in line with inflation, thus holding real wages effectively unchanged. As Mark said at PNREC, and as reported by Molly Young in The Oregonian, the feel good nature of the recovery is still not here yet and what feels good to most people is money in their pocket. Note that the divergences in 2007 and 2011 in both graphs is due to withholding table changes and not fundamental economic changes.OregonAvgWage0614

With that being said, the economy continues to improve and momentum, at least in Oregon, is being built in recent months. As more job opportunities come available and filled, the labor market will tighten. This is currently happening. Once that occurs, wages should start to increase as employers have to compete for the best candidates and to retain existing employees. (Aside: when firms and industries talk about labor shortages, watch what happens to wages. If there truly is a shortage, wages will need to increase to attract more workers.) As wages rise, this will attract more workers back into the labor force. More on our office’s expectations on the labor force participation rate and employment to population ratio in the forecast next week.

Posted by: Josh Lehner | May 22, 2014

Leading Indicators, an Update

In Oregon we have two composite leading indicator series and while our office publishes an analysis each quarter in our forecast document, we do not regularly highlight the overall series here. This is partly due the fact our office focuses here on the blog on specific leading indicators from time to time and also that the University of Oregon index is publicly released each month. With that being said, I will begin posting this quick summary of the leading indicators each quarter where one can gauge which series are up, which are slowing and which are not showing improvements.

LeadingIndicators0314

Right now nearly all the indicators are pointing toward a continued economic expansion. While this has largely been the case for quite some time now, a few indicators have recently turned up including new business filings with the Secretary of State’s office. After falling considerably during the recession, in late 2013 and early 2014, the numbers have started to increase again. Hopefully we will have more on new business formation and entrepreneurship in the not too distant future, but for now, it’s at least moving again in the right direction. The two indicators that are yellow, meaning their improvements have slowed recently, are actually doing pretty well from an overall perspective. Both the total number of help wanted ads and the average manufacturing hours worked are nearly back to pre-recession levels, however these indicators have plateaued in recent months. The housing stall has taken the sails out of the housing rebound over the past year and the combination of a bit stronger U.S. growth and mediocre at best economic news around the globe has the Oregon dollar appreciating against out major trading partners over the past year.

Lastly, you may notice that the pace of the leading indicator series has been slower in the past year or so. It is important to point out that these composite leading indicators are used as a green light – red light indicator and not a measure of the magnitude of the growth. Overall both continue to show sustained improvements thus indicating continued economic growth in the near future.

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