Oregon Office of Economic Analysis

Notification: The Office of Economic Analysis undertook a forecast document revamp. There is now a one page Executive Summary instead of seven or eight pages. Some tables have been moved, some have been deleted or added. The overall document is down to 60 pages in length instead of the 100 plus in the past. Quarterly economic forecast tables are no longer published in Appendix A but are available, as always, in Excel format on the main website. Annual forecast tables remain. If you have any questions, are looking for your favorite fact or figure and cannot find it, please let us know. If you have any feedback on the new document, good, bad or indifferent, please let us know as well. There will be more changes next quarter as well, but this represents a start in streamlining the information and content.

• Oregon’s labor market is improving and job growth has picked up, which largely matches the previous outlooks. As such, the baseline economic forecast is effectively unchanged and shows continued improvement in regions across the state outside of the Portland Metro.
• The Close of Session forecast for 13-15, from which any potential kicker calculations will be based, on net after accounting all the legislative actions is approximately $82.9 million above the May 2013 forecast.
• The September forecast for total available resources in the General Fund and Lottery Fund, after accounting for a weak end to 11-13 due to a backlog of refunds, minor forecast changes, the fact there is no corporate kicker for 11-13 and borrowing cost savings, is down $37 million relative to Close of Session

Economic Outlook

First, the good news: the economic recovery persists, with recent upward revisions to both output and job growth suggesting that the domestic economy remains on solid footing. Now, the bad news: growth continues to be lackluster, below historical averages and just strong enough to keep the economy moving in the right direction.

Much like the nation, Oregon’s economy continues to improve, however, unlike the U.S., Oregon’s private sector employment has accelerated in recent months. Since the labor market recovery began, Oregon’s private sector jobs have been expanding at a rate just under 2 percent. Since the end of 2012, private employment growth has improved to approximately 2.5 percent. This increase is largely due to improving economies in regions of the state outside of the Portland metropolitan area. Portland’s employment growth has remained steady, while the rest of the state, in particular the hardest hit areas of Bend and Medford, have stabilized and even begun adding jobs in the past year.

The recent acceleration in employment is expected to hold steady over the next two years before longer-run demographic trends weigh on growth. There is the potential for a temporary slowdown this fall as the tax law changes and sequester cuts impact underlying economic activity with a delay. However expectations overall are solidifying and our baseline economic outlook remains effectively unchanged. Furthermore, many forecasters are turning their attention more toward the quality of the recovery and the types of jobs being added and focusing less on  probability of recession, which is considered lower today than a year ago.

Revenue Outlook

In keeping with the stable economic outlook, expectations for General Fund revenue growth have remained largely unchanged as well. Along with underlying job growth, personal income taxes paid out of labor income are expected to accelerate somewhat during the 2013-15 biennium. Healthy income tax collections during July and August suggest that tax revenues are following this script for now. Although improved, overall revenue growth is expected to remain modest from an historical perspective. Personal income taxes based on investment income will grow slowly in the near term since many Oregonians cashed out gains in 2012 in anticipation of federal tax rate increases. Tax revenue growth is expected to fall in between the rates Oregon has become accustomed to during past periods of economic expansion, and the slow gains we have seen in recent years.

Although the outlook for the 2013-15 biennium remains on track, the final weeks of the 2011-13 biennium were a disappointment. A backlog of personal and corporate income tax refund payments were processed and issued shortly after the May forecast was released. As a result, the 2013-15 beginning balance is now expected to be smaller than it was at that time. Technical factors related to borrowing costs and the fact there was no corporate tax kicker in 2011-13 help to offset this lower beginning balance.

In terms of the major General Fund components, a modest improvement in the outlook for personal income taxes is offset by an expected decline in corporate tax collections. All other General Fund revenues are raised slightly due to a stronger outlook in estate taxes. Furthermore, the lottery outlook is raised slightly as stronger traditional sales, particularly in jackpot games, offset a minor reduction in the video lottery sales outlook.

The combination of these items is a decline of $37 million in total available resources for the 2013-15 biennium. The outlook for 2015-17 is raised $5 million and, on net, the 2017-19 revenue outlook is unchanged.