In light of today’s preliminary employment figure for October — it’s quite large — I thought it may be useful to step back here and look at the recovery. First, given the data flow, in particular withholdings out of Oregonian paychecks, our office has been skeptical of the summer slowdown in the preliminary employment reports. Not that we dismiss them entirely, but as we discuss in our forecast documents, we use them much like the other economic indicators available to us. The reason being is these initial estimates are volatile and can be subject to substantial revisions. As such, when you combine the relatively weak months of employment growth since the start of the summer with this big October, it brings the Oregon economy largely back to where our office thought it was to begin with. Oregon is now one-third of one percent away from reaching pre-recession peak employment, or 5,700 jobs.
Of course, reaching pre-recession levels is not an end goal, but it is an important milestone. Many other social and economic factors have changed in the past seven years, including population growth which has continued. As we have discussed before, the employment-population ratio for Millennials and Gen X is about 40-50 percent recovered, even if total employment has for the U.S. and nearly has here in Oregon.
In terms of how this slow recovery has impacted our office’s primary duties of forecasting the economy and revenues, it has actually been on track for the most part in recent years. The graph below shows our office’s return to peak date for each forecast over the six years since I’ve been here. By the summer of 2010, our office had a slower than usual recovery built into the outlook, with a return to peak in 2014 or 2015. The specific timing shifts somewhat based on the quarterly forecast, but overall it has been pretty stable. More importantly for policymakers, the revenue outlook, absent law changes, has been pretty stable as well.
None of this is to boast, as the economics profession did not exactly wrap itself in glory in advance of the crisis. However, as we did learn about the nature of financial crises, and the important implications that housing and government have on smaller and rural areas, it does help inform our outlook on the economy. For the past 4-5 years, the recovery we have seen has largely been the recovery expected. Slow, disappointing and lackluster relative to previous expansions, however neither our office nor the economic consensus was forecasting anything stronger either.
In terms of the outlook from here, our office is expecting more of the same for the next couple of years. Job growth in Oregon of 2.5-3.0 percent per year, which is about one percentage point faster than the typical state, or maybe three-quarters of a percentage point faster. Given the slowdown in employment data over the summer, we built in a near-term acceleration into the outlook to get the state back to the growth seen about 9 months ago. The reason being is that while the jobs data slowed down, other indicators did not. This preliminary October employment figure is another indication that the expansion certainly continues and likely did not slow, at least very much. Oregon’s recovery continues ahead at about three-quarters throttle.
Our office does not have fundamentally stronger growth in the baseline. To get to the typical Oregon expansion of 3-4 percent job growth, we would need to see a return to normal labor market dynamics of stronger job growth leading to higher wage gains and more Oregonians looking for work as well. This would also help drive stronger population growth overall, boosting economic growth as well. We’re actually starting to see some of these dynamics return to more normal patterns, however it is still too early to tell whether or not the economy will get all the way back to these historical cycles. Expectations are that we will not, however it is encouraging to see some of these underlying changes occurring, and for the better of the regional economy.