As we write in our latest economic and revenue forecast, and discussed with the Legislature last week at the forecast release, Oregon’s economy continues to grow at full-throttle rates. Nearly all of the news today is good news. However, our office’s role is not to cheerlead but to call balls and strikes. The pessimism from the stock market and oil and gas industry cannot be totally ignored. However, as Deutsche Bank’s Chief International Economist Torsten Slok highlighted over the weekend:
The bears have a problem […] the energy sector is not spilling over to the broader economy and the macro data is not deteriorating […] consumer spending is accelerating, unemployment keeps falling and credit growth continues to show no signs of slowing…
Even so, it is important for our office to highlight all of the major trends going in the economy, including the only bad piece of Oregon-specific data, at least so far.
While Oregon has few direct ties to the plunging oil and gas industry, the state is not immune to the global economic slowdown and strong U.S. dollar. Over the past three years, the Oregon Dollar – based on exchange rates with the state’s major trading partners – has appreciated 40 percent, with nearly half of that increase coming in the past year. The Oregon dollar is as strong today as it was back in the Asian Financial Crisis. A stronger dollar makes Oregon products more expensive to foreign buyers, and makes imports more affordable for Oregonians. These trends result in fewer exports, which lowers sales and activity for Oregon businesses and manufacturers, slowing overall economic growth. A stronger dollar also lowers overseas profits for multinational firms, as they are measured in dollars for accounting purposes.
So far the state has not seen any manufacturing job losses and the average hours worked for manufacturing employees remains steady and strong at 40-41 hours per week. However, the stronger dollar is clearly weighing on exports. Outside of our major high-tech producers, exports are declining at recessionary rates, or nearly 20 percent over the past year. This is by far the worst Oregon-specific economic data one can find today.
Exports in the second half of 2015 for agricultural and food were down 35 percent over the year, heavy industrial exports were down 14 percent and forestry and related exports were down 19 percent. These declines are seen in trading patterns with all of Oregon’s major export destination markets, particularly Canada and China which accounted for 37 percent of all Oregon exports in 2015. Heavy manufacturing exports to Canada have nearly fallen to the same levels seen during the depths of the Great Recession. This is Oregon’s most direct tie to the mining sector as far as our office can tell, including the two closure announcements from metal makers in the Portland area.
Computer and electronic products are one exception to the declining numbers. Oregon’s high-tech manufacturers are facing slower trends in their industry however the current technology cycle is mild compared to past cycles. Additionally, Oregon exports in this category are also more likely to be indicative of within firm shipments than broader industry trends or global trading patterns.
While Oregon has yet to see outright manufacturing job losses, employment growth has slowed considerably, a likely result following the slowing demand and falling exports. The industry was averaging 2.5 percent job growth from the depths of the recession though last summer. In fact, through the first half of 2015 job growth had accelerated to nearly 4 percent, year-over-year. However in the past two quarters, growth has slowed to just 1 percent at an annual pace. Given the highly cyclical nature of the industry, strong dollar and slowing global economy, manufacturing losses cannot be ruled out moving forward. However such losses have yet to appear in the U.S. or Oregon employment data.