Oregon Office of Economic Analysis

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.

The U.S. economy marches on. Despite a general slowing in recent years with a number of worrisome issues, the national economy, if anything, appears to be stabilizing and poised for decent to solid growth. The labor market is generally doing well and wage growth is accelerating. Manufacturing weakness remains. But as the dollar stabilizes and exports rebound, manufacturing is showing some encouraging signs. That said, the outlook remains somewhat uncertain. It is still too soon to know what federal policy will look like following the election. Even as broad proposals have been discussed throughout the campaign and in recent days, details matter and should come into focus in the weeks and months ahead.

The economic slowdown has reached Oregon. Job growth in recent months has decelerated somewhat from the full-throttle rates seen in the past couple of years. Oregon continues to outpace the nation and the expansion endures. However, the state today is now past its peak in terms of growth rates. Like in other states, goods-producing industries are weakening. Oregon’s manufacturers have cut jobs in recent months. Growth in retail trade has decelerated as well. Most other sectors are adding jobs at similar rates to the recent past.

While Oregon’s labor market growth is slowing somewhat, the state is at or near full employment. This means progress is beginning to be seen and felt in broader measures of economic well-being like median household income, the poverty rate and needs-based caseloads and the like.

Oregon’s General Fund revenue outlook remains stable. Revenue growth has slowed in recent months along with growth in the underlying economy. However, this slowdown did not come as a surprise, with less growth having already been built into the baseline forecast.  As such, expectations have remained virtually unchanged since the 2015-17 biennial budget was crafted. Currently, General Fund revenues are expected to land within $8 million of the Close of Session estimate.

As job growth began to shift down over the spring and summer months, growth in personal income taxes withheld out of worker pay slowed down as well. Growth in withholdings currently rests near the bottom of the range seen over the past three years. Over this period, growth in employment and tax revenues have been running hot, as Oregon’s labor market worked to heal itself from the recession of 2009.  Going forward, slower, more sustainable growth rates are expected to be the norm.

Since the last revenue forecast was published in August, income tax returns have come due for 2015 taxpayers who filed for extensions. Delayed and amended tax returns that are filed in the fall months often have an outsized impact on overall collections. Although returns processed in the early fall account for only 4% of all full-year filers, they account for a much larger share of reported income and tax liability. Extension filers are often taxpayers with the most complicated returns, including many of the wealthiest households in the state.

Income trends among extension filers generally matched returns filed in April, with one notable exception:  Extension filers enjoyed growth in their taxable investments during 2015, while the typical household did not.  Capital gains reported in September and October were $500 million larger than last year, leading to a somewhat healthier collection season than was first evident in April.

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.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.