Posted by: Josh Lehner | October 26, 2018

Hammer Don’t Hurt ‘Em

Despite a modest correction in stock prices, the near-term outlook remains bright. The economic data flow continues to be healthy. The next 12-18 months should see good growth, in part due to the federal fiscal stimulus (tax cuts, and the spending increase are just now hitting the economy). However, economists are increasingly pointing towards 2020 or 2021 as a period of weakness. At this time the spending increases are set to fade, and monetary policy will have moved from accommodative to neutral, and even, maybe, restrictive depending on how the Fed navigates the next 18 months. It takes time for interest rate increases to slow economic activity, so rate hikes today cool growth 12, 18, 24 months down the road. Unfortunately for our office, this period of potential weakness lands right in the middle of the upcoming 2019-21 biennium. Today we are meeting with our economic advisors to nail down the outlook that will feed into the upcoming revenue forecasts which will first set the bar for the Governor’s recommended budget, and then in a handful of months for the Legislative Adopted Budget which also sets the numbers for any possible kicker next biennium.

Trying to forecast a period of prolonged weakness, or even a possible recession 2 years in advance is a fool’s errand — there is just too much time, too many potential variables and policies taken or not to alter the course that far in the future. That said, it is economists’ job to highlight risks for policymakers and to think through plausible scenarios as forecasts are used as planning tools. So, should all this come to pass and we see some weakness or even a recession, what would that look like? Obviously it’s hard to tell. But right now many economists are thinking the next recession will be more like the 1990 recession and not like the dotcom crash or Great Recession, at least in part because there is no obvious asset or investment bubble today. Neil Irwin in The New York Times had a great article recently on the 1990 recession.

Nationally, the 1990 recession was mild, although what followed was our first real jobless recovery which has now become the norm since then. The story is largely the same here in Oregon. And by some measures Oregon actually saw a smaller recession than the U.S. at that time, which is unusual. So if the next recession is more likely to resemble 1990 than the Great Recession, is there anything we can learn from that experience?

Well, that’s in part what we’re tying to discuss with our advisors today and in the coming months. If we dig into the data, we see that Oregon was not spared the pain of big manufacturing job losses. Oregon lost just as many jobs as the US did at this time. But many of our consumer service sectors and industries more closely tied to population did outperform the U.S., significantly so in some cases.

That’s because population growth and in-migration was quite strong at this time. We typically think that during a recession people hunker down and don’t move. And this is largely true. Look at the early 1980s, early 2000s and the Great Recession. Migration slowed significantly and even turned negative back when the timber industry restructured. Not so in 1990.

Now, banking on this pattern to occur probably shouldn’t be the baseline outlook given 1990 is the outlier and not the typical pattern. Our office remains bullish on the near-term outlook. But should any recession come to pass, we would expect migration flows to slow and Oregon to once again be more volatile than the typical state.


  1. […] Source: Hammer Don’t Hurt ‘Em | Oregon Office of Economic Analysis […]

  2. Love to read your blog updates – thanks for all of the great information! One thing I have learned to watch for as a potential recession indicator (from people much smarter than I) is the credit spread on high yield debt, which up till now has been indicating a low risk of recession. We shall see if it stays that way.

    • Thanks Ross. Credit markets are important to watch. What’s been interesting in recent years is the change within the junk bond market after the oil crash in late 2014. Those indicators went haywire a bit, but only for those directly tied to energy, while other high yield bonds kept chugging along, more or less.

  3. Hi yield starting to pick up on something…

  4. […] shifts in things like population growth, particularly boosts to migration during recessions. The 1990 recession being the only prominent example in […]

  5. […] I’m sure you’ve noticed in the charts how 1990 is different as well. At that time, Oregon suffered a mild recession and experienced strong in-migration, keep the overall economy in better shape that during nearly any other business cycle in […]

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