Posted by: Josh Lehner | February 21, 2019

Regional Business Cycle Exposure, Pt 1

Right now the macroeconomic outlook is largely stable. The economy is slowing and is expected to continue to slow over the next year or two. As Tim Duy recently noted, this means we are likely to see more “bad data” or data that surprises to the downside given the overall slowing trend. If we didn’t then the economy wouldn’t be slowing! Case in point being the latest retail sales report from December. While there is some growing concern about the macro outlook, the baseline remains for expansion and not for recession. This also gives me a chance to dust off some work we’ve done in the past year looking at Oregon’s volatility across industries and regions.

Overall, Oregon’s underlying economy is more volatile than the U.S. for two primary reasons: industrial structure and migration flows. Today we’re focusing just on the first part. What we’ve done is borrow some concepts from the financial literature. Alpha refers to whether or not an asset grows faster or slower than the overall market over a long period of time. In this case we’re looking at which industries are growing faster than overall employment over the past two decades. Beta refers to whether or not an asset fluctuates more than the overall market. In the chart below we are looking at whether an industry grows quicker in expansion and falls further in recession than overall employment.

A few things stand out in the chart above.

First, many industries move in sync with the overall business cycle and to roughly the same degree.

Second, what makes Oregon’s industrial structure different is our larger concentration in the goods producing industries (natural resources, construction, manufacturing). These are more volatile over the business cycle and is what helps drives Oregon’s overall volatility. This is not necessarily bad. Just as we talk about with state revenues, there is a trade off between risk and return. When it comes to subsectors like construction, computer and electronic products, food, metals and machinery, Oregon has outperformed the US. We are gaining market share even as they are more boom and bust over the business cycle. On the other hand, subsectors like wood products and transportation equipment we are not gaining market share. Being red in the chart above is not a bad thing. Overall there can be winners in stagnant industries (think Oregon’s tech manufacturing) just as there can be losers in industries on the rise (think of recent brewery closures).

Third, the growth seen in Education and Health — so-called Eds and Meds — is tremendous. Employment has increased significantly faster than in other sectors and the recession hardly impacted the industries, or at least not to the downside. That said, there are some clear, fundamental reasons why and we will tackle this a little bit more tomorrow.

Next, we take the same framework but instead of looking at industries, we apply it to the different metros and regions of the state. Here we see a few more outliers in terms of relative economic performance. In terms of regions that have grown slower, we see our southern and eastern rural counties along with those more closely tied to timber and manufacturing. Among the fastest growing regions in recent decades we see the Gorge which largely skated by the Great Recession, and then the phoenix that is Bend always rising from the ashes.

Tomorrow I will take a quick look at Eds and Meds. In a future post I will dive into industrial diversification at the regional level over the past 40 years. That’s a ton of data work that I am about halfway done with. But stay tuned for that next month. Probably.


Responses

  1. […] Source: Regional Business Cycle Exposure, Pt 1 | Oregon Office of Economic Analysis […]

  2. […] Yesterday we took a quick look at industry growth and volatility in Oregon. Two sectors really stood out for their strong gains and stability: education and health. Both have risen twice as fast or more than total employment in Oregon in recent decades. However there is a clear reason for these gains: demographics. When you adjust education and health employment for population the exceptional growth doesn’t look so exceptional. In fact it looks downright mundane. A growing population with an increasing share of retirees, and rising rates of educational attainment means we need more workers serving these groups. […]

  3. […] Yesterday we took a quick look at industry growth and volatility in Oregon. Two sectors really stood out for their strong gains and stability: education and health. Both have risen twice as fast or more than total employment in Oregon in recent decades. However there is a clear reason for these gains: demographics. When you adjust education and health employment for population the exceptional growth doesn’t look so exceptional. In fact it looks downright mundane. A growing population with an increasing share of retirees, and rising rates of educational attainment means we need more workers serving these groups. […]

  4. […] Last month we examined industries and regions in Oregon that grow faster (or slower) and are more volatile (or stable) than the overall economy. Today we follow up with a look at industrial diversification and how that has changed over time in Oregon. […]

  5. […] Last month we examined industries and regions in Oregon that grow faster (or slower) and are more volatile (or stable) than the overall economy. Today we follow up with a look at industrial diversification and how that has changed over time in Oregon. […]


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