Oregon Office of Economic Analysis

Oregon always outperforms the typical state during economic expansions. Yes, part of this is playing catch-up after experiencing deeper recessions, but much of it has to do with our industrial structure and strong migration flows. However, this current expansion has been a bit different in that Oregon’s relative growth compared to the U.S. is considerably stronger than in recent expansions. This is due to both strong, local gains and relatively modest national gains making the comparison a bit easier. However, Oregon’s relative position vis a vis the typical state hasn’t been stronger in quite some time. Oregon’s average wage is at its highest relative point since the 1970s and the state’s per capita personal income is at its highest relative point in two decades, or since before the dotcom crash. The rest of this post digs into personal income gains in recent years.

Oregon’s income growth is stronger than the nation’s and even as we likewise see faster population gains, the state is still making up ground on a per capita basis.

Before going further, it can be helpful to look at the composition of personal income as reported by the Bureau of Economic Analysis. This helps give a sense of which components drive overall trends.

In recent years, Oregon’s growth across all major components of personal income are outpacing the nation. Wages are the key driver here as they account for just over half of personal income. As detailed recently, these wage gains are across all industries and regions in the state. Oregon is seeing similar growth advantages in dividends, interest, and rent, and other labor income (benefits) as well. However the biggest growth differential is among proprietor’s income.

Even as proprietor’s income only accounts for about 1 out of every 10 dollars of income, it can have an outsized influence on big picture trends when we see such differences compound over time. On the downside, the gap that emerged in proprietor’s income between the U.S. and Oregon was a big factor in the state’s erosion in overall per capita personal income in the past 40 years. Oregon is now beginning to close that gap.

In looking into the data, it really is an income growth story and not a base issue. The number of businesses and employment at proprietors is growing, however Oregon’s growth is somewhat slower here than the U.S. as a whole. As such, Oregon is losing just a bit of ground by those metrics. The significantly faster income growth among Oregon businesses more than offsets the slower increases in number of firms.

Switching over to tax return data can help shed some light on what types of businesses and which industries are driving Oregon’s gains in recent years. Keep in mind these are not all types of businesses and consist of sole proprietors and partnerships, which are more akin to the proprietors income in the BEA data. The published IRS data is limited to only a handful of years, but thankfully these are important years to examine in terms of Oregon making up some lost ground.

The chart shows average business income growth in Oregon on the vertical axis and then a measure of how much these gains are outpacing national trends on the horizontal axis.

Information, a small sector, is seeing the largest improvements and interestingly, this is coming from the motion picture and sound, and broadcasting (except internet) components and not from the high-tech portions of the sector. Manufacturing’s growth in recent years is driven largely by transportation equipment, while finance and insurance’s gains are across all subsectors there. All of that said, two of the biggest drivers of growth are construction and real estate. As the housing market rebounded, these activities, which tend to include builders, remodelers, flippers, and the like, picked up as well.

Nearly all other industries are also outpacing their national counterparts. This includes professional and business services which is the largest overall sector here.

Bottom Line: Oregon’s income growth across the board is outpacing the typical state. Faster job gains and higher prime-age employment rates are helping drive local wages to their highest relative point since the 1970s. While it can be hard to pinpoint the exact reasons why local businesses are seeing significantly faster income growth than their national counterparts, we know the stronger economy is at least a part. It is also possible, even likely that Oregon’s lower tax rate for pass-through income is playing a role too, as businesses have an incentive to report more of this type of income. Although the new federal changes may complicate the picture moving forward. All told, Oregon’s relative income growth compared to the U.S. hasn’t been this large since the early- to mid-1990s.