Oregon Office of Economic Analysis

Last week our office released the latest economic and revenue forecast for the state. The outlook isn’t pretty as we face years of high unemployment and reduced revenues for public services. Included in the forecast document was a section where we dig into the industry mix and regions of the state. We try to examine the implications for the local outlook and how they vary around the state.

But first, our friends over at the Oregon Employment Department released county level employment data yesterday for April. This is our first hard look at the data, even if they are preliminary estimates that will be revised in the months ahead. As expected, no county went unscathed. Job losses ranged from sizable to tragic. We already knew that job losses so far in the state were the deepest on record, and in the chart below, it is clear that the vast majority of counties are seeing job losses that are larger than experienced during the Great Recession. (Next week we’ll dig further into why our office believes this cycle will be shorter, and the recovery faster than last time, but for now, the initial severity of the recession is certainty worse.)

Given that social distancing impacted consumer services to a larger degree, regional economies in the state that rely more upon these industries have been hit harder to date. Places like the North Coast, Central Oregon and parts of the Gorge all have a larger tourism-dependent economy. These areas of the state have seen the largest job losses (above) and the largest increases in the number of initial claims for unemployment insurance (below). While all sectors and regions of the state are seeing a recession, the severity, at least initially is not uniform.

In recent years our office has spent a lot of time digging into long-run sources of growth, and the main reasons why Oregon’s economy is more volatile than the U.S. We have discussed the state’s industrial structure, how these structures have evolved at the regional level, and how they play into regional volatility. Additionally, we highlighted the importance of both labor force growth, and productivity gains through the local lens. All of this work was designed with an eye toward some unknown future recession and recovery. Well, it’s here now. For those interested in reading more, please refer to the links above. What follows below is based on what we included in our forecast document last week.

In that forecast document our office tried to look forward and see how regional economic structures could impact future growth. We mapped our statewide forecasts by sector to each region. The findings show some areas may be better primed for growth from an industrial structure perspective, while others are more likely to face future headwinds.

One key long-run driver of growth is professional and business services, and office-based work more broadly, which tends to be concentrated in metro areas. As such, the Portland region, the Willamette Valley and Central Oregon are best suited to see stronger gains due to their strengths in these sectors. Among rural counties, Coos, Douglas and Klamath all have concentrations in professional and business services twice that of rural Oregon overall. This should bode well for future growth.

Conversely, regions that may face headwinds due to their industrial structures differ for the reasons why. While the North Coast is hard-hit today due to their exposure to leisure and hospitality, this is not a long-run headwind. Our office fully expects travel, tourism, and going out to eat to essentially recovery fully in the years ahead. Really it is the lack of professional and business services that is weighing on the projected growth in the North Coast in the coming years. The North Coast does not necessarily face longer-run headwinds, rather it lacks industrial tailwinds.

On the other hand, Northeastern Oregon is expected to grow slower due to its reliance on natural resources (ag) and manufacturing, both of which are likely to see slower growth and more permanent damage than other industries due to the recession. (During our presentation to the Legislature, this topic came up. The concentration among natural resources and manufacturing have been historic strengths for the region. For example last cycle, high wheat prices aided the recovery in eastern Oregon. However today commodity prices are low due to the global recession. Additionally, Representative Owens pointed out that while beef prices are high today, that revenue is flowing to the packers and processors and not the ranchers.)

Among urban counties that are expected to see slower gains from an industrial perspective both Linn and Yamhill similarly have a high concentration in goods-producing sectors which are expected to grow slower over the decade ahead. The Rogue Valley (Jackson and Josephine) has a large concentration in essentially all segments of retail that will likely weigh on growth moving forward.

Of course mapping local industrial structures to statewide trends is not perfect, even if it provides one way to gauge potential strengths and weaknesses.

As discussed in-depth in our March 2020 forecast, and included in the links above, long-run growth is determined by labor and capital. What the really means is it is all about the number of workers an economy has and how productive each worker is. As such, key issues to watch are migration trends and changes in the working-age population. Additionally productivity gains can come from many different types of capital, such as financial, natural, physical, human, and/or social.

Looking forward, all of the different types of capital and labor force gains can help drive future economic growth. If a regional economy lacks one source, it is not a deathblow to overall growth. Rather it signals the area must rely on other types or avenues for growth. Finally, even as the mix between, say, natural and human capital plays out strongly in our office’s statewide forecast, keep in mind that one source of growth is not inherently better than the others.