Posted by: Josh Lehner | December 20, 2016

Labor Force Participation, Full Employment Update

The supply side of the economy matters quite a bit, obviously. For employment that means the number of Oregonians willing and able to work. As such our office tracks the actual labor force participation rate (LFPR) — the share of Oregonians 16 years and older who have a job or are actively looking for work — compared with our estimate of the full employment participation rate. The difference between these numbers is what we call the participation gap and is a component in the Total Employment Gap work.

We just got new population estimates from Portland State and Kanhaiya, the state demographer in our office, has updated his forecast as well based on the new numbers and our revised economic outlook. In turn, I am in the process of updating some of our demographic-based projections, including the full employment LFPR. You can see the comparison below between the new version and the previous version.

lfprupdate1216

The difference may not seem like much to the eyeball test, but in actuality it’s pretty massive. There are two impacts here. The first is an increase in the full employment LFPR itself, based on the updated population forecast and age structure — essentially a larger share of prime working-age Oregonians. This change is small today but compounds over the forecast horizon. It is equal to half a percentage point (0.5%) in 2025 — the difference between the blue lines above.

The second impact is an overall stronger population forecast relative to what had been in the outlook in recent years. Population growth continues to accelerate and has come in above forecast recently due to better-than-expected migration trends.

The combined impact is roughly 44,000 more Oregonians in the labor force in 2025 than previous outlooks implied. That is a big number. Given our office has a relatively slow job growth forecast that far out — due to demographics and a sustainable rate of growth — that difference is effectively equal to two years’ worth of job gains. If the population forecast comes to pass, this is great news for the Oregon economy. The supply side of the labor market is and will be stronger, everything else being equal.

Posted by: Josh Lehner | December 14, 2016

Manufacturing Across Metros (Graph of the Week)

Economists spend a lot of time examining the manufacturing sector for a number of reasons. At least historically it employed a large share of the workforce. The industry is very cyclical and tends to lead or even drive the business cycle. However I think this relationship is changing. Manufacturing overall has been in recession or at least a state of stagnation since late 2014 and the economic expansion continues. This manufacturing weakness — due to the strong US dollar and pullback in oil, gas and related investment — has been a drag on the economy, no question. And yet such weakness did not send the economy into recession.

As manufacturing employment has leveled out and even seen some small job losses in the past year, now is a good time to take stock of where things stand. Nationwide, manufacturing employment today is nearly 14% smaller than prior to the Great Recession and the sector has recovered just 3 in 10 of its lost jobs. Here in Oregon, manufacturing has seen somewhat better trends, but still has not fully recovered from the Great Recession. Oregon manufacturing employment is nearly 10% smaller than prior to the Great Recession but has regained more than half its lost jobs. Oregon is not immune to the impacts of globalization and technological change, however this relative pattern of outperforming the typical state has happened since the 1970s. Oregon’s manufacturing employment has fallen like it has everywhere, but Oregon manufacturing as a share of U.S. manufacturing continues to increase.

All that said, the gains and losses are not spread evenly throughout the country or here in Oregon. This edition of the Graph of the Week compares manufacturing employment across the country’s metropolitan areas. Just 49, or 13% of the nation’s 367 MSAs and NECTAs have a higher number of manufacturing jobs today compared with employment prior to the Great Recession. Manufacturing employment for the median area is nearly 15% lower today.

msamanufacturing2016

Here in Oregon, Medford is one of those areas that has fully regained its lost jobs and really stands out when comparing trends nationwide. This is really good news and shows strong regional trends even as Medford was among the hardest-hit housing bust metros in the country. Guy Tauer, regional economist for the Rogue Valley, has a recent article on local manufacturing trends and Employment’s projections for the region.

Among the state’s other metropolitan areas, Portland has outperformed most other areas across the country but manufacturing employment still remains a few percentage points lower today. Albany, Bend, Grants Pass and Salem all have experienced trends that are pretty typical of an urban areas across the country. Corvallis and Eugene have seen worse trends than the majority of the nation. In the case of Eugene, as we have written about before, unfortunately most of these losses are structural or permanent due to the loss of the RV industry and the chip plant.

An excerpt from our office’s forecast on recent manufacturing trends:

Finally, the manufacturing sector has moved from all bad news to more of a mixed bag. The dollar has stabilized and exports are rebounding. Here in Oregon, all major industries are seeing better export growth than a year ago. Forestry and Wood Products continue to fall due to lower global demand, however the rate of decline has slowed somewhat. Nationally, international trade – the net of exports and imports – has added to GDP growth in recent quarters as well.

That said, manufacturing employment nationwide is down and Oregon has seen job losses in recent months too. New orders for capital goods remain weak, but stabilizing. Industrial production too remains weak with more industries showing year-over-year declines than gains, but these trends are not worsening. Two other leading indicators – average hours worked per week and the purchasing managers index – both remain in expansionary territory. All told, manufacturing is clearly no longer the bright spot it was a couple years ago, however it does appear the sector is working through the major issues of the strong U.S. dollar and weaker global demand and pullback in capital investment, largely in oil and gas and related sectors.

Another excerpt on the Oregon manufacturing outlook:

Manufacturing in particular was expected to see very minimal gains in the coming years. By all accounts this slowdown is here today in Oregon. Employment is down in recent months and flat over the past year. Expectations are for some additional lost jobs in the coming quarters, however a return to growth as the manufacturing cycle strengthens and works through its issues. Even so, the weak global economy and strong Oregon dollar will weigh on growth. What manufacturing gains are expected are among the state’s food processers, and beverage manufacturers, predominantly breweries.

Posted by: Josh Lehner | December 9, 2016

Retiring Oregonians

Yesterday we talked broadly about retiring Baby Boomers and the big picture outlook for Oregon employment. Today we will focus on the number of retirees based on our office’s economic and demographic forecasts.

Oregonians are working later in life to a larger degree today than at any point in recent memory. In fact if you compare employment and retirement patterns in Oregon today with the late 1990s, this shift is equal to roughly 2 years. That means Oregonians are retiring approximately 2 years later today than 15 years ago. That may or may not sound like a lot to you but it certainly impacts the labor market and it means there are about 1,000 fewer retirees each year (or 5% fewer) than just a few years ago. That calculation, of course, adjusts for demographics and takes into account that the retirement and near-retirement age population is larger today.

In the past our office has highlighted the fact that Oregonians, and Americans, are working later for both good and bad reasons. Along these lines I wanted to highlight some work that ECONorthwest’s Dr. Kevin Cahill has done in recent years (see here, e.g.) Among the topics he discusses are the number of pro-work changes that have happened in the past generation or so. Some, like the increased social security retirement age, lower savings and private pensions moving to defined contribution, mean older Americans are more exposed to macroeconomic fluctuations than previous generations and as a result need to work later in life. Others, like higher levels of educational attainment, improved health and less physically demanding jobs, allow individuals to work later in life if they choose to. While such changes impact individuals and their want or need to work, employers also face challenges and opportunities with older workers too. UPDATE: In the comments Bill mentions health care costs as a big impact too, which is a great point and true!

Just as when we discuss our Peak Renter work, there is a clear distinction between life cycle changes and generational changes. As noted above the generational change for retirements has been about 2 years. However the life cycle trends remain quite strong. As Oregonians age into their late 60s and early 70s the vast majority of them are not in the labor force (not employed and not looking for work) and a rising share are also not in the labor force specifically because they are retired. The relatively smaller difference between the lines are the older Oregonians saying they are not looking for work because they are ill or disabled, or staying home to take care of the kids (likely grandchildren).

retirementage

Using the above life cycle curve and applying it to our office’s population and demographic forecast gives a projection of the number of Oregonians retiring over the next decade. Given the large Baby Boomer generation is now partially into their retirement years, there is no real surprise that the number of retiring Oregonians is increasing and expected to continue to do so over the next decade.

retiring

What is more interesting, however, is comparing the coming decade with the recent past. The number of Oregonians entering their traditionally-defined retirement or near-retirement years is expected to be essentially the same. However given demographics and the age structure of the population, the number of Oregonians who will drop out of the labor force and retire is expected to increase considerably. This change represents an increase of 6-7,000 more retirements each year relative to what was seen in the previous decade.

retiree2025

In terms of the outlook, this increase in Oregonians not in the labor force and those officially retired will provide more job opportunities for younger workers as discussed yesterday. If you reverse engineer the job growth calculations in our office’s forecast but add back in the retirees, statewide employment would increase 35-40% more that our forecast indicates. While that would not return job growth in the state to the stronger numbers seen historically, it would boost net growth rates higher. The difference represents the generational churn in the labor market that is taking place today and expected to continue to do so in the coming decade (or two).

Finally, it should be pointed out that the aging population will have different impacts over the next 10-15 years than it will 20-30 years out. That far out, we are talking about Baby Boomers entering into their later years when end-of-life care and related medical expenses will increase considerably. It is also a time when some move back closer to family and urban areas with more-plentiful and more-advanced medical care facilities.

However, in the coming decade or two, the increasing number of older Oregonians will be in their so-called active retirement years. Such individuals will be more involved in their communities, with their families, they will travel more and so forth. As the saying goes, 70 is the new 50. This generational transition will provide a number of opportunities for regional economies to capitalize on the growing, active population that, generally speaking, has time and at least some disposable income.

 

Posted by: Josh Lehner | December 7, 2016

Will There Be Enough Jobs?

A common question that comes up regularly during presentations is something along the lines of, “Will there be enough jobs in the future?” There’s not doubt that artificial intelligence and software are and will continue to impact the economy and employment. However, our office’s position and forecast for the next decade is that yes, there will be enough jobs in Oregon*. That said, longer run impacts such as job polarization and the like will continue to shift the nature of work, but there will be jobs. One reason why is retirements. Mark and I both tend to end presentations with our office’s big picture, long-run trend for job growth in Oregon. The most recent version looks like this.

tnf1216

We talk a lot about how growth has changed over the past 50 years and the impact of demographics. During the 1960s and 1970s labor force participation was rising as women and minorities entered the labor market in greater numbers than before. Additionally the Baby Boomers were entering their prime working years in the 1970s and 1980s. These demographic and societal tailwinds boosted growth. However over the ensuing decades these tailwinds played out. And now we’re talking about demographic drags as the Baby Boomers retire.

We feel strongly that near-term growth is likely to slow as the economy approaches full employment and we also feel strongly that the longer-term growth will be slower than we have become accustomed to historically. Our biggest forecast uncertainty is that transition period between today and 2020 or so.

However back to the longer-run look. We are forecasting net job growth rates of a little less than 1% annually from 2021-2026 (0.8% to be exact). This is slower than anything we have ever seen post World War II. However a lot of this has to do with demographics and retirements. For every retiring Baby Boomer, a firm has to hire 2 workers to see positive job growth. The first worker simply replaces the retiree, while the second represents net job growth. So while the topline, or total job growth numbers are subdued, it really masks the generational churn taking place under the water. Thus the total number of available jobs in the coming decade really is larger than the graph appears to show.

Lastly, it should be pointed out that these aren’t just any old workers that are retiring. They represent workers with a lifetime of experience and institutional knowledge for their industries and firms. Such workers cannot instantaneously be replaced. It creates challenges for businesses to adjust and adapt.

To summarize, I think our friends at Employment, Nick Beleiciks and Gail Krumenauer, wrote it best when talking about their occupational projections:

Opportunities will be created for younger workers as employers promote to replace retirees. It is likely that workers will be promoted more quickly than in the past and employers will have to work harder when hiring and training new workers, in order to replace the experience and institutional knowledge they’re losing to retirement.

This post is a preface to some work coming tomorrow that dives into the number of retiring Oregonians based on our office’s economic and demographic forecasts.

* That said, it doesn’t mean we shouldn’t continue to think about and plan for a future where employment may be considerably lower due to these impacts. They are likely to have a bigger impact in the future than they have historically, based on a lot of the current research. However these impacts are not likely to be next year or the year after, but a longer-run impact beyond our forecast horizon.

Posted by: Josh Lehner | November 30, 2016

Reversing the Oregon Trail: A Beer Expedition

The beer industry is transforming before our eyes. Start-ups are booming and driving growth, particularly here in Oregon. However, craft beer overall is slowing and macros are declining outright. What does the outlook hold for Oregon breweries and what growth opportunities remain? At the Oregon Brewers Guild annual meeting today I will be on a panel that looks at some of these issues and trends. I clearly don’t have all the answers but will cover one good opportunity that is largely untapped to date: international exports.

In the past I have teased an Oregon Start-Up Brewery report, but clearly that hasn’t happened. I am taking this opportunity, however, to write down many of my thoughts on the matter. Below are my extended remarks that include the most important portions of that never written report. My slides for the conference plus some additional work are below as well.

Posted by: Josh Lehner | November 22, 2016

Oregon at Fullish Employment, Redux

Over the lunch hour I will be on OPB’s Think Out Loud discussing Oregon’s economy that is currently at fullish employment. Recently we have highlighted that the state now has neither an unemployment nor underemployment gap. What remains is the participation gap.

First, however, let’s talk a little about full employment. Unfortunately there are a few different definitions and no specific data series that magically says when an economy is at full employment. While it is a very strong and powerful concept, actual measurement is challenging. Our office uses it in a broad sense to basically mean when nearly all persons who want a job are able to find one. This does not mean the unemployment rate is zero. There will always be some level of unemployment. But it does mean that cyclical unemployment is gone and structural and frictional unemployment are low.

Our office uses the Total Employment Gap because the headline unemployment alone does not tell the full story. In particular, labor force participation has been weak in the past 15 years or so. Some of this is due to the aging population but some is due to the weak economy. This is important because fewer people looking for work will bring down the unemployment rate, even as the state of the economy may not be improving. So using a broader measure like the Total Employment Gap helps get around these issues to a certain degree.

Today the Total Employment Gap is less than one percent in Oregon and signals the tightest or best labor market Oregon has seen since the 1990s. While that sounds impressive, and it is good news, keep in mind that the economy never fully healed from the 2001 recession, or at least not for any sustained period of time. We really haven’t been at full employment since 2000. Even so, significant progress and growth has occurred in the past few years. And today, our relative position isn’t that different than back in the 1980s when Oregon suffered its other severe recession.empgap1016

The graph below compares the three components of the Total Employment Gap today with the 1980s. The real difference and issue now is the participation rate.

empgap1016severe

Statistical analysis and estimation are all well and good, but at some point the proof is in the pudding. And economist generally use wage gains as proof of concept. Average wages today in Oregon are increasing at roughly 4 percent annually. Given that inflation remains lower today than in recent decades, 4 percent nominal growth translates into better inflation-adjusted gains than during the housing boom and nearly on par with the 1990s.

While Oregon’s seeing 4 percent average wage growth, the U.S. is seeing more like 3 percent, or a bit under that. This growth advantage is raising our average wage relative to the nation to its highest point in more than a generation. Or since the mills closed in the 1980s. Oregon’s average wage remains lower than the typical state, however significant progress is being made in recent years.

avgwages1216

Full employment has significant implications for the outlook. First, our office is expecting job growth to slow, but for a good reason. 5,000 jobs per month, or 3-3.5% annual growth is not sustainable. We need half of that to keep pace with population growth and it looks like the Oregon economy is currently transitioning toward a more sustainable rate of growth.

Second, a tight labor market is great for workers. It means businesses must compete more on price to attract and retain the best employees.

Third, an economy at full employment is overall a good thing for businesses. It means more customers, higher sales, and larger profits (in aggregate, not necessarily as a share). But it does become more challenging to find workers to expand. Firms must cast a wider net to find employees and take chances on those without the perfect resume, experience or even an incomplete skill set. On the job training becomes more important as well.

Finally, while all of the above is true at the state level that does not mean each individual county or region of the state is at a similar point. Urban Oregon has seen a stronger recovery than has rural Oregon. Only today is poverty showing large improvements in the Portland region, after a few years of good growth. Such gains have only recently materialized in rural Oregon. Improvements in these broader measures of economic well-being are coming provided the expansion continues, but we’re not there yet in many parts of the state.

Posted by: Josh Lehner | November 16, 2016

Oregon Economic and Revenue Forecast, December 2016

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.

oreempqtr

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.

1517dec16

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.

1719dec16

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.

Posted by: Josh Lehner | November 9, 2016

Economic Anxiety in Oregon, A Summary

Economic anxiety, particularly among the white working-class, has been front and center this election cycle. At the least it is one of the two main topics, and for a good (valid) reason. While a lot of our office’s focus in recent months and years has been talking about the improvements in the economy, these largely reflect positive, short-term movements around the longer-term trends of stagnant incomes and fewer middle-wage jobs for a large part of the population. That distinction matters, particularly when it comes to forecasting a biennial budget. However we cannot lose sight of the long-run developments either. Our office has conducted quite a bit of research along these lines in recent years. What follows is an effort to pull them together as some sort of reference for those interested in reading more.

The first place to start when talking about the changing economy and lackluster trends would be our office’s 2013 report: Job Polarization in Oregon. Since it’s publication we have provided short, annual updates, and others have followed with similar reports. See ECONOrthwest’s work focusing on the Portland region from last year or the local level work the Employment Department’s regional economists use in their presentations (see Amy Vander Vliet’s Portland work here, and Guy Tauer’s Rogue Valley work here, for example.)

The problem is not, of course, that we’re seeing a lot of growth in high-wage occupations and industries. That’s actually great for the economy. The problem with job polarization is when a worker loses their middle-wage job and is only able to find a low-wage job to replace it, if they find any job at all. See our recap of the great work Brian Rooney did a few years back on the former RV workers in Lane County to see how this impacts wages and the local economy. To a certain degree, the housing boom last decade was able to mask some of these problems overall for men without college degrees, but that proved rather temporary. And even as the high-tech sector has replaced the forest sector statewide in both jobs and wages, the composition of the workforce and geographic location of the jobs are very different. All that said, the big story when it comes to the job polarization “adjustment” is simply an increase in those not even looking for work. This is seen in our research examining trends among prime working-age Oregon men and Oregon women without college degrees.

Further complicating the issue is that of stagnant or declining wages for the jobs that do remain or are created. Wood products or the forest sector more broadly used to pay a 30-35% wage premium relative to the average industry. However, after adjusting for inflation, wages are actually lower today than back in the 1970s and even early 1980s. And these trends apply to manufacturing overall, at least outside of the tech sector. Manufacturing no longer pays a premium like it used to.

While we generally talk about these trends as they relate to blue-collar, male-dominated occupations and industries, they apply to women as well. The decline in office and administrative support occupations does rival the decline of production (manufacturing) jobs here in Oregon. Women without college degrees have seen middle-wage jobs losses as well and the vast majority of the “adjustment” has been to drop out of the labor force, just like the trends we see with men.

When you combine all of the above you get stagnant household incomes for those in the middle and bottom part of the income distribution. The reason is such households only have wages and the safety net. They do not have capital gains, dividends, rental income and the like that have performed better in recent decades. These trends, of course, are not Oregon-specific and not even US-specific as Branko Milanovic’s Elephant Graph showed the income issues for the working-class of the entire developed world.

Lastly, there is also a large geographic breakdown when it comes to economic performance in recent decades. I would direct you to our office’s Rural Oregon report from last year to start. Included in the report are references to the Timber Belt. More recently, our work has shown that poverty overall has yet to decline outside of the Portland metro area, and broader Willamette Valley. While our office expects to see some improvements provided the current expansion continues, poverty has essentially been rising since the late 1990s. And in parts of the Timber Belt, poverty has been rising since the 1980s.

Diagnosing the problem and researching the issues is the easy part. Actually addressing them and implementing policies is the hard part. Unfortunately, so far there has been no silver bullet. The most common response one hears is educational attainment, and with good reason. However, as we discuss in the original job polarization report (see pg 9, e.g.), four year degrees are not the be-all and end-all of educational attainment either. Other training programs that provide skills to workers are important too. The outlook for middle-wage jobs overall depends on a number of factors. Some are driven more by population and demographics, while others are more business-support related. Wage growth itself, for any occupation, generally relies on full(ish) employment, which the state is now approaching.

While short-term economic trends here in Oregon have all been largely positive in recent years, it is important to keep in mind these longer-run developments. This, of course, should be the case regardless of whether it is an election year or not. And economic anxiety may not even be the primary driver of the outcomes last night. That said, that does not mean these trends and issues are any less relevant. They are real, long-standing and certainly worth our attention.

Posted by: Josh Lehner | November 7, 2016

The Crook County Conundrum

Crook County is something of an economic conundrum in recent years. There have been a number of stories about how well it’s doing economically, which generally focus on the data centers and investment taking place. This is certainly good and welcomed news, no doubt. However, if you actually looked at the data, you may be surprised.

What I mean is that the local unemployment rate in Crook County is nearly back down to where it was prior to the Great Recession, however the actual number of jobs has barely recovered from the depths of the crisis. This was evident in our recent county bubble chart update. The Bend Bulletin noticed that too and I shared with them some thoughts and work our office had along these lines. Read their great article from this past weekend here.

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Now, the way you square this picture, of course, is by looking at the labor force. We know that the unemployment rate can go up for good reasons and down for bad reasons. It is possible that the declining Crook County unemployment rate is actually a bad, or mostly bad story. Given the employment figures, this looks like it may be a factor. But it turns out to be largely a demographic story.

Recall our office’s previous work on the potential labor force across rural Oregon. While the impact of retiring Baby Boomers on the economy is real, much of rural Oregon has already gone through this demographic drag on net growth rates. Crook in particular is all the way through it based on our office’s population forecast. The county’s labor force peaked in 2008. Since then, the actual labor force has declined by nearly 650 individuals. Our office’s estimate of the potential labor force has fallen a similar amount.

crooklf

The main issue, as mentioned in the Bend Bulletin article is where the actual jobs are and will be located. As Employment’s regional economist Damon Runberg notes, there is a fair number of commuters heading into Bend where the bulk of Central Oregon’s jobs are. Given the differences in how the household and employer survey are conducted, this is likely a factor in the Crook County conundrum as well.

All told, Crook County’s outlook is relatively bright. The fact that the actual labor force figures and our office’s estimate of the potential labor force show similar trends is, I think, an overall good sign. That or a lucky data coincidence. But the working-age population is growing again and expected to continue to do so. Being located near a fast-growing metropolitan area like Bend is also a positive factor, as is the near-by airport in Redmond. I will reiterate what our office wrote over the summer and we included similar sentiments in our rural Oregon report:

It is certainly possible that the actual number of jobs and the actual size of the labor force will remain smaller in the future than in the past. However demographic trends and the population forecast suggest that the outlook is brighter than the conventional wisdom suggests. Many challenges remain of course, but demographic pessimism is likely overstated.

Posted by: Josh Lehner | November 3, 2016

Poverty and Progress, Josephine County Edition

The tightening labor market is driving strong wage gains throughout the state, leading to rising household income for those in the middle and lower parts of the distribution. As we have seen in the Portland region, poverty is now falling and showing sizable improvements. The rest of the state not so much. To show the underlying trends and the reason our office expects to see falling poverty in the near future outside of the Willamette Valley, I want to focus on the Grants Pass MSA, or Josephine County. I do think, however, these trends are more broadly applied to other regional economies across the state.

First, as Guy Tauer details recently, the Rogue Valley economy is growing and experienced impressive gains in 2015. Guy, of course, is the Employment Department’s regional economist for the area. This can also be seen in the employment data itself. While the Grants Pass metro area suffered a very severe recession – job losses twice the national average – strong growth has returned in recent years. Josephine County’s employment is now effectively back to pre-recession peak levels, as is the local unemployment rate.

josephineemp

The improved labor market is also finally impacting local incomes. Average wages in the county were essentially flat for 8 years (2006-2014) after adjusting for inflation. However as job growth returned, and the labor market tightened, average wages started to increase, as seen in the 2015 and 2016 data. The combination of more employment and rising wages is also finally lifting median household incomes above the range seen following the bust. The year-to-year data can be noisy given small sample size concerns, however it is very likely that local household incomes are now on a better trajectory, even as they remain considerably lower than before the Great Recession.

josephineinc

That said, there has been no measurable progress in local poverty rates and it looks like the 2015 data will actually show another uptick. It should be pointed out that the margin of error around these measures is at least a couple percentage points. It is likely that the actual poverty rate has been more stable on a year-to-year basis, but the overall pattern is clear. As our office has noted in previous posts, this is most likely due to the timing of the business cycle or where each area is in terms of the business cycle. The regional economy is just now at the point where the labor market is getting tight, incomes are starting to rise, however poverty has not yet declined. Provided the expansion continues, the next link in the chain is to see improvements in the broader measures of economic well-being such as the poverty rate, needs-based caseloads and the like.

josephinepov

Now, even as this is the natural progression of events over the business cycle, there are still a number of risks or events that can keep poverty higher than may otherwise be expected. First, and the most straight-forward would be that economic growth simply is not strong enough to bring down poverty.

Second, local demographics and population growth can shift the composition of local residents, leaving poverty rates unchanged even as economic growth continues. There are a few different ways this can impact the data. One way could be retiring Baby Boomers without enough savings for retirement. A larger share of low-income retirees could potentially leave poverty rates high. This goes for both local residents and new migrants. Furthermore there is a difference between levels — the actual number of people in poverty — and rates — the share of the total population in poverty. In an area with a growing economy and a growing population, the actual number of people living in poverty may not fall, or not very much, however the share of the total population in poverty should decline.

Third, which is related to the first possibility, is the impact of job polarization on the local economy. As the share of middle-wage jobs declines, a larger and larger share of the workforce is employed in low-wage jobs (and high-wage too, but such individuals are not in poverty). Losing a middle-wage job and only being able to find a low-wage one to replace it represents a downgrade and is why job polarization is such a concern. Furthermore, as our office has tried to detail over the summer, the vast majority of the “adjustment” to the lack of middle-wage jobs is for workers to drop out of the labor force entirely.

That said, in a soon-be-published article, Guy will be showing employment trends by wage level in the Grants Pass MSA. The actual local pattern is somewhat unique, relative to the general polarization story seen throughout the state and across the nation. Guy’s numbers show that low-wage jobs are on the rise, as they are everywhere. However, jobs in middle-wage industries are fully recovered and at all-time highs. This, obviously is great news and encouraging to see. That said, where Josephine County is also unique is that jobs today in high-wage sectors are actually fewer than before the recession. There are a lot of important details to this analysis, which you will be able to read soon, but the impacts of job polarization in general can and will likely influence regional poverty rates.

UPDATE: In the comments, Greg Tooman, who is the regional caseload forecaster for DHS/OHA has added some great insights. I have copied his comment here. The latest statewide forecast is available here, for those interested. And the regional outlook is here. In the post I tried to address some of what Greg talks about, but he obviously knows the details better than I and says it better and more succinctly. Thanks Greg.

As the regional forecaster for the Dept. of Human Services, I’ve come to understand that the relationship between poverty and jobs is weaker than most people think. It’s undoubtedly true that the employment picture is better in Josephine Co., but in most cases employment isn’t enough to move people out of poverty unless it’s full-time. Although Grants Pass has been recently reclassified as an MSA, the area has a lot of the features we see in a rural county – a high population over 65, unemployment historically higher than statewide, etc. You’ve talked about the rural/urban split here before. The pattern in Grants Pass/Josephine looks typically rural. And in rural counties, slow reductions in our means-tested caseloads are common. We expect SNAP to fall by about 18% statewide between now and the end fiscal 2019; we expect it to fall only 11% in Josephine Co. Similar story with TANF. Wages may be more the key here than employment itself, since that would signal the growth of full time employment necessary to pull people out of poverty and off of our services.

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