Posted by: Josh Lehner | January 18, 2023

Working from Home During the Pandemic

There has been no bigger economic shift in the past three years than working from home (WFH), primarily for white collar type employees, and the impact on urban cores nationwide. While our traditional data from the Census’ American Community Survey lags, it’s important to take stock of what we know so that new, incoming information can be better processed. In the months ahead we should get two new pieces of data to help us better understand the current landscape. In February, BLS should release the 2022 Business Response Survey which will include information on WFH from a firm’s perspective, and also get at the number or share of hours worked at home and in the office, providing better detail on hybrid work. In March, Census should release the 2022 population estimates by county and metro area, providing a better look at the geographic pattern of change and the potential impact on WFH on migration. But for now, let’s dive into the 2021 ACS microdata which was just released a couple months ago and I’ve now been able to process.

In 2021, working from home was obviously considerably more common than it was pre-pandemic. The share of workers that WFH increased from around 6% nationwide in 2019 to 18% in 2021. So while WFH increased, it was and is still a minority of the workforce because most of us need to go into a place of work to cook a meal, give care, or swing a hammer. Here in Oregon the increase was a bit larger, going from 7% in 2019 to 23% in 2021. We rank 5th highest in WFH across all states.

However, the patterns of WFH primarily looked like big cities sheltering in place. The highest rates of WFH, and the largest increases were in the primary cities of large metro areas. If you zoom in further, the biggest increases were in their urban cores and close-in neighborhoods. The second largest increases were seen in the suburbs of big cities. At a metro level, Portland’s increases from 2019 to 2021 ranked 11th largest among all metro areas nationwide. Among the Portland suburbs the largest increases were seen in Washington County, then Clark County, followed by Clackamas. The next biggest gains overall were in medium-sized metro areas, and finally rural economies. One implication here is that some traditional WFH hotbeds like Bend – long a national leader – no longer rank as high not because they did not see an increase, they did, but because dozens of large metros jumped ahead during the pandemic.

As such, WFH in 2021 did not look like it unleashed this massive new wave of migration and household relocation decisions. And while that is certainly true at the top level, if you dig beneath the surface, a clear impact on the types of migration seen in 2021 does emerge. In 2019, workers who did not WFH moved at a higher rate than those who did WFH. In 2021 that pattern reversed, where WFH migration rates picked up, and those who did not WFH slowed down. As a result, the share of people that moved in 2021 was tilted considerably more toward those who did WFH. It’s not as simple as this because so many things changed at once during the pandemic, but this relationship is certainly part of those changes.

When thinking about the implications and the outlook, high-cost states and metros saw a larger increase in the share of folks moving away that did WFH. Comparing worker migration patterns across states in 2019 and 2021, the relationship between WFH and outmigration from higher cost states strengthened considerably. Correlation is not causation, but the empirical patterns do make theoretical sense. And it’s important to keep in mind that even if the reason someone moves away is due to [insert favorite talking point here] it could still be underpinned by the fact that WFH now allows more people to do so.

Looking forward the real question is to what extent WFH impacts are more of a one-time adjustment, or a process that is just now getting underway. 2021 was still a messed up year. But I do think the 2022 county population estimates have the potential to shed light on these impacts. In 2021 the data do look more like sheltering in place, and urban cores nationwide lost population — including in some Sun Belt metros like Atlanta, Dallas, Nashville, Orlando etc in addition to places like Portland and Seattle. However there is that impact of WFH out-migration from high-cost areas under the surface. In 2022 we know Census estimates the West Coast experienced net out-migration. Do some of those other big cities revive, or does the general population patterns of urban-suburban-rural dynamics hold? Is it a general WFH impact, or are we seeing new or different regional patterns emerge, and a continuation of the high-cost vs low-cost regions? These are things I am closely watching.

Scroll through the slides for more details on the high level summary.

Finally, it’s always important to update your views based on the actual data. I will confess that back in 2020 I was more muted or less enthusiastic about the longer-term impacts of WFH. It wasn’t that it couldn’t be done or you couldn’t envision such a future, but rather about the possibility of such a large shift in business and workplace practices. However, the pandemic lasted a long time. It wasn’t until about 18 months later, in the fall of 2021 that there was the return to the office narrative, and then another wave of the pandemic hit a little while later. Today we are coming up on three years since the start of the pandemic. Some form of WFH is clearly here to stay for many more workers than it was previously.

Looking forward I think there will be some cross currents in the data. On one hand we will see things like hosts and hostesses, teachers, and security guards report they are no longer working from home, like you see some in the 2021 data. However some other occupations that maybe you wouldn’t have thought about as much in terms of tailors and seamstresses may continue to see higher WFH than in the past, especially if their place of work used to be in downtowns where there are now fewer commuters, or fitness instructors as customers are now more comfortable with remote workouts, etc. But I think the larger impact will be on the potential relocation decisions. Pre-pandemic it was clear that every corner of Oregon was average or above average on both WFH and broadband access, and Oregon was a place that year in and year out people wanted to live. But how all of that intersects with our long-standing concern about housing affordability being a repellant was a bit unknown. The upcoming 2022 data will help shed some light on that, but as I mentioned the other week, I think we will honestly need to see the 2023 data to get a more complete picture, even as we don’t really have the luxury of waiting around for that.

Posted by: Josh Lehner | January 11, 2023

Klamath is Booming

On Monday I was fortunate enough to be able to take part in Klamath County Economic Development Association‘s Economic Summit. Once again this year I was able to tag-team the economic discussion with Damon Runberg, formerly of the Employment Department and now with Business Oregon. As I was putting together my presentation and figuring out how Klamath’s economy is both doing and how it fits into the statewide picture, I was struck by quite a few things that I thought I should share here as well.

First, just to set the stage, employment in Klamath County has fully recovered. As we have discussed previously, we know that the state’s smaller and medium-sized metros and rural areas are seeing the strongest recoveries compared to large metro areas. Klamath is no exception, and outpaces the typical rural county by a percentage point or two as well. Damon noted that while Klamath’s current estimates of employment look good, they will look even better in the months ahead once the annual benchmark revisions are done as the county’s actual payroll records in the QCEW data are much stronger than those seen in the published monthly data. (For those of you looking at any current county data today, this upward revision will be broadly true for all counties.)

Second, it’s not just jobs but also income growth that has been strong. This goes for both total personal income that includes transfer payments like Social Security and the recovery rebates, and underlying growth excluding those transfers. During the pandemic, total income in Klamath County increased by more than 20%, or more than 10% per year in 2020 and 2021, which outpaced the state and nation. Looking forward, Social Security accounts for about 10% of all income in Klamath, meaning this year’s 8.7% COLA increase raises countywide income by 0.8 or 0.9 percent, a larger amount than the Oregon and U.S. average.

Unfortunately, the good income growth has not or at least not yet translated into a noticeable reduction in poverty in the county. Poverty rose back in the 1980s and 1990s as the Timber Belt suffered economic decline and has largely held steady in the 15-20% range which is noticeably higher than the state or nation overall. This is, by far, the most pessimistic chart I have and a good reminder that even in good macroeconomic times, many of our neighbors still struggle.

Third, while Oregon’s population overall is not booming, the same cannot be said for Klamath. In the past 5+ decades, Klamath’s population has grown faster than Oregon 7 times. Twice back in the 1970s, and then again in 2018, 2019, 2020, 2021, and 2022. Part of that is the slowdown at the state level, but part of it is the acceleration at the local level. When the official 2020 Census data came out, Klamath’s population was noticeably above expectations or recent estimates at the time. That stronger growth has continued since, with the latest 2022 estimates from Portland State already above the forecast for 2025 and nearly to the 2030 population forecast. While Klamath’s natural increase in the population is negative, like the state, the local total fertility rate is more like 1.9 compared to 1.4 at the state level. This should bode relatively better for future population gains, even as migration is by far the biggest factor.

Note: I am showing two sets of population estimates for the 2010s. In dark blue are the current published estimates from Portland State. In light blue are the estimates published by the BEA. The reason is technical, but important. BEA has gone ahead of done some preliminary work to revise the 2011-2019 county population figures, whereas Census and PSU have yet to publish their intercensal revisions. The big jump you can see in the dark blue line in 2020 will be less pronounced once the intercensal revisions are complete, which is why the light blue BEA estimates are important to note. The rebound and acceleration in Klamath growth did not start in 2020, but rather in the years leading up to the pandemic.

Finally, key questions are always about who moves. Clearly more people are voting with their feet and choosing to live in Klamath than choose to move away, but who are these new residents? Broadly speaking Klamath is gaining population across all age groups. In particular, many more 20- and 30-somethings from elsewhere in Oregon are choosing to move to Klamath, while many 50- and 60-somethings from outside the state are choosing to move to Klamath in recent years. In the Census data Klamath loses population to both the Rogue and Wilmette Valleys but gains from the Coast, the Gorge, and Northern California. In the IRS data the patterns can looking somewhat different depending upon the year. Now, in the most recent Census data the net gains are coming from low- and middle-income households, and those without college degrees. Unfortunately, we are not able to get crosstabs on that to separate out Oregon Institute of Technology grads moving away to start their careers, or the impact of workers versus retirees at the income level. But certainly, something worth noting in the data.

Thanks again to KCEDA for having me and I was happy to be able to discuss some good economic news for a change, especially given our most recent state economic and revenue forecast and the uncertain macro outlook.

Posted by: Josh Lehner | January 6, 2023

Downtown Demand (Graph of the Week)

The combination of the latest population estimates, the many conversations we are having about them, and Willamette Week‘s latest issues highlighting ideas to improve Portland has me revisiting some work we did early in the pandemic. At a high level, we tried to get at the different sources of demand for downtowns or urban cores. Local residents who live in the areas are one source as they go about their everyday lives. Commuters coming in to work are another source, primarily during the daytime. Visitors — both from the suburbs, and tourists – are the third source, primarily during the evenings and on the weekend.

My main point is that all of these sources of demand are important. Many discussions are surrounding the impact of working from home and the loss of commuters. That is a structural change that really impacts the built environment given the large cluster of office buildings and the hub and spoke transportation network. While not the biggest source of downtown demand from a business perspective, many firms relied on the lunch crowd to prop up overall revenues and sustain more hours of operation. Commuter demand did not go to zero, but has declined significantly in urban cores across the country.

Retrofitting unused or underutilized office buildings to build more residential is a great idea. This is a heavy lift as many buildings cannot be converted, but where feasible it should be pursued, and policies can help make more of those possibilities feasible as are now currently being discussed. This helps solve two problems: our historical underproduction of housing, and repurposing some of the newly empty office space. Eventually offices will fill back up with overall economic growth as employment and start-up activity increases. But that process will take years at best, and possibly decades. In the meantime, last time I checked in with Multifamily Northwest and their Apartment Report, vacancy rates in the urban core were very low. Increasing resident demand can help jumpstart the process.

All of that said, when I try to decompose the sources of demand, it is the third piece, the destination demand that is largest. This comes from out-of-town visitors staying in hotels, doing touristy stuff even if on business and not vacation. But it also comes from local residents who head downtown to go out to eat, take in a show, go shopping on the weekend and things like that. The cluster effects of having many retail and leisure businesses all close together is real.

As one of our advisors points out there is a catch-22 type element to this discussion. As a community and an economy, we have to provide reasons for people to be downtown, which in turn will generate more revenue for businesses to be located there and/or increase hours of operation, but if residents don’t feel safe or those businesses don’t exist or aren’t open, then fewer people will want to visit and so on.

Lastly, another advisor notes that the commuter demand hasn’t been lost from a regional perspective, but rather has shifted out of the urban core and into smaller, neighborhood or regional commercial areas. The importance of those from an everyday living, and planning perspective are higher today than they were a few years ago.

Definitions: Urban Core here is the area between I-405 and the Willamette River. Other Services includes things like barbershops, nail salons, parking garages, and dry cleaners, among others.

Posted by: Josh Lehner | December 29, 2022

Oregon Population Growth 2022

Last week the Census Bureau gave Oregon a lump of coal*, I mean they released the 2022 population estimates for the nation and states. We need to talk about it. Consider this post a down payment, with future installments to come as we get more data and have more time to reflect on what it may mean.

First, there are two sets of population estimates for Oregon. Our friends at Portland State’s Population Research Center are the official arbiter of Oregon population estimates for the years between the big decennial censuses (so-called intercensal years). Top line figures are usually released in mid-November. The Census Bureau also produces population estimates for the entire country. State data is usually released in December with cities/counties/metros a couple months later. PSU provides a local, accessible set of numbers in a more timely and granular way. Census provides nationwide numbers using a consistent methodology so can more readily compare across areas. Both estimates have value, even if the PSU ones take precedent in terms of official and policy use in the state.

It’s important to keep in mind that at a big picture level, both estimates are in agreement at Oregon’s population is not growing quickly. The slowdown is coming from all the major components of growth including fewer births, more deaths, and less net migration. If there were any lingering questions about whether Oregon saw a pandemic-related migration boom to the state, those are now long gone. (I see this crop up in conversation quite a bit.) When we turn from the big picture to the specifics, we see clear differences in the sets of estimates. Portland State estimates show slowing, yet positive growth. Census estimates show a sharper slowdown with outright population losses in 2022.

I’m including our latest forecast in the chart about for a few reasons. One, our office’s job is to forecast the state economy and revenues. Population growth is vital to our economic trajectory as it allows local firms to grow and expand at a faster pace. Two, it also shows the subdued outlook our office already had for future population growth. Now, this outlook has been revised down relative to our pre-pandemic expectations, but even prior to the latest data release the outlook was much milder than I think the conventional wisdom realized.

Naturally the questions that follow are things like “what does the slowdown or even population losses mean?” and “how can you forecast a rebound in growth?” And as I led off with, consider this a down payment on the discussion.

As laid out a few months ago ahead of the data, our expectations were for a rebound in population growth in 2022. The reasons were twofold. Migration to Oregon is pro-cyclical. As the economy rebounds, migration has historically followed. The number of surrendered driver licenses at Oregon DMVs is running at a higher level than pre-pandemic, pointing toward a rebound of inbound migration to the state. Those conditions still exist today. So why the continued slowdown or even population losses? That’s hard to answer today. Here is a list that begs more questions than provides answers.

First, 2022 population estimates are a July 1st, 2022 number. The year-over-year change is from July 1st, 2021 to July 1st, 2022. That’s still a time period that was impacted by the fallout and recovery from the pandemic. As I wrote the other month, I’d really like to know the 2023 numbers to get a better gauge on what is more of a temporary disruption versus a fundamental shift. We don’t have that luxury of course, but there is a chance this is a factor.

Second, how much of this is driven by working from home (WFH) and/or housing affordability? Oregon has long been a national leader in WFH but we have among the worst housing affordability. When workers needed to have easier/more direct access to employers for occasional meetings, staying on the West Coast may have made more sense. Now, with more freedom to live anywhere and fewer requirements for in-person work or meetings, moving to a more affordable location is easier. At least this applies to the 1/3 of workers who can WFH and not to the 2/3 of workers who have to go into a place of business to cook a meal, provide care, or swing a hammer. I’ll have more on WFH soon as I’ve been digging into the ACS data.

Third, how much of this decline is driven by [insert favorite talking point here]? As I mentioned previous a lot has been made about the relative slowdown or losses in blue states with a corresponding increase in red states. As of the 2021 data it was very much an urban-suburban-rural dynamic rather than a red state-blue state dynamic. How does the 2022 data shake out when we get it in March from Census? The PSU estimates show the weakness is in Multnomah. I’m curious to see if the Census estimates think that weakness from urban cores has spread, or if it remains the urban-suburban-rural dynamic. The fact that Oregon’s largest metro area’s fastest growing suburb also happens to be located in a different state complicates our numbers more than in other states. But if the slowdown and population weakness has spread beyond the urban core, then I’d be much more pessimistic about the outlook. To the extent we are still seeing the fallout from the pandemic, WFH, and urban core issues then it’s a little easier to identify and address rather than a general, societal shift in preferences of where people want to live.

Fourth, along these lines why do people move? Well, at least pre-pandemic it’s important to remember that hardly anybody moves. Most people do not move, and if they do happen to move they do not move very far. A key reason is family, and ties to a community. An issue here for Oregon is our low birthrate, which both contributes to slower population growth and literally can mean less familial ties, or fewer reasons to stay or move here. Washington saw negative domestic migration in 2022 as well according to Census, but their higher birthrate was enough to offset those losses and see an overall population increase. Oregon does not have that demographic luxury.

For those who do move, they tend to move for jobs and housing. Jobs are plentiful today and our average wages are rising much faster than the nation’s. But the labor market is tight everywhere and it’s easier today to find a job pretty much anywhere than it was last decade. That likely erodes some of Oregon’s relative attractiveness, while housing affordability is a hinderance at best, or an outright repellent at worst. All of this matters, but so do broader societal preferences on where people want to live, which are in part driven by those fundamentals but also squishier subjects like quality of life, or [insert favorite talking point here]. And it doesn’t even have to be that Oregon is deteriorating or whatever, but even a relative shift in people believing better opportunities lie elsewhere could results in slower population gains locally.

Fifth, one area needed for more research and analysis is on the composition of the changes in the population. Are we seeing continuations of the household formation boom that offsets the slow-growing population in the housing market? Is the slowdown due to prime working-age population trends, or more about families and/or retirees? Given the traditional economic data on jobs, income, and sales it’s hard to see a fundamental shift in the working-age population. And some work I had been doing prior to the new estimates being released show that younger adults were still moving to Oregon on net during the pandemic, across all levels of educational attainment. Did this change in 2022? Or is the continued slowdown or losses more about families and retirees. Not that that would be good nor even a silver lining of sorts, it’s still an unpleasant conversation to have all the way around, but better understanding these changes is important.

Sixth, there are direct labor market impacts from slower population growth. It’s not necessarily about outright declines per se but rather smaller gains than anticipated. Comparing our office’s pre-pandemic forecast with current estimates from PSU shows 44,000 fewer neighbors today and at traditional LFPR for migrants there are 26,000 fewer workers today than expected. With current Census estimates the relative shortfalls are more like 84,000 fewer neighbors and 50,000 fewer workers than expected that firms could hire.

These are real impacts relative to expectations, even if they are not about outright declines. And should population growth remain subdued and not rebound, these relative changes would have a big impact on the trajectory of the state’s economy and associated tax revenues. That’s ultimately why our office is so focused on it. Overall economists believe incentives matter, and people vote with their feet. Right now, at least during the pandemic and its immediate aftermath, fewer people are choosing to live here relative to historical patterns.

*H/T to Tom Cusack on Twitter for the lump of coal analogy

Posted by: Josh Lehner | December 20, 2022

Social Security’s Macro Impact (Maps of the Week)

Starting in January, Social Security benefits will increase by 8.7 percent, the largest cost-of-living-adjustment in the past 40 years. Of course the large COLA is a direct result of the high inflation we have experienced in the past year. Many seniors are on fixed incomes. 3 in 10 Oregon seniors essentially rely entirely on Social Security for all of their income, and for nearly 6 in 10, Social Security makes up more than half of their income. As such this hot inflation has really impacted their budgets and hurt their ability to keep pace with the cost of living.

The good news is inflation is slowing and the COLA is accelerating. The net impact is a macro tailwind next year. In recent years, Social Security accounts for about 5.5 percent of total U.S. personal income, and 6.6 percent here in Oregon*. That means that next year’s 8.7 percent increase will boost total U.S. income by 0.5 percent and Oregon’s total income will increase by 0.6 percent. While half a percent may seem like a small number, it’s actually a significant increase. It is equivalent to adding 1.4 million jobs nationally paying the average wage, or 22,000 jobs in Oregon.

In terms of the income impacts, the biggest dollar increases will be in the locations with larger retirement-age populations. This means Portland (Multnomah) in Oregon and California nationally will see the largest increases in overall income because that’s where the largest number of people live, both young and old. However, the relative impacts, or where the local increase will be largest in percentage terms has a different pattern. Communities where the retirement population accounts for a larger share, or where per capita economic activity is generally lower, meaning transfer payments are a larger share of income to begin with, will see the biggest percentage increases. Broadly speaking, these local economies tend to be more rural than urban.

Here’s what that looks like across Oregon. Social Security in our coastal counties, and in much of Eastern Oregon account for more than 1 in 10 dollars households take home. The state’s urban areas along the I-5 corridor and across the mountains in Bend generally have a lower share of total income derived from Social Security. As such the upcoming COLA will boost aggregates incomes in Curry County on the South Coast by 1.3 percent, compared to a 0.4 percent increase in Multnomah.

The second map looks at the increase in total income by state due to the upcoming COLA. It ranges from West Virginia’s 0.9 percent increase as the largest to California’s 0.3 percent as the smallest. These relative dynamics matter in terms of the macro impacts, even if at the micro level every eligible household will receive the same percentage increase.

Overall, social security and retirement income in general are growing at an above-average pace due to demographics. However next year we will see the double effect of a fundamental increase in an aging population and larger than average increases per person due to inflation. Even if these COLA gains are playing catch-up to reality, they are a real macro boost in the year ahead.

* Note this uses total personal income excluding refundable tax credits from the BEA as to strip out the impact of the recovery rebates in the calculation.

Posted by: Josh Lehner | December 14, 2022

Racial and Ethnic Economic Disparities in Oregon, an Update

One economic bright spot during this cycle has been the strong, inclusive recovery. This goes for income and employment trends by educational attainment, gender, geographic location, and race and ethnicity. This does not mean that equity abounds. We know that large, historical disparities remain. What I mean by an inclusive recovery is that these disparities did not widen, and in some cases they have actually declined somewhat in recent years. Further efforts and progress are needed to achieve equity as many disparities remain. However, the fact that these did not widen during the pandemic is certainly a glass half full, if not a bit more.

Data housekeeping note: The traditional real-time economic data for Oregon generally has too small of sample sizes to truly get at economic trends by race and ethnicity. We generally have to wait for the annual American Community Survey data to be published by Census, and then wait until the underlying microdata is released to go in and crunch the numbers ourselves. ACS data comes out with nearly a full year lag. For example the 2021 ACS data was just released recently, and this post uses that new information.

In order to not bury the lede I am pulling out this first chat looking at median household incomes in Oregon for Black, American Indian and Alaska Native, and Hispanic or Latino households relative to their white, non-Hispanic neighbors. I’ll get into the caveats in a minute, but frankly this is a really encouraging chart.

We know that the racial poverty gap has been narrowing in the past decade. That is tremendous news in that fewer of our friends, family, and neighbors are living below the federal poverty threshold. But to be honest, for much of the past decade we didn’t exactly see the improvements in poverty translate into higher incomes further up the distribution for many Black, Indigenous and People of Color in the state. It was as if we saw a shift of those living just below poverty to living just above poverty. An improvement is still an improvement, but it still meant many of our neighbors, and particularly our BIPOC neighbors, were and are struggling.

But what the new data shows is that the income gaps across different races and ethnicities in Oregon appears to be narrowing as well. Median incomes, of those for the typical Black, Indigenous, and Hispanic household still lag behind their white, and Asian peers, but the gap has narrowed in recent years. What used to be gaps of 20-40% now appear to be more like 10-20%. Sizable, yes. But smaller than anything in the past 20 years.

Now for the caveats. While we see some upward trends in recent years, especially for our Hispanic and Latino neighbors, we are mostly talking about one year of data. And it is 2021 data at that, a year still greatly impacted by the pandemic. Keep in mind that Census did not publish official 2020 ACS data due to the low response rate. I have omitted even the 2020 “experimental estimates” as they call them here and trended out the differences between 2019 and 2021, hence the dotted lines. There is a chance that the improvements seen in the chart above are more about data quality or a funky pandemic year. I don’t know that for sure. I am not calling into question the Census Bureau. But I do have my data spidey senses up and am wondering about it. I really do look forward to the 2022 and 2023 data to confirm that these gains are sustained.

The next set of charts looks at the 21 year trend for inflation-adjusted median incomes by race and ethnicity in the state. Here you can see these differences over time. Some of the volatility, particularly among our Pacific Islander neighbors, is likely due to sample sizes, but broadly speaking the trends are clear.

Next we turn to employment trends in Oregon by race and ethnicity. We are focusing on the employment rate for prime working-age Oregonians, or those between the ages of 25 and 54 years old. This calculation shows the share of folks with a job and gets away from the unemployment rate or labor force participation rate questions about whether or not someone is actively looking for a job. Now, here I am including those 2020 experimental estimates as I think they do make a bit more sense when examining the employment data, but the focus should be on the larger trends, and the changes from 2019 to 2021 specifically.

The big picture summary here is that many of these employment rate differences held steady. Comparing employment rates in 2019 to 2021 by race and ethnicity to the economy overall finds that the differences for white, non-Hispanic, Hispanic or Latino, and American Indian or Alaska Natives is the same. The employment differences saw improvements for Asian and Black Oregonians, again, relative to the overall employment rate. And the differences worsened somewhat for Pacific Islanders, dropping from just above to just below the overall prime-age EPOP for the state.

While there are clear historical disparities, I could not find where these disparities widened noticeably during the pandemic. Now, just as with the income data, I very much look forward to seeing the 2022 and 2023 numbers and updating our look at Oregon.

Finally, highlighting and exploring the data is one thing. However explaining the differences can be more difficult, or more uncomfortable to discuss. Now, there are some underlying reasons why these gaps or disparities emerge. Research finds that differences in individuals’ work experience, the occupations they enter into, and their level of educational attainment all drive some of the topline differences in employment, poverty, and income. However these factors never explain all of the differences. The portions unexplained by standard data in the models is generally considered to be due to harder to measure things like broader societal factors or outright discrimination. And these factors also drive some of the other data used to explain the differences to begin with.

As just one example, but one that is large enough to be seen in Census data, let’s take a look at institutionalized prime working-age men in Oregon. Overall prime-age Black men in Oregon have an employment rate that is 8.6 percent lower than all prime-age men in the state. One key factor here is the larger share of prime-age Black Oregon men who do not live on their own but in so-called group quarters, and specifically in institutional group quarters like correctional, mental, or for the elderly, handicapped, or poor. This accounts for 1 in 20 prime-age Black men in the state, and means that is 1 in 20 that are not living or working in the broader society. And while factors such as this do not explain the entire employment rate difference, mathematically it does account for 3.2 of the 8.6 percentage point difference. And this also highlights one reason why policies aimed at improving labor market outcomes for those with criminal records also matter, and how that impacts these bigger picture disparities seen in the data.

Posted by: Josh Lehner | December 9, 2022

Oregon Homeownership Affordability, November 2022

Just a few charts for your Friday. Affordability is important because housing is a big part of household budgets, can impact migration trends, and construction activity that is part of broader economic growth. The runup in home prices earlier in the pandemic are now reversing as rising interest rates have pushed ownership affordability to its worst point in recent decades. November home sales data is now available, and more importantly I have updated regional household incomes across the distribution so we can get a better, more updated look at relative affordability. All of these charts will be similar, but based on local incomes, local property taxes, and local home sales prices they do differ slightly.

In terms of the direct economic impacts, bad affordabilty hurts household bugets, and reduces volumes of activity when it comes to new housing starts, and existing home sales. Improvements will come. The combination of lower interest rates, rising incomes, and falling prices this year and next will bring overall affordablity back to the historical range. Sales volumes and housing starts will revive along the way. See our most recent forecast for more on this (PDF pg 19).

First, let’s take a look at Oregon’s biggest market, the Portland metro region. Seasonally-adjusted prices are down about 4 percent based on the latest data. Sales volumes are down 40 percent, new listings down 25 percent, and inventory is up 95 percent over the past year. These are the impacts due to the steep drop in affordability which priced out many potential buyers. Today, 19% of the Portland area households are estimated to be able to afford the monthly payment on the median home sold. This is a decline of 131,000 households since the start of the year.

Second, let’s go across the mountains over to Bend. Overall the Bend market really struggles with affordability. I’ll have more on this in the regional income update that is in the works, but Bend’s affordability looks better than previously estimated based on the updated incomes. There has been a big increase in incomes and an upward skew in the distribution in Bend during the pandemic, meaning more local households can afford housing. Currently 14 percent of households could afford the monthly payment, a decrease from 23 percent at the start of the year.

Third, we’re heading back to the valley and looking at the Salem market. Currently 22 percent of local households could afford the median sold home last month, a decline from 38 percent at the start of the year.

Fourth, let’s head south to the Eugene market (Lane County). Currently 20 percent of local households could afford the median sold home last month, a decline from 36 percent at the start of the year.

Fifth, we are heading further south down to the Rogue Valley and looking at Medford (Jackson County). Currently, 28 percent of local households could afford the median sold home last month, a decline from 38 percent at the start of the year. While the drop in interest rates is pricing households back into the market, November prices in the Medford market fell noticeably, driving the increase you can see in the chart last month.

As mentioned the other day, stay tuned for more on regional income trends over time. I have now finished the data work but need to pull everything together in one place.

Posted by: Josh Lehner | December 7, 2022

Oregon’s Income Distribution

At times data can be confusing, or at least our interpretation can be confusing when there are seemingly different messages about the same subject. Look no further than Oregon incomes. On one hand our per capita personal income is about 4 percent lower than the nation. On the other hand our median household income is nearly 3 percent higher than the nation. So which is it? Are our incomes higher, or lower than the US? They’re actually both. Or rather it depends upon which metric you are talking about and that is due not neccesarily to different data sources, but different math calculations. In the case of per capita personal income, that is the average per person, or taking every dollar earned in Oregon and dividing by the total population. In the case of median household income, that lines up all households in the state from poorest to richest and finds the mid-point. And when the median and the average tell seemingly different stories that points toward a skew in the distribution of the data. Let’s dive in with a focus on the newly released 2021 ACS data.

This first chart compares incomes across the distribution here in Oregon relative to the U.S. Positive values mean Oregonians at that point in the distribution earn higher incomes than their national counterparts, negative values mean Oregonians earn lower incomes. What stands out here is that Oregonians in the bottom 70% of the distribution have higher incomes. This means for households earning up to $106,000 per year, relative incomes are higher in Oregon than elsewhere in the nation. The vast majority of us are doing relatively better. It does not necessarily mean we are doing well, or that we are not struggling to make ends meet. It just means we are doing comparatively better than our national peers for the majority of households. For those of us in the 70-89 percentile range, $106,000 to $181,000 annually, Oregonian incomes are lower than the nation by a percent or two. Where the gap really widens is in the Top 10% and really the Top 5% where local incomes are 8-9% below the nation. We will come back to this.

Now, I can already hear you saying this, it is true our cost of living is higher. According to the BEA’s regional price parities Oregon is the 13th most expensive state to live in and is 2.6% above the national average. If we were to adjust this distribution for cost of living, it would shift the line down and cross 0% at the 50th percentile. As such that means the typical household in Oregon on a cost of living adjusted basis earns just as much as their national counterpart. Households in the Bottom 50% outearn the nation on a cost of living adjusted basis, while households in the Top 50% earn comparatively less.

For much of the 1980s through the mid-2010s, Oregon household incomes were lower than the nation for the vast majority of us. This next chart compares what the relative incomes in Oregon look like today with what they were back in the 1980 Census, or just before the timber industry restructured and the severe early 1980s recession hammered our regional economy. What’s interesting to see here is that relative incomes for most households are in a better position today than they were back then. Again, that does not mean everything is rosy, it just means relative economic performance in Oregon in the past decade has more than regained the ground lost decades ago.

The third and final chart today takes the 2021 income distributions and instead of looking at the percent difference in incomes, looks at dollar difference in incomes. Specifically I scale down the number of households nationwide to match Oregon’s, so we can do a straight dollar calculation. This chart is striking. What it really shows is how skewed income is in this country, and how large income inequality is.

While 70% of us outearn our national peers it’s a bit hard to see in the chart as the blue bars look relatively small. But as you go up the income distribution you can see how Oregon’s relatively lower incomes here really add up in dollar terms. In fact, incomes are so large here that they add up quickly in an aggregate sense. So much so that even as most of us outearn the nation, Oregon’s relatively lower incomes in the Top 5% more than offset that strength, and drag our average incomes below the nation. That’s what’s going on when it comes to the seemingly different stories about whether Oregon’s incomes are higher or lower than the nation. For the vast majority of us, they are higher. However given our comparatively lower incomes at the top, it makes our averages fall below the U.S.

Two final thoughts.

1. If Oregon’s median is higher, but average is lower than the nation it means income inequality locally is a little bit better than it is nationally. According to the Census our GINI coefficient is about 5% smaller. Now, Oregon has certainly followed the rise of inequality in recent decades, it’s just we are bit more equal than the U.S.

2. Why are Oregonian incomes at the top lower than the nation? I do not have a definite answer. But a few factors at play are things like our lack of old money, our industrial structure and lack of financial institutions, our lack of big corporate headquarters, and our tax structure of higher personal income taxes. These factors are not mutually exclusive and likely interrelate. And to the extent these are actual problems or not can be somewhat in the eye of the beholder but we do need to recognize these differences are real.

Stay tuned for a look at regional incomes across the distribution. These changes have not been uniform across the state. This was actually a historical data project I was finishing up back in February 2020 that got shelved during the pandemic. With the new data I have dusted it off and am in the process of updating and finishing.

Posted by: Josh Lehner | November 30, 2022

Oregon’s Labor Market is Normalizing

Strong job growth and employment prospects are vital to economic health. However there is a difference between a strong and tight labor market and an overheating labor market. Given wage growth is clearly outstripping productivity gains, it is inflationary today. A slowing in wage growth (and an increase in business investment and productivity) is needed for underlying inflation to return to the Fed’s target as wage growth provides households their baseline ability to spend.

Encouragingly the data, especially the Oregon data, does appear to be turning in such a way that a slowdown in the labor market and wage growth is not just possible, but likely. Let’s start first with job openings. In September there were 1.5 job openings in Oregon for every unemployed Oregonian looking for work. Clearly labor demand (number of jobs that firms are looking to fill) is outstripping labor supply (number of available workers) which ultimately leads to the faster wage growth.

Better labor market balance could come from relatively fewer job openings or a large increase in unemployment. The Federal Reserve’s outlook is the former. This is sometimes referred to as the Waller view, named after Fed Governor Christopher Waller. In a speech earlier in the pandemic, Mr. Waller outlined how there could be a decrease in job openings which brought better balance and slower wage growth and inflation without a sizable increase in unemployment. So far this is playing out at least a little bit. Back in March there were 1.9 job openings in Oregon for every unemployed Oregonian. More progress and better balance is needed, but movement in the right direction is still movement in the right direction.

A key labor market concept is the so-called Beveridge Curve which looks at the relationship between job openings and unemployment. Generally speaking, firms are looking to fill more positions in a strong economy, and it is harder to find workers at the same time because most individuals who want a job are able to find one. During the pandemic this relationship has broadly held up as before, however what is potentially concerning is it appears to have shifted up, or shifted out as seen in the light blue dots when compared to the gray dots. What this would indicate is that for any given level of job openings, there will be higher unemployment in the economy than there was before the pandemic. One possibility is that this is a timing issue, or something the pandemic temporarily disrupted. Another possibility is something is fundamentally broken in the economy, or that the natural rate of unemployment has increased.

Encouragingly, the data so far this year in Oregon (dark blue dots) has brought the Beveridge curve about halfway back to the pre-pandemic patterns. This is exactly the Waller view in that job openings are declining and unemployment is not increasing. The U.S. data so far in 2022 shows less progress than does the Oregon data, although it has moved in the same direction. This morning’s national JOLTS release shows another step in the direction of better balance as well.

More encouraging is that labor matching in the economy – the speed at which unemployed workers are able to find a job, and firms looking to hire are able to do so – does not appear to be permanently broken in recent years.

The nearby chart looks at the job finding rate in the economy based on how many job openings and unemployed workers there are. It compares the actual job finding rate with the expected rate based on historical patterns. There was a clear breakdown earlier in the pandemic. This was likely due to the shutdowns, the virus itself, lack of in-person schooling and childcare, and federal aid including enhanced unemployment insurance benefits, however the data in recent months is now nearly back to the expected patterns as seen in 2019. This is a stepdown in labor matching or efficiency relative to earlier last decade, but so far the 2022 numbers look pretty similar to the 2018 or 2019 numbers. We can argue about it still being slightly lower, but broadly speaking it’s getting back to the same relative patterns.

This job matching work is based on a 2020 Fed paper from Ahn and Crane, which was updated more recently by the San Francisco Fed discussing the current state of the economy. Our office created an Oregon version to better gauge the local labor market.

Finally, new Fed research from Cheremukhin and Restrepo-Echavarria helps shed light on some of the changes in job openings and the economy in recent years. As the authors detail, when businesses hire workers they are either hiring someone who is unemployed and looking for work, or they are hiring a worker away from another firm, or poaching – a term the authors use. These are different segments to the labor market and have different impacts on job openings, wage growth, the unemployment rate and so on.

What the authors find nationally, and our office has recreated using Oregon data, is that the surge in job openings in recent years is due to more poaching. This has a few implications. First it means that the labor matching process, as discussed above, is not broken and unemployed workers are able to find jobs. Second, workers who switch jobs tend to see larger wage gains than those that stay at their jobs. As such, the higher rate of workforce turnover during the pandemic, including the higher rate of worker quits today as workers switch jobs, helps lead to both faster overall wage gains and inflationary pressures, and firms to advertise more openings to fill their newly vacant positions as workers leave for other opportunities. This is a distinct process from the possibility that unemployment is more structural in that the workers lack the skills needed for the available jobs, or that there is a geographic mismatch between openings and the unemployed, etc.

The decline in job openings so far this year, both nationally and here in Oregon, is coming from the poaching component and not the unemployed portion. This is encouraging that unemployed workers are still able to find jobs quickly, and that overall workforce churn may be slowing as well. As discussed in previous forecasts our office has hoped that the higher rate of worker quits, and job switching would lead to an overall better labor match. This could be in terms of skillset, geographic location and hours worked. At a minimum job switching typically is at least for higher pay. These temporary changes in the labor market, moving from one job to another, can be disruptive from a productivity standpoint. After a period of training or getting acquainted at a new place of work, the expectation is productivity will pick back up. A cooling in the labor market, where more workers are in better financial and workplace positions could be beneficial for the overall economy.

Posted by: Josh Lehner | November 22, 2022

Thankful, 2022 Edition

It’s been a challenging couple of years. At the surface level, particularly for economic data most things are back to normal, even if there are clearly some lingering impacts on society and our daily lives. This Thanksgiving week I just wanted to share three charts I’m thankful for.

First, as we have tragically learned, pandemics are deadly. We have lost about 11,400 more of our neighbors, family, and friends here in Oregon than we would have expected in recent years. For that I am not thankful, but depressed. What I am thankful for is that the pandemic has waned. Deaths today in Oregon are nearly back down to where they were expected to be based on our office’s pre-pandemic demographic forecast. A return to normalcy in the most vital way.

Second, there has been no real permanent damage or economic scarring in the labor market. In fact the argument is the labor market is too strong, and certainly not too weak unlike the weak recoveries from recent recessions. Importantly these gains are widespread reaching workers in different geographic locations, workers of different races and ethnicities, and workers with different levels of educational attainment. The employment rates by educational attainment here in Oregon are higher today then they were pre-pandemic. These are the highest employment rates we have seen since before the Great Recession or the dotcom bust.

Third, income growth has boomed, putting more money in our pockets and our bank accounts. Yes, our strong household finances are a key reason why the underlying trend in inflation has risen, but stronger finances is still a good development. Income growth here in Oregon has been stronger. In the just released 2021 county and metro income data, Oregon’s metros have all outpaced the nation. Grants Pass, Bend, Salem, Albany, and Medford all among the 10 percent strongest increases among all U.S. metros.

Even more reasons to be thankful is the income growth among all households. Here is what we wrote in our most recent forecast doc:

Last quarter our office flagged the possibility for differences across the distribution when it comes to household finances. Given income and wealth inequality in the U.S. and here in Oregon, many of the topline economic data on income and spending are driven by high-income households. The concern was low- and middle-income households could be falling behind due to high inflation and any slowdown in the economy.

Thankfully this does not appear to be the case. New data through the second quarter from both the Federal Reserve, and the JP Morgan Chase Institute show that low- and moderate-income households are still doing well financially. Checking account balances remain strong and show no deterioration across the distribution. Net worth for all households is higher today than before the pandemic (gray bars). If we narrow the focus to the most recent two quarters where inflation has been the hottest (blue bars), net worth still rose among low- and middle-income households, while high-income households net worth declined along with equity markets. Our office will continue to monitor these quarterly updates on household finances across the distribution.

Happy Thanksgiving everyone.

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