Posted by: Josh Lehner | October 10, 2019

Is Household Formation Strong or Weak?

Overall the number of households in the state continues to increase. This is no surprise given that we are a magnet state. In good times and bad people pack up and move to this part of the world, especially when job opportunities are plentiful. Given migration flows in recent years have been about as large as we have seen in absolute terms (not true in percentage terms), it makes sense that the number of new households are increasing quickly as well.

The latest Census data shows Oregon added just over 36,000 new households last year, the highest we have seen in the ACS data. These increases are now catching up to the household formation rates seen in the more timely, but more volatile household survey (CPS). The growing gap between the two different data sets was an issue to watch, however that gap is closing some and does not represent a true problem.

A few things. One, people follow the jobs and as employment growth slows, so too will migration. This is already happening and the most recent CPS data shows household formation across the state is slowing some as a result. Two, while Census pegs the number of new households at 36,000 last year, we know we built just under 20,000 new housing units. This continues to place upward pressure on housing costs overall. Three, see our previous post on the housing starts outlook for more on the better balance our office expects in the coming few years.

While the total number of new households in recent years has been about as big as we have seen, it doesn’t necessarily mean that household formation is strong. In fact, if we dig into the types of households and who is forming them, we see that within the existing population, household formation is actually pretty weak.

Specifically, the headship rate among 20- and 30-somethings continues to drop. Young adults are living at home longer, or living with roommates to a larger degree than a decade ago, let alone two decades ago. Within the Portland region this decline means there are nearly 28,000 fewer households today among the 25-44 year age group than there would be if household formation rates were the same as back in the mid-2000s. Across all age groups, the decline in household formation rates in the Portland region results in 36,000 fewer households on net. This is equal to 3 years of new construction, which is a massive number.

Now, this issue isn’t new nor is it specific to Portland or any other particular region. Len Kiefer, deputy chief economist at Freddie Mac — a great follow on Twitter BTW — put together a report last year on the factors behind this decline in household formation. In short, it’s a number of things like higher housing costs and worse economic outcomes for Millennials who graduated into the Great Recession. However other shifts like the delay in marriage and having kids also play a role as well. And not all factors result in lower rates. For example, higher levels of educational attainment actually point toward more households than would otherwise be expected, as such individuals have higher employment rates and incomes and the like.

Bottom Line: The number of households in Oregon continues to increase. These gains are entirely driven by population growth and the age structure. Within age groups, household formation rates are quite weak for a variety of reasons, including housing costs and economic outcomes. Now, given the strong multifamily construction in recent years, and concerns about overbuilding, these lower rates of household formation among 20- and 30-somethings may actually represent a form of latent demand. As affordability improves via both slower rent increases and rising incomes, a revival of or even just a moderation in the decline in household formation rates could help with both near-term and longer-term absorption of the new apartments. To the extent this occurs, the market may find a new equilibrium sooner rather than later. And it would put upward pressure on the need for higher levels of construction activity to meet the demands of the growing population.

Posted by: Josh Lehner | October 2, 2019

Update on Oregon Housing Starts

New construction activity in Oregon has grown in fits and starts in recent years. The absolute level of construction is up and our office expects growth of 10-15% in the coming years. However, while the total number of units being built is higher, we know that relative to population growth, this increase is pretty minimal. Oregon is building fewer units per new resident than we typically do. This is true across all regions of the state.

Now, that 10-15% of growth in the forecast can seem like a lot or a little depending upon where you live or what type of housing we’re talking about. What’s been both encouraging, and less-than-encouraging, is what’s happening beneath the surface of these topline figures.

Let’s start by looking at multifamily construction in Oregon. This is the source of much of the volatility in recent years as multifamily can be lumpy. One month you get a big apartment complex permitted and another one may not be coming into the pipeline for another couple of months. Also note that the chart above is quarterly, while the charts below are annual and thus less noisy.

Now, multifamily construction predominantly occurs in large, urban areas. As such, Portland accounts for the vast majority of this type of construction in the state. The Portland data has been quite noisy in recent years, impacting the statewide totals at the same time. Even with the concerns of overbuilding, permit activity remains strong. In talking with our advisors, a lot of this reflects at least a couple of things. On one hand, permits today reflect the fact that the pipeline and pre-development stages filled up years ago. These projects are just now beginning to build. Additionally, finding the perfect balance between supply and demand is difficult. When a multifamily boom occurs, the market tends to result in overbuilding for a period of time. It then takes a few years to work off this inventory, but given migration flows to Oregon, these units will fill up in the years ahead.

What’s also important to note is that while permitting within the Portland area is strong, but largely flat in recent years, this is not true elsewhere in the state. Construction activity is picking up outside of Portland. 2018 was the strongest multifamily year since the early-2000s. Gains in Benton, Jackson, and Lane drive the overall increases and so far in 2019, multifamily permitting remains strong.

Turning to single family construction across the state shows a somewhat different pattern. Single family construction in the Portland area has held steady for pretty much the past 7 years or so. However, single family building throughout the rest of the state has ramped up, helping to drive ongoing growth at the statewide level.

Bottom Line: Housing starts in Oregon continue to increase and our office expects a bit more growth in the coming years. These gains are more likely to occur outside the Portland region as the expansion continues to spread and reach all corners. A bit more growth in new construction, when coupled with a slowing population outlook, should result in a somewhat better balance in the housing market. Even if housing starts hold steady at current levels, due to supply constraints, lower demand or whatever reason, this too should bring a little more balance as migration flows taper in a mature expansion.

Posted by: Josh Lehner | September 26, 2019

Urban Oregon Household Income, 2018 Update

This morning the Census Bureau released the 2018 American Community Survey data. There is a ton to unpack here and even more once the microdata is released later this year. In the coming months our office will update and share some of this work.

As discussed earlier, at a statewide level incomes continue to rise and economic expansion is reaching all corners and populations. That said, we know disparities remain and not everywhere has shared equally in the growth, even as all regions have seen some growth. This post is a quick update on trends we are seeing across Oregon’s metro areas, or at least large enough areas for 1 year ACS estimates to be published. For rural income trends, we need to wait until December when the 5 year ACS estimates are released. Note that data can be noisy, particularly for smaller areas due to sample size concerns. Some of the year-to-year changes should be taken with a grain of salt, and the focus should be more on the big picture.

I’m going to start down in southern Oregon and work my way north along I-5 before heading over the mountains to check on Bend.

A few years ago we were beginning to worry about the lack of income growth in southern Oregon. Jobs were growing again and migration flows started to return, but there was hardly any wage or household income gains to speak of. Well, as expected, that has now fully turned around in the past couple of years. Incomes in Grants Pass, Medford, and Roseburg are at or near historic highs on an inflation-adjusted basis. With strong income gains last year, the poverty rate in both Jackson and Josephine dropped a full percentage point, while poverty held steady in Douglas as income growth stalled.

Traveling north to the Willamette Valley shows that income continues to grow throughout the state. Lane and Linn are experiencing healthy gains that are faster than inflation and nationwide figures. Corvallis continues to see tremendous income growth, which is something I’ll dig into further to see if we can pinpoint the underlying causes. And after a handful of really strong gains, household income in Salem has slowed and is effectively matching the rate of inflation in the past two years. When the underlying microdata is available, I will update our office’s look at migration to Salem and any potential housing crunch spillover impact coming from Portland, or elsewhere.

Further north, the Portland region continues to see income gains stronger than many other large metro areas. Growth has slowed just a hair the past couple of years and Portland did slip one ranking in terms of highest income among the 100 largest metros. Portland now ranks 17th highest as both Hartford and Ogden jumped ahead, but Portland also overtook Raleigh at the same time. Back in 2007, Portland ranked 32nd highest. In terms of overall growth from 2007 to 2018, Portland’s income gains rank 4th fastest in percentage terms. In the coming weeks I will have a full updated look at the Housing Trilemma which with help frame Portland and its growth in relation to the other large metros in the country.

Finally, let’s cross the mountains and check in on Bend where we know growth has been robust in recent years. We know job growth has been slowing, but household incomes did too with gains matching the rate of inflation last year. Now, the region still continues to outperform the other major housing bust areas from around the country, but this too is another area where I’ll dig into the underlying dynamics to see how the 2018 figures differ from recent years.

Bottom Line: All regions of Oregon are seeing gains. The state’s larger, urban areas are at or near historic highs for income on an inflation-adjusted basis and poverty continues to show improvements. The data can be noisy on a year-to-year basis, however our office will continue to dig into it further to hopefully shed light on recent changes, both good and bad. We will also explore the ACS further and examine housing-related issues, changes in educational attainment and the like. Stay tuned, new Census data is always fun!

Posted by: Josh Lehner | September 26, 2019

Oregon Poverty and Progress, 2018 Edition

This morning the Census Bureau released the 2018 American Community Survey data. There is a ton to unpack here and even more once the microdata is released later this year. In the coming months our office will update and share some of this work.

The latest Census data shows that Oregon’s economy continues to get better, with the gains reaching all corners and populations of the state. After 10 years of expansion, Oregon is now enjoying the best economy since the late 1990s and in some respects, reaching historic highs. Major economic markers like median household income and the poverty rate are showing ongoing improvements that outstrip gains across much of the country. Now, it is true, Oregon is transitioning down from peak growth rates a couple years ago in terms of job growth, but the tighter labor market is driving higher incomes as Oregonians work more hours and at higher wages. All of this data is backward looking and has little impact on the current economic outlook. However, it is always important to take stock of socioeconomic conditions and right now, the data is highly encouraging.

First, let’s take a look at historic trends in median household incomes here in Oregon and across the country. Not only has Oregon caught up to national figures, but in the latest data Oregon has surpassed the U.S. Today, the typical household in the state has income that is 2.4% higher than their national counterparts. This is the first time in past 50 years this is true. We have to go back to the 1960 Census to find a time when median incomes in Oregon where higher than national figures. Furthermore, incomes today on an inflation-adjusted basis are at all-time highs. This is true whether you use PCE or CPI as the deflator.

Oregon’s 2018 gains were the second fastest across all states, with only Idaho seeing strong gains. In looking at the major drivers of median household income in Oregon last year, they point toward the dynamics one would expect in a mature expansion and tighter labor market. Job growth is slower, but the number of Oregonians working full-time, and their earnings are growing faster than a year ago, boosting overall income growth in the state.

Income gains are seen across the spectrum. A year ago our office highlighted a potential worrisome spot as incomes dropped for the lowest quintile. We noted this was out of line with expectations and suspected it would reverse itself this year. Turns out that was right and on an inflation-adjusted basis, incomes for the bottom 20% of the population are now at historic highs as well. If we step back and look at income gains in the past few years, the growth is strongest in the lowest quintile, followed by the second and middle quintiles. Of course these households were the hardest hit during the recession and had further ground to regain. The good news is that ground has been regained, even if such households still struggle to make ends meet.

With stronger income gains among the bottom part of the distribution, Oregon’s poverty rate continues to decline. At 12.6% statewide, Oregon’s poverty rate is now half a percentage point below the U.S. which stands are 13.1%. Oregon’s poverty rate is now lower than it has been since 2000, and our relative position vis a vis the nation is nearly back to the differences seen at that time as well.

In decomposing the poverty rates just a little it shows the current economic expansion really is reaching all corners and populations. Census has changed the way they survey and define racial and ethnic groups over the decades. But as best I can tell, poverty rates among Oregon’s communities of color are at multi-decade lows, if not historic lows. A racial gap remains, as White, Not Hispanic or Latino Oregonians (and Americans) experience lower poverty rates. However the racial gap is narrowing as the expansion continues.

Specifically, this holds at least among Black Oregonians, American Indian Oregonians and Hispanic or Latino Oregonians. This is the extent of the historical data I have pieced together over the years. Keep in mind that there are some underlying definition changes here, but the chart tells an encouraging story.

Bottom Line: Oregon continues to be in the feel-good part of the business cycle. A strong economy works wonders, even if it cannot cure all ills. The benefits are now reaching all corners and populations of the state. At this point, the cyclical improvements are essentially gone and real progress is now being made in terms of socioeconomic conditions relative to the past couple of decades. Everything is not perfect of course. And gains moving forward may be harder to come by as the cycle matures and growth wanes a bit. That said, Oregon is now doing better than it was during the housing boom, and approaching the socioeconomic conditions the state last saw during the late 1970s and late 1990s.

Coming up this afternoon will be a high level look at household income trends in Oregon’s metro areas.

Posted by: Josh Lehner | September 25, 2019

Oregon’s Maximum Annual Rent Increase 2020

What you need to know: The allowable rent increase percentage for the 2020 calendar year is 9.9%.

See our office’s Rent Stabilization page for more, including a downloadable spreadsheet with all the data.

More Information:

Per SB 608 (2019) our office has the reporting requirements for the annual allowable rent increase that is defined as the “annual 12-month average change in the Consumer Price Index for All Urban Consumers, West Region (All Items), as published by the Bureau of Labor Statistics of the United States Department of Labor in September of the prior calendar year” plus 7 percent.

That’s a mouthful but it does have a few implications in terms of calculating the figures. First, data through August is available by the September 30th reporting deadline. Second, the “annual 12-month average change” is interpreted to be the CPI average of July through August, and then you calculate the percent change relative to the previous July through August. It is not simply August relative to August of the previous year. This means that just going to the BLS site and finding the August West Region All Items CPI percent change will not necessarily give you the same figure as using the 12 month average of the index. The reason is BLS reports the August to August percent change. See the Excel file on our website for the calculations and underlying data.

Policy Considerations

In broad terms, SB 608 has two components: restrictions on no-cause evictions, and rent stabilization. Nearly all of the public discussion centers on the latter given the longstanding rent control issues like low levels of new supply and deferred maintenance given there is less economic incentive to build or maintain properties.

Back in February, our office discussed the legislation with our advisors and the consensus was that the new law is likely to avoid these bad outcomes. SB 608 is not expected to restrict new housing supply given the 15 year exemption for new construction and the relatively high cap for the maximum annual rent increase. These conditions will not bind for the vast majority of developers, landlords or units. As such, the likely impact of the legislation will be preventing the worst displacement scenarios, ensuring somewhat more stability for tenants, and increased administrative costs for landlords.

Now, our office’s advisors did raise two concerns. First, they are worried that the annual increase or new construction exemption would be tightened over time, leading to worse housing market outcomes. Second, they wondered who would oversee tenant complaints, ensure landlord compliance and whether there would there be funding for increased landlord/tenant court cases.

Posted by: Josh Lehner | September 19, 2019

Two New Oregon-Related Research Papers

In recent weeks, I have been forwarded two new Oregon-related research papers that I have found particularly interesting. What follows is a overview of these papers. As always, if you have something you think our office should know about, please let us know! Email me here.

Low-Wage Workers and the Enforceability of Non-Compete Agreements. Michael Lipsitz and Evan Starr.

When it comes to underlying issues regarding economic mobility, wage growth and the like, two issues that economists have been researching more and more in recent years have been the impacts of occupational licensing and non-compete agreements. These issues overlap to some degree and have impacts across the economic spectrum. That said, particular focus, or at least lip service, is paid toward low-wage workers where the costs of these policies may be the greatest.

Occupational licenses create barriers to entry for new firms and workers trying to earn a living. Even if once they obtain the license, they earn slightly higher wages, their ability to switch jobs, careers, or move to a different state is restricted in the sense they may have to re-do all of that work again.

Similarly, non-compete agreements tend to restrict employment opportunities and hold down wage growth. This is because one of the best ways for workers to see wage increases is to switch firms, where a competitor outbids the current employer for the skills and experience of the employee. Now, non-compete agreements can have a time and a place for their use when it comes to firm secrets, or poaching clients and the like. However, research finds they generally hamper economic growth. There are a few particularly infamous examples from around the country, including a fast food restaurant having their employees sign non-compete agreements, thus preventing their workers from finding employment at another fast food establishment.

This new paper by Lipsitz and Starr focuses on a policy change here in Oregon that, effectively, made non-compete agreements unenforceable for hourly workers and for those earning below average incomes. This was actually something I, personally, was unaware until the authors reached out in the past year to discuss Oregon’s economy and the like. This particular legislation passed in 2007 (SB 248) and went into effect at the beginning of 2008.

Unfortunately there are no perfect natural experiments nor perfect data. A change like this occurring right as the economy went into the tank complicates matters as does the underlying data (CPS, aka the household survey, which is relatively small and noisy). All of that said, Lipsitz and Starr do everything they can empirically to control for known factors and isolate changes due to the policy.

The upshot of their research is that making non-competes unenforceable for low-wage workers increased hourly wages 2-3% — roughly equal to a year’s worth of wage gains. The policy also increased worker mobility, meaning that the probability of a worker moving from one firm to another increased as well. They find these results hold under a number of different specifications and also find expected results when breaking down the labor market into different occupations, based on educational attainment, race or ethnicity, or by gender.

The bottom line is that the research finds outcomes here in Oregon consistent with what one would expect given economic theory and the concerns surrounding non-compete agreements and low-wage workers.

Socioeconomic Well-Being and Forest Management in Northwest Forest Plan-Area Communities. U.S. Forest Service.

Last year the U.S. Forest Service issued a massive, 1,000+ page report on the Northwest Forest Plan. Eric White, one of the researchers, pointed me to Chapter 8 which discusses the research regarding socioeconomic well-being in communities within the forest plan area. It is a thorough look at underlying economic trends and issues and generally confirms many of the things our office has written over the years. A few items stood out to me in the chapter.

First, the sheer amount of research that has been conducted on communities and the local economies in the plan area was something I had not realized. Most of this research focused on the first decade following the plan implementation, where the largest impacts were felt. The report tries its best to synthesize and summarize these findings, with an incredible bibliography for future readings.

Second, two of these papers found that following the decline in federal harvests, the timber industry jobs losses were about 50/50 in terms of losses due to the harvest declines themselves and those due to increased automation and efficiency in the mills. One paper had it at 40/60 while the other had it 60/40.

Third, I enjoyed the discussion surrounding the different types of communities and the different paths they have taken in recent decades. By enjoy, I mean I think the report does a good job of discussing this and not trying to sugarcoat it. The report talks about communities that have grown in recent decades, largely due to their natural amenities attracting new residents and tourists. The report also notes that these newly created jobs are not perfect substitutes for the ones lost. The report also discusses communities pursing new production strategies and those that have experienced declines.

Fourth, and finally, the report is the most thorough I have seen regarding other uses of forests besides timber production. I suppose this should not be a surprise given the U.S. Forest Service is writing about the impacts of the forest. However I have not seen it spelled out like this and it is well worth your time if you are interested in learning more. Now, these other uses include things like biomass and recreation, but the part on nontimber forest products was new to me (starts of PDF pg 44). This includes bark, berries, bulbs, Christmas trees, fence materials, firewood, fungi, posts and poles, roots, seeds, and many other items. Additionally, the report touches on other types of forest-related employment as well, including forest service contracting, and ecosystem and wildfire management.

Overall, the report is not easily summarized in a few sentences. Nevertheless it remains a good resource for those interested in learning more about these topics and the underlying research.

Posted by: Josh Lehner | September 13, 2019

Digging Into Oregon’s Strong Income Growth

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

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

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

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

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

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

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

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

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

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

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

Posted by: Josh Lehner | September 6, 2019

County Wage Growth (Map of the Week)

While the macro outlook is more uncertain today, one item our office has tried to highlight is that current economic conditions are pretty good. The share of prime working-age Americans and Oregonians is relatively high and wages are rising. Importantly, consumers will continue to spend until given a reason to be scared, which usually means job losses or the specter of job losses. As the labor market marches on, so too does spending and the overall economy even as storm clouds gather on the horizon.

Here in Oregon, these labor market improvements have outpaced the nation during the current expansion. Most encouraging are local wage gains. Today, Oregon’s average wage is at 94% of the U.S. average. This is the highest relative position Oregon has seen since the height of the timber industry in the late 1970s, when Oregon was 96% of the U.S. average. During our most recent forecast release, the discussion on this centered around how widespread these gains have been and whether they are keeping up with the cost of living.

To help flesh out these points, I pulled nationwide county wage data from 2014 to 2018 (the most recent full year). I chose 2014 in part because I wanted to look at wages since rural Oregon began adding jobs, which was around 2013 for most counties. The map below looks at annual wage gains across the country, broken down into quintiles. A few things stand out. First, one thing the map clearly shows is the oil crash that started in late 2014. Mining regions and the oil patch of the U.S. saw wage losses or minimal gains (lightest shading). Second, wage growth along the Left Coast has been particularly strong, outpacing the nation throughout the region. Third, similar gains are seen in the heartland and patches of the south.

Importantly, as shown in the map above and the graph below, stronger wage gains are seen across the entire state of Oregon. Most counties are above the U.S. average and those that are not, are not far behind. There are no stragglers in Oregon in recent years. These gains outpace inflation as well, meaning real, or inflation-adjusted wages are rising statewide. More on this in a minute.

Now, why are wages rising? It could be that Oregon, or a specific area is adding a lot of high-wage jobs which drives the average higher, while current workers see few gains. Or the state could be adding lots of jobs in high-wage counties, while the rest of the state sees minimal improvements. These types of compositional shifts could mask underlying weakness or overstate growth.

Fortunately this is not the case. At the statewide level, neither the shift in industrial structure nor the regional composition of jobs impact Oregon wage growth in recent years. At the county level, industrial shifts matter more but are not the biggest source of wage gains. Take Hood River for example. The county is leading the way in recent years, but every industry is seeing gains. In decomposing the Hood River wage growth, I find that 92% of the gains are due to higher wages in all sectors, while 8% of the gains are due to the county adding a lot of jobs in high-wage industries. In Wasco, I find the split to be more like 95/5. Morrow’s wage growth is entirely due to broad-based gains as the industrial shifts actually weigh on growth (possibly due to the winding down of construction projects).

Overall, this is highly encouraging. Workers in every industry and in every county are seeing wage gains. These gains are all outpacing the Federal Reserve’s preferred measure of inflation (personal consumer expenditure, or PCE) and are meeting or exceeding the more commonly used measure of inflation (consumer price index, or CPI).

Sadly, Oregon lost its own inflation measure as BLS dropped the Portland-Salem CPI in 2018. This past legislative session, HB 2118 standardized inflation calculations throughout state laws to switch from the old Portland-Salem CPI to the West Region All Items CPI. Our office’s forecast now includes the West CPI in our models and tables.

To help put local wage growth in perspective relative to inflation, the last chart shows annual percent changes in the different components of inflation. Wages have increased faster than inflation, but the pattern varies across categories. Obviously the big one is housing, which has outpaced wage gains. However every other component of the CPI basket has increased at a substantially slower pace. In particular, tame food and energy costs hold down overall price increases.

Stay tuned for more on household finances in the coming weeks.

Posted by: Josh Lehner | August 28, 2019

Economic and Revenue Forecast, September 2019

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 current expansion is now the longest on record, celebrating its tenth birthday over the summer. The economic data flow remains solid overall and classic recession catalysts like an overheating economy are not rearing their heads. The good news is that expansion do not die of old age and the outlook calls for ongoing growth. However, expansion do tend to die due to bad behavior and policy mistakes. As such, the risk of recession is clearly rising in recent months. Revisions to both GDP and employment reveal a weaker and slower-growing economy than previously believed. The trade war escalation is spilling over and weighing on the economy to a larger degree as well. Businesses are wary as they delay investments and slow their pace of hiring. All of this has financial markets on edge and the Federal Reserve taking out insurance rate cuts in hopes of heading off a recession. Time will tell whether this is the top of the cycle or just a rough patch.

Oregon continues to see healthy rates of economic growth, however the state is no longer outpacing the rest of the country to the same degree as earlier in the expansion. The state is not immune to national and international developments. While topline manufacturing indicators in the state look good, cracks may be forming due to the trade war. All told, Oregon continues to hit the sweet spot for now. Growth is strong enough to keep up with an increasing population and deliver economic and income gains to Oregonians. The share of working-age residents with a job is higher than the average state and both wages and overall household incomes continue to rise at a faster rate.

During odd-numbered years, Oregon’s September revenue forecast provides a look back at the biennium that just came to a close.  Unlike the nationwide economic expansion, Oregon’s revenue picture has yet to show any cracks.  Through the end of the 2017-19 biennium, all major types of Oregon’s General Fund tax collections continued to outstrip gains in the underlying economy.

The strong growth at the end of the biennium resulted in an increased estimate of the kicker refund.  The personal income tax kicker is now expected to be $1.57 billion, making it the third largest as a share of liability on record.  Kickers of this size occur about once every decade, typically around the peak of the business cycle.  As was the case with the large kicker generated during the mid-1980’s, changes in federal tax policy played a large role in generating above-trend state collections last biennium.

All told, the September forecast reflects a stable economic outlook, with the expected size of General Fund collections increasing slightly over what was expected at the Close of Session. Total available resources have increased around $300 million, largely due to a bigger beginning balance carryforward.

However, when tax policy changes from the 2019 legislative session are factored in, the General Fund is expected to be significantly smaller over the forecast horizon than what was expected in May.  Most notably, the enactment of a Corporate Activity Tax (HB3427) brought with it personal tax rate cuts, and is expected to reduce business tax liability.  While the Corporate Activity Tax will clearly be a net positive for the state budget as a whole, it will reduce General Fund resources since the new collections will not be deposited there.

Heading into the new biennium, uncertainty about the performance of the nationwide economy has become paramount.  Growth will certainly slow to a sustainable rate in the coming years, but the path taken to get there is unknown.  Fortunately, Oregon is better positioned than ever before to weather a revenue downturn.  Automatic deposits into the Rainy Day Fund and Education Stability Fund have added up over the decade-long economic expansion. When the expected ending balance for the current biennium is included, Oregon has more than $2.5 billion in reserves set aside, amounting to more than 12% of the two-year budget.

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 | August 16, 2019

Potpourri Friday: Age Distribution, Portland, and Timber

Three quick charts this week on items I’ve been working on and being asked about during presentations.

First, an updated look at the age distribution in Oregon. Obviously there is variation within these groups, but the combination of the age distribution itself plus migration patterns underpins our previous look at future economic growth across the state. A few things stand out.

Rural Oregon has a higher share of middle-age and older residents. This is no breaking news, but as our office has tried to highlight repeatedly, the demographic drag of retirements on the local labor force is largely about folks aging from their 50s (peak working/income years) to their 70s (vast majority of people are retired). Most rural areas in Oregon are largely through the biggest part of this transition. In the coming decade, the demographic impact is less than it has been in the past decade. Additionally, rural Oregon has proportionately the same number of children as urban Oregon.

Oregon’s secondary metros have a pretty even age distribution. This is partly a composition issue where the differences in each area offset one another. For example, Salem is home to a larger share of children, while Corvallis and Eugene’s 18-24 year old populations are large given the universities. But overall, there are no clear imbalances.

The Portland region attracts 20-something as young adults leaving the nest move to the big city in search of jobs. But Portland’s largest age differences are actually seen among the 60+ age chorts, which are relatively small.

Second, speaking of Portland — and this comes up quite frequently in presentations — the region is effectively half of the state totals. At times discussions can get bogged down into Portland versus the rest of the state and I hesitate to even post this chart, but it’s important to keep our facts straight here. The Portland region — the 5 Oregon counties that are part of the official Portland MSA — accounts for nearly half of Oregon’s population (48%), more than half of the jobs (54%), and a majority of personal income taxes paid by Oregonians (60%). Of course, overall we are one regional economy. Geographic boundaries have no real economic importance. Business to business sales, supply chains, and worker flows are strong across the state and spill across boundaries every single day.

Third, our office keeps receiving inquiries on the timber industry and I think I’ve come up with a new chart that helps drive home at least one of the points we try to highlight. This chart shows timber-related jobs as a share of the local economy and how timber wages compare to the county average wage. At the statewide level, timber jobs pay the same as the average job. However once you get into the heart of the Timber Belt, industry wages remain significantly above average and the sector accounts for a larger share of the local economy. See our previous update for more on the industry, history, and the challenges of replacing these jobs when they’re lost.


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