Posted by: Josh Lehner | January 30, 2017

Oregon, Diversity and the Middle East

People have been moving to Oregon in droves ever since Lewis and Clark*. This fact is a foundational statement in our office’s presentations and one of the key reasons Oregon’s economy outperforms the typical state over the business cycle. As our office has pointed out in the past, Oregon is essentially a 50-50 state when it comes to Oregon-born residents vs those born elsewhere in the country. Focusing only on adults (children don’t get to decide where they want to live) shows that just 38% of adult Oregon residents were born in the state.

What, at times, goes unsaid is that we’re primarily talking about domestic migration and not international migration, of which Oregon does not receive a large influx. Like the rest of the country, Oregon is becoming more diverse over time, however the state does rank below the national average when it comes to racial and ethnic diversity. That said, Oregon does not rank last or even in the bottom 10 states either. After every decennial Census, Kanhaiya, our state demographer, compiles the data across states and counties here in Oregon. What his data shows, is that even as Oregon may be diversifying faster than all but a handful of other states, we rank 32nd most diverse in both 2000 and 2010. It takes a really long time to change relative rankings across states, even if short-term trends are considerably different.

statediversity2010

Within Oregon, only Jefferson County has a higher diversity index than the U.S. overall. A handful of counties — Hood River, Malheur, Marion, Morrow, Multnomah, Washington and Umatilla — are just a notch below the U.S. and certainly above the median state.

While the above focuses on overall diversity, given where much of the national discussion is right now, I thought I would dig into the data and focus on Arab and Middle Eastern countries. Data speaks to me, so being able to put topics in some sort of numerical perspective helps.

What I ended up doing, as shown below, was focusing on ancestry. How do people self-identify where they come from? This does not measure attachment to a location or ancestry, but rather a person’s heritage, roots, and the like. I started with the list of specific countries listed in the executive order, but then broadened it given that the Census Bureau has a specific Arab category that incorporates additional countries and ancestries. Finally I also included a few additional ancestries, such as Israeli and Palestinian, to compile what most consider the broader Middle East.

All told, my classification of Arab or Middle Eastern ancestry shows that 2.8 million U.S. residents, or just over 1 percent identifies as such. Here in Oregon the figures are 27,000 and 0.8 percent. To help put those figures in perspective here in Oregon, that’s roughly equivalent to a city the size of Redmond or Tualatin, or slightly larger than Union or Wasco counties. This data comes straight off published Census/ACS tables (B04006). In examining the underlying microdata it shows that 1/3 of such Oregon residents were actually born abroad in the countries that are home to these ancestries. The rest were born abroad in a different country, or here in the U.S.

ancestry2015

Among Oregon counties, Benton, Clackamas, Multnomah and Washington, all have shares of the population above the U.S. average for Arab and Middle Eastern ancestries.

Finally, a few years ago the Census Bureau compiled a research brief on Arab households in the country. Among their findings were that Arab households tended to have a higher percentage of married-couple families, larger household sizes, higher incomes and a lower homeownership rate than the overall population.

* If you want to go back to the Bering land bridge, it’s true for an even longer time period.

Posted by: Josh Lehner | January 26, 2017

Expansions Don’t Die of Old Age

In a recent meeting someone mentioned that much of the current state budget discussion is based on structural issues — revenue growth not keeping up with expenditures — but at some point in the not-too-distant future we will be back to having cyclical budget issues. In our world that counts as gallows humor and we all nodded our heads in agreement because it is undoubtedly true. Such issues are what keeps forecasters up at night. The comment also dovetails with a question we hear a lot in presentations, something like “Aren’t we due for another recession?” Well, the short answer is no. The long answer is yes another recession will come, but it won’t be because we hit some magical length of time or duration of expansion.

That said, the current economic expansion is getting a little long in the tooth based on historical patterns. Next week we will tie the 1980s expansion for the 3rd longest since WWII. Many economists today are now talking about a maturing business cycle. Here in Oregon, as we approach full employment, we’re seeing job gains slow. Nationwide it appears we’re now somewhere past the peak of the cycle in terms of growth rates. Now, the expansion is expected to endure for awhile longer — the WSJ consensus puts the probability of recession at 16% — but it’s obviously clear we are no longer in the early stages of a recovery.

In fact the current expansion, at least in terms of length or duration, is beginning to enter rarefied air. The last time the U.S. economy was in expansion this long was back in October 1998. Aerosmith’s “I Don’t Want to Miss a Thing”, Barenaked Ladies’ “One Week” and Tim McGraw’s “Where the Green Grass Grows” were topping the charts. And the time before that was in the summer of 1990 when Madonna’s “Vogue” and New Kids on the Block’s “Step by Step” went to #1. So, yeah, it’s been awhile.

explength0117

Thankfully there is no real mathematical relationship between the length of an expansion and the probability of falling into recession. Now, there is some relationship, but it is weak. As an expansion hits 7, 8, 9 years in duration the probability of remaining in expansion still tops 90%. That said, this simple model based on actual U.S. experience necessarily blows up at 10 years which is the longest expansion on record. It’s not that an expansion can’t last longer than that, just that we haven’t seen it. Furthermore, when it comes to Oregon state revenues, we went nearly 20 years without a major revenue event, from the early 1980s up to the 2001 recession. The reason was the 1990 recession was mild and while revenues stopped growing, more or less, they did not plunge like they typically do.

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Ok, so why do recessions happen? Well, they can come in various forms — supply side shocks, financial crises, currency crises and so forth. However the story economists usually tell is about imbalances. These can be sector-specific — high-tech in the 1990s or housing in the 2000s — but usually results in a generally overheating economy. Price pressures build as demand outstrips supply. The economy operates for a time beyond full capacity. As such inflation rises and the Federal Reserve steps in to take the punch bowl away. This was at least the typical pattern prior to the last few recessions.

Former state economist Tom Potiowsky likes to say that expansions don’t die of old age, they die due to mistakes. Those can certainly be policy mistakes, monetary or fiscal. However there still generally needs to be some sort of coordinating event to turn any growing pessimism into a recession. Some sort of Wile E. Coyote moment when it becomes clear we did run off the edge of the cliff. Then a recession ensues and we start the cycle again.

Where exactly the economy is in this chain of events is a hotly debated topic. While I don’t need to tell you this, but I will anyway, the economics profession hasn’t exactly wrapped itself in glory in accurately forecasting recessions in advance. As one of our advisors says, however, we’re really good at autopsies. Yet we still try our best to gauge where the economy is, how it is performing relative to the Fed’s dual mandate and the like. As stated above there is typically a period of time, somewhere between 2 and 4 years, where the economy operates beyond full capacity prior to the next recession. Today, the U.S. economy and here in Oregon is just now approaching or reaching many estimates of full employment. Using the past as a guide, there is likely still room to run for this expansion.

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Unfortunately there is no silver bullet for forecast uncertainty. Our office does at least three things to help provide context for the outlook. First, we use our leading indicators and Tim Duy’s as well to help us with turning points in the economy. Such indices can be best thought of as green light/red light indicators. Second, we provide historical revenue forecast errors along with revenue tracking each quarter, which help show how much uncertainty remains as the biennium progresses. Third, we also provide a set of alternative scenarios — developed with the Legislative Revenue Office and based on historical examples — to try and show what sort of economic and revenue changes could be expected should a recession begin in the next year or two. That said, these items obviously do not solve the budgetary consequences of an actual recession should it occur.

Posted by: Josh Lehner | January 23, 2017

Oregon Wages, 1980-2016

Average wages in Oregon are picking up as the economy approaches full employment. The graphs below aim to help place these gains in a better historical context. The first chart shows inflation-adjusted wages in Oregon in recent decades. The figures noted in the graph are annual averages from business cycle peak to business cycle peak. They try to answer the question of how much progress has been made over the entire business cycle.  realavgwage8016

Economists tend to analyze real, or inflation-adjusted gains because they are a marker of overall economic progress. If wages and economic growth are only keeping pace with inflation, then there has been no real progress made in a lot of respects. Yet, even as most people understand this in concept, we tend to focus more on nominal growth when it comes to our wallets since it’s a lot easier to see. All you do is compare your paycheck this year to last year. However the differences between nominal and real gains differ quite a bit over time and have big implications.

Take the 1980s as an example. During that business cycle, average wages in Oregon increased by 4.2% per year, however inflation was increasing by more than that. So on net, or in real terms, average wages in Oregon actually decreased in the 1980s because wage gains did not keep pace with inflation. The 4% gains were nice to have, but the average worker did not come out ahead.

The 1990s were different and in a very good way for the economy (outside of the forest sector). Nominal wage gains were nearly 4.5% per year, significantly outpacing inflation. As such real wage gains were 2.2% per year over the entire business cycle. Note, however, that the eyeball test shows much of those gains came in the second half of the decade. The slope of the line is steeper in the late 1990s than in the early 1990s. As the economy approached, reached and even surpassed full employment, workers saw really strong wage gains.

That’s the economic state we’re once again beginning to approach. Oregon overall is at full(ish) employment and an economy where labor is scare behaves differently than an economy digging out from a recession. Now this is not the case in every county or region, but statewide and in some of our metro areas it certainly is. See this Bend Bulletin article for example.  And given that full employment is much more a concept than a hard calculation, economists look for trends and patterns in the data that show signs of full employment. One key measure is wage growth.

reakwagegrowth2016

In terms of the outlook, our office expects these conditions to continue in the coming years. The labor market will remain tight. Bargaining power has shifted somewhat back to workers and businesses must compete more on price to attract and retain the best talent. As such, average nominal wage gains are expected to remain around 4% per year, at least until the next recession. In real terms, this works out to around 2% per year as most forecasters expect inflation to be roughly 2% per the Federal Reserve’s stated goal. Note that the data below is BEA income data and differs somewhat from the QCEW data above.

avgwages1216

What is expected to change however is job growth. Adding 5,000 jobs per month is unsustainable when the state only needs 2-3,000 jobs per month to keep pace with population. Those gains were needed and welcomed during the recovery, however, the gains have already slowed and are expected to continue to do so. The good news here is that the focus at this point in the business cycle is no longer on how many jobs were added last month, but on the bigger picture and deeper measures of economic well-being. This includes items like median household income, poverty rates and even caseloads for needs-based safety net programs.

Posted by: Josh Lehner | January 10, 2017

City Club of Portland (Video and Research Links)

Last Friday, January 6th, 2016, Mark was the guest for the City Club of Portland’s Friday Forum. The event was titled “Recovery for some? Oregon Economic Review & Forecast”. He was interviewed by Marissa Madrigal, Multnomah County’s Chief Operating Officer. I am a little biased here but I thought it went really well and the discussion covered a lot of important topics and research. That plus Mark is funny, you know, for an economist.

The video below, from the City Club of Portland’s YouTube channel, lasts just under 55 minutes. For those looking for a shorter version, note that Mark and Marissa’s conversation starts at 2:25 and the meat of the conversation ends at 38:05.

 

Many of Mark’s talking points follow directly from our office’s underlying research. Below are a collection of links for those wishing to read more.

Opening Question and Remarks (video time stamp 2:25)

Oregon’s economy is pretty healthy. First came the recovery in Portland (and the Gorge), then the secondary metros came online a couple years later and now in the past few years, rural Oregon is growing again. The typical rural county has regained about half of its recessionary lost jobs. See our Rural Oregon report for more as well.

An economy approaching full employment differs from one digging out from a recession. The tightening labor market has different implications for workers, businesses and regional job growth. Rising wages and job openings are drawing more folks into the labor market, participation is rising. The combination of the higher wages and higher employment rates means that we are now seeing income gains for households in the middle and lower parts of the distribution who rely solely on wages and the safety net. Finally poverty rates are beginning to fall for areas of the state closer to full employment, which does not yet include every region.

Lastly what this means is that job growth is expected to slow moving forward. Oregon only needs 2-3,000 jobs per month to keep pace with population growth. Our office expects the state to transition down to this more sustainable rate of growth in the near future. And yes, there will be enough jobs.

Housing (9:00)

Affordability is a statewide issue, not just a Portland or urban issue. (Our rural affordability work has not yet been published but will be). That said the focus solely on affordability itself can be a bit misplaced. As our work on the Housing Trilemma shows, there are some trade-offs associated with a strong regional economy, a high quality of life and housing affordability.

Overall the worst of the affordability crunch may be behind us, housing is at or near an inflection point. Supply is beginning to catch up a little bit and income gains are now seen among middle- and lower-income households as the economy improves and full(ish) employment raises wages.

As Mark notes the supply side of the housing market has been the issue. There are a number of suspected reasons, including land use laws, construction costs, labor shortages, uncertainty or fear among developers, bankers and/or regulators. Our office presented this discussion to the Legislature a number of months ago but have not yet written a summary.

New construction is always expensive and targeted to the upper-middle or upper portions of the market. Housing does filter over time. The key component is to ensure that supply continues to be added to the stock.

Jobs (18:25)

Job polarization — the concentration of growth among high- and low-wage occupations with meager trends among middle-wage jobs — has been shaping the economy for decades. See our report Job Polarization in Oregon for a more thorough analysis.

See here for more on the software sector, plus an overview of the entire high-tech sector.

Automation impacts middle-wage jobs considerably. See here for our historical look at the wood products industry in Oregon. Also here to see how automation and technological change impacts women in middle-wage jobs just as much as it does men.

Business Cycle Trends and Recession (23:27)

Oregon’s economy is more volatile than the nation — we have stronger expansions and deeper recessions. This is for two primary reasons. First, Oregon remains a manufacturing state. Second, migration. People have been moving to Oregon in droves ever since Lewis & Clark.

Oregon sees the largest influx of new residents among the 20- and 30-somethings. These so-called root-setting years are very important for longer-run economic growth. As our office’s report details, many, and usually most of these young migrants have college degrees. In fact a majority have scientific, technical or medical degrees. See here for how Oregon’s young college migration trends compare with other states.

Impact of Affordability on Young Creatives (27:27)

Research indicates that the you get the best outcomes from homegrown businesses and industries. Focusing on investments that make a location a good place that young, creative entrepreneurs want to be helps drive some of this success. See our report on Start-Ups and New Business Formation.

Marijuana and Alcohol Clusters (31:21)

Recreational marijuana is still an infant industry. We do not have a lot of good data yet. Previously we looked at the border impact with Washington. However as Mark talked about we really care about the broader impact of ancillary industries and the high value-added products and services. A good example is the alcohol cluster here in Oregon. See page 4 of our beer report for a more complete summary. And here is a chart comparing employment growth for the the overall alcohol cluster in Oregon and the U.S.

Gambling (35:22)

The impact of the Cowlitz Tribe casino is detailed on PDF page 30 in our December 2016 forecast. See here for our report on the Great Recession and gaming, and an update on recent trends following the roll-out of new video lottery terminals across the state.

What Do Economists Talk About? (38:05)

You’ll just have to find out for yourself…

Public Q&A (39:45)

Questions include the impact of recent ballot measures on lottery funds, the state budget gap, federal policy expectations, the minimum wage, PERS, and labor/capital substitution.

Posted by: Josh Lehner | January 4, 2017

The Housing Inflection Point

There is no question that housing affordability has been a key, maybe the key economic story in recent years. However it does not mean affordability will continue to erode always and forever. In fact, the housing market is somewhere near an inflection point today. I would argue we’re already past the true inflection point, however if not, I suspect it’s close.

What I really mean is that affordability will stop getting worse. This goes for both ownership and rentals. Now, it may not improve considerably for some or even most households. And I do not expect affordability to suddenly return to previous levels, but it does mark a step in the right direction. A necessary but insufficient condition, if you will.

The reason for this is two-fold. First, while the lack of new construction and overall supply have been the issue in recent years, supply appears to be starting to catch-up to demand. This is particularly the case for multi-family rentals. Even as the vast majority of new units are at luxury price points, this will have an impact on the overall market. Housing does filter, although there is a multi-decade time lag for the actual units. However the (coming) market saturation for luxury apartments, and with another 25,000 units in the pipeline per the Barry Apartment Construction report, price pressures will subside overall. Similarly, City Observatory has pointed out repeatedly about the slowing price trends in Denver and Seattle to name two.

Where price pressures seem to be more entrenched is on the ownership side. Inventory remains near historic lows. There is simply not enough houses for sale and thus a sellers’ market. That said, inventory has risen just a hair in recent months which is a positive indicator. This increase is not nearly enough and prices (based on buyer and seller expectations) do not adjust immediately. However should inventory continue to increase — and it likely will with big projects like South Cooper Mountain, South Hillsboro and new construction in Clark County coming online  — then better market balance is to be expected. And better balance means slower price increases and improving affordability. Similarly, rising interest rates should slow price appreciation as well, however given higher financing costs, this should have no real impact on affordability itself, just the sticker price.

rmls1116

The second reason for the inflection point is that household incomes are rising across the spectrum. Our office has talked quite a bit in recent months about the importance of full employment and the impact a tighter labor market has on households in the middle and bottom part of the income distribution. All these households have are wages and the safety net. As bargaining power shifts more toward workers and wages rise, incomes for these households rise as well. Higher incomes result in better affordability. This does not mean that housing will necessarily be affordable, rather that the erosion of affordability is likely over when looking across the market. The chart below shows the median rent for households in the Portland MSA with incomes less than $50,000 per year. Rents have gone up nearly $200 per month and the share of income spent on rent has jumped from 32% to nearly 38%. No question that affordability is worse today than prior to the Great Recession. However notice that even as rents are rising, when measured as a share of income, we are seeing costs plateau. Again, this does not mean housing is necessarily affordable. Rather that affordability is no longer worsening. That is a big distinction and marks an important milestone, but hopefully not the destination.

pdxrentcosts0515

Bottom line: Housing affordability is worse today than a decade ago. This is particularly true for lower-income rental households who have seen costs rise significantly with income gains only coming in the past couple of years. That said, affordability is showing signs of stabilization overall and some segments will see improvements in the near future. This is a result of housing supply continuing to increase (although it does not appear to be enough to drive prices down in a meaningful way, at least not yet based on the data) and income gains finally seen among middle and lower-income households. The baseline outlook should be for these these trends to continue. However to see significantly better affordability there needs to be a sizable increase in supply above current trends or a decline in demand. As the business cycle matures, an increasingly likely scenario is that the market won’t return to better balance, or dare we say an oversupply, until the next recession when we know demand will drop. That means market balance would not be achieved via a significant increase in supply, but rather a decrease in demand.

Posted by: Josh Lehner | December 29, 2016

Regional Poverty 2015

Previously in our Poverty and Progress series our office examined Oregon overall, the Portland metro area and Josephine County. As mentioned at the time, the Census Bureau recommends using the Small Area Income and Poverty Estimates (SAIPE) for local level figures. The 2015 data was just released a couple of weeks ago. The graph below compares regional poverty rates across Oregon with the state and national figures overall for the past two decades. These results largely follow our previous analysis which primarily used the ACS data, and of course you would expect them to be broadly similar. However the trellis graph gives a clear and easy way to compare trends across regions.

regionalpoverty15

As we have pointed out, much of the improvement in recent years has come in the Portland MSA and then the broader Willamette Valley. These areas saw economic growth return first and have seen relatively strong gains since. Such growth leads to a tightening labor market with strong wage gains, which in turn drives household incomes higher and lowers the poverty rate. As these labor market improvements continue into other regions of the state, household income gains and poverty rate declines are likely to follow. We’re just not there yet, for the most part. This relative pattern is at least in part due to the timing of local and regional business cycles. Provided the overall economic expansion continues, improvements throughout the state can be expected in the coming years.

Even as economic improvements are a big part of the short-term story and for the working-age population, those clearly are not the only trends impacting measures like the poverty rate. Greg Tooman, regional caseload forecaster for DHS/OHA has some great insights into what impacts and drives local level trends. I have copied a comment of his below. Thanks Greg! For more on the DHS/OHA forecasts see the latest statewide forecast here, and the regional outlook here.

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

Posted by: Josh Lehner | December 20, 2016

Labor Force Participation, Full Employment Update

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

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

lfprupdate1216

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

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

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

Posted by: Josh Lehner | December 14, 2016

Manufacturing Across Metros (Graph of the Week)

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

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

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

msamanufacturing2016

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

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

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

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

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

Another excerpt on the Oregon manufacturing outlook:

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

Posted by: Josh Lehner | December 9, 2016

Retiring Oregonians

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

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

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

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

retirementage

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

retiring

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

retiree2025

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

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

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

 

Posted by: Josh Lehner | December 7, 2016

Will There Be Enough Jobs?

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

tnf1216

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

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

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

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

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

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

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

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

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