Posted by: Josh Lehner | March 21, 2017

Effective Vice Tax Rates, Marijuana vs Tobacco

There are different ways to design and apply a tax. Depending upon the exact tax structure, this can result in similar or different effective tax rates across a range of products or activities. At the request of Senator Boquist, our office recently looked into the effective tax rates here in Oregon on recreational marijuana and tobacco products. We presented the following information to the Senate Finance and Revenue Committee and the House Committee on Revenue, however it did not make it into our quarterly publication.

Right now Oregon taxes marijuana at a fixed percentage of the sales price (17% for the state, with a local option of up to an additional 3%). This type of tax is usually referred to as ad valorem, meaning the tax increases in proportion to the price. Given the way ad valorem taxes are applied, it means the effective tax rate is equal to the statutory tax rate. Additionally, as I said at the forecast release, and a quote that made it to Twitter, a benefit to this type of tax is that it applies equally to both higher-end and lower-end products.

Even as Oregon does not have a general sales tax, we’re all familiar with this type of tax. What it means is that recreational marijuana customers will pay about $1.50 in state taxes per gram based on average sale prices as reported by the Department of Revenue.

On the other hand, tobacco products are usually taxed based on a fixed amount per product, or what can be called a specific excise tax.

In the case of cigarettes, the federal government levies a $1.01 tax per pack, while Oregon adds an additional $1.32 per pack. Since these taxes are fixed, it means the effective tax rate per pack depends upon which product a consumer buys. In doing some admittedly unscientific research on what cigarettes cost today, I went into three convenience stores/gas stations in the Portland and Salem area. What follows is a stylized example based on this window shopping. Average prices across the state based on what customers actually purchase will differ, but will generally fall within the ranges discussed below.

Name brand cigarettes like Camel and Marlboro seemed to cost about $6.50-$7.00 per pack. This means the effective tax rate on name brand cigarettes is around 50% (taxes paid as a share of the pre-tax price, or taxes paid as a share of the price excluding taxes). For generic brands, the purchase price per pack is considerably lower, less than $4.50 per pack. However given that the taxes per pack remain the same regardless of brand or price, that means the effective tax per pack skyrockets up to more than 100% in many cases.

A similar pattern can be seen when it comes to moist snuff, although effective tax rates appear to be somewhat lower than for cigarettes.


Even as taxes can be applied in different ways, they can also be calibrated to result in similar effective tax rates if desired. That said, one of the goals of M91 that legalized recreational marijuana was to keep taxes low to encourage conversion from the black market into the legal market. There are lots of policy goals and ideals when it comes to taxation beyond strictly talking about effective tax rates.

Finally, for comparison purposes we showed how large each revenue source is for the state. At roughly $60 million in tax revenue, marijuana and other tobacco products (mostly moist snuff but also cigars and loose tobacco) are considerably smaller than cigarette tax revenue at more than $200 million per year. mjtobrev16

In terms of where these revenues go, and which programs they are spent on, it really varies by product. For example, none of the marijuana revenue goes to the General Fund, which is a common misconception. For a full breakdown of where these monies are dedicated, see Table B.6 in Appendix B (PDF) of our forecast document.

Posted by: Josh Lehner | March 15, 2017

Oregon Traffic, A VMT Update

As everyone who has driven a vehicle recently knows, traffic volumes are up and congestion is worse today than just a couple years ago. I know I see and feel it driving around the state for presentations over the past year. While the increases have been particularly strong here in the Willamette Valley, it has a statewide impact. One reason is that goods produced and shipped from around the state generally travel to the Valley and through Portland on their way to their final destination. So even if traffic and congestion may not be quite as bad elsewhere in the state, it still impacts the regional economy.

To put some numbers to the increased traffic volumes, total vehicle miles traveled across the state has increased about 10 percent in recent years. This increase followed a decade where total traffic volumes were flat or declining.

So what’s going on? The latest Oregon Department of Transportation revenue forecast(PDF) says it all:

With jobs plentiful and fuel prices low people are driving again and as Oregon attracts more people from other states this leads to additional fuel consumption and DMV transaction volumes.

In the past year or so, Dan Porter has been promoted to the head forecasting position over at ODOT. He’s been doing some really great work and his revamped forecast document is full of interesting nuggets of information. Our office loves ODOT data because it’s somewhat economic in nature, it is impacted by longer-run demographics and shifts in consumer demand. Dan’s work also feeds into some of the Highway Cost Allocation Study which our office oversees each biennium. If interested in learning more about the different trends impacting the state’s overall transportation system — from weight mile taxes to DMV work loads — I highly suggest you read the forecast.

One aspect of traffic that has really changed over the past 15 years or so is driving behavior. Even as the state’s population continues to increase, for much of that time period total traffic volumes were flat. On an individual basis we were and are driving considerably less than we were historically. Based on the data, it’s clear that prices matter. As gas prices increased during the mid-2000s, driving behavior shifted down and remained low throughout the Great Recession and its aftermath. However now that prices are low again — and they’re up y/y today but still low relative to the past 10 years — driving has made a rebound. That said, VMT per adult remains considerably lower today than last decade even with the rebound in recent years. For more on VMT trends, see our office’s previous work.

What’s really interesting is trying to figure out what are driving these behavioral changes. Some is economic — household incomes, gas prices, etc — some is due to things like urban form, but some is societal and even generational. One key trend has been that fewer and fewer teenagers were getting their licenses and driving relative to previous generations. To what extent are these trends expected to continue, and how much of this shift is a life-cycle vs generational change? There are a number of national studies that dive into this. The general consensus expects most of these shifts to be, more or less, permanent. We know teenagers today don’t go cruising around town like they used it. They’re much more plugged into online activities (gaming, social media, etc) which doesn’t require actually driving from place to place. That said, some of it clearly is cyclical. In fact here in Oregon we’re seeing the number of teenagers getting a license increase again. Here is Dan’s chart from the forecast document. As Dan annotates, policy changes clearly impact these figures over time, but the numbers are still picking up.

Like I mentioned, our office finds the ODOT data fascinating. In the future I plan on borrowing and highlighting some more of Dan’s work, along with some of the research that goes into the Highway Cost Allocation Study. In the meantime, I would direct you to a couple of informative posts over at City Observatory. The first discusses the fact that with the increase in driving, we’re also seeing an increase in traffic deaths — unfortunately the two go hand in hand. The second digs into the methodology underlying some of the congestion “studies” you may see pop up in the news from time to time.

Posted by: Josh Lehner | March 10, 2017

Oregon Metro Size and Employment, 2016

Yesterday we looked at job growth across the U.S. based on metro size, including rural areas. Today we’ll take a similar look at growth here in Oregon. Overall we know our economy is more volatile than the typical state. We fall further in recession but grow faster in expansion. Given the economy spends many more years in expansion than recession we tend to come out ahead over the entire business cycle. The two main reasons for this volatility are our state’s industrial structure and our migration flows. The Great Recession is shaping up to be no different, even if it was clearly much more severe overall. Each of our areas here in Oregon — from our largest metro in Portland to our secondary metros to our rural areas — saw larger job losses than their counterparts across the country. However now that we’re coming up on the expansions’ 8th birthday, Oregon is starting to pull ahead across the board.

Relative job growth patterns here in Oregon are both similar to the U.S. overall and different. We’re similar when it comes to the largest metropolitan areas. Portland, like the nation’s other big metros, popped up first in recovery. For the last 6 years Portland has been adding jobs at a 2-3% annual rate, which outpaces the typical large metro by about 0.5 – 1 percentage points.

Where Oregon differs is in the growth of our secondary metros and rural areas. While it took a few additional years for Oregon’s secondary metros to see the expansion, they have really come online in the past 3 years. They’re now adding jobs at a faster rate than Portland is, and considerably faster than their national counterparts — 3-4% here in Oregon vs 1-2% nationwide in recent years. Much of this has to due with the nature of the business cycle. Bend and Medford were among the absolute hardest hit housing bust metros in the entire country. It took considerable amount of time to recover and reorient following the busts they experienced. But the strong growth isn’t limited to Bend and Medford either. In recent years Albany and Salem are growing faster than they have in decades and Eugene is seeing above average gains too.

Even as rural Oregon faces challenges — see our report — job growth in recent years is probably the most encouraging sign. This is particularly true in a relative sense compared to the rest of rural America. It took even longer for growth to return to many rural communities, however all regions of the state are now adding jobs. In fact, rural Oregon is adding jobs at a roughly 2% pace for nearly two years now. That growth, as we pointed out at our forecast release, is faster than the U.S. average overall. Now, most rural counties have yet to fully regain all of their lost jobs. As of the recently revised and released data, the typical rural county in Oregon today has recovered a bit more than 70% of their recessionary lost jobs. That said they are making progress and seeing stronger growth than the majority of their national counterparts. While the longer-run trends have been lackluster, the short-term trends are very good news.

Data Note: this last graph shows CES employment data, whereas all of the previous was QCEW. For rural Oregon, CES employment pegs it at -2% below pre-Great Recession levels while QCEW pegs it at -1%. Given they come from different data sources, the underlying data do differ but are telling the same general story.

Posted by: Josh Lehner | March 9, 2017

Metro Size and Employment, 2016

Back by popular demand, here is an update on job growth across the country based on metro size. BLS just released the 2016q3 QCEW data on Tuesday for the entire country. This is the detailed data of employment and wages based on unemployment insurance records. It comes with a time lag — again the q3 data was just released — but is much more accurate in nature.

Since our last look 18 months ago the relative patterns of job growth have not changed considerably. What that does mean, however, is that the nation’s largest metropolitan areas continue to outperform the rest of the country and the cumulative gap is getting bigger. Here in Oregon the trends are a bit different and we’ll talk about those tomorrow.

Our first chart shows employment changes since the start of the Great Recession. As the line plummets that represents employment losses during the recession. As the line works its way back up that’s the recovery taking hold and regional economies are adding back all the lost jobs. Once the line reaches 0% again, then all of the lost jobs have been recovered and anything above 0% represents job growth above and beyond levels seen prior to the Great Recession. Two minor notes. First, medium sized metros now appear to be pulling ahead of the small metros in the past year or two, something that wasn’t necessarily true earlier in the recovery and expansion. Second, rural areas have stalled out and continue to see diverging patterns between the oil patch counties and the rest of rural America.

The second graph shows year-over-year job growth since 1980 for the same classifications. What’s interesting here are the differing patterns over time. In much of the 1980s and again during the housing boom, growth rates were similar across these metro sizes and rural areas. However the 1990 recession impacted large metros severely (SoCal in particular), and the technology-led expansion in the late 1990s resulted in very strong growth in the nation’s largest metros. In recent years, the same general pattern as the late 1990s has reappeared. All areas of the country are adding jobs, but the largest metropolitan areas are adding jobs at a faster pace.

As mentioned above, the rural stall is all about the oil producing regions of the country, or at least the rural counties in oil states even as not each county is necessarily a major oil producer. Following the oil crash in late 2014, jobs disappeared and haven’t come back yet overall. The rest of rural America is seeing job growth, although it has slowed from around 1% to around 0.5% over the past year and a half.

For another really interesting look at this data broken down by urban, suburban and rural areas, head over to the recent post by Jed Kolko, Indeed’s chief economist, formerly of Trulia.

Tomorrow we’ll take a look a these trends here in Oregon. We’re similar in some respects but not entirely the same as these national patterns, which overall is a good thing.


Posted by: Josh Lehner | March 3, 2017

Alcohol vs Software (Graph of the Week)

Happy Friday! In the showdown you didn’t know you wanted but now glad you have, Oregon’s alcohol cluster has added more jobs than the state’s software industry since the start of the Great Recession. This edition of the Graph of the Week has been a regular in our office’s slide deck for some time now but we haven’t shown it here on the blog yet. Our office uses this chart as the starting point to talk about three things in particular.


First, software is clearly a high-wage and fast-growing sector. That said, Oregon’s historical high-tech strength has been in hardware, with a below-average share of jobs in software. While highly productive and very important, hardware is no longer a job growth industry. Software, conversely, started from a low base and is growing quickly. The state needs and welcomes all of these jobs we can get as they are helping to diversify our economy. For more, see our office’s summary of Oregon’s high-tech sector overall, and our look at software, outposts and critical mass.

Second, Oregon’s alcohol cluster continues to boom. This includes the state’s breweries, distilleries, wineries in addition to distributors, specialty retail shops and bars. It does not include restaurants and so misses out on the brewpubs that are classified as restaurants. While wages are not as high in the alcohol cluster, it remains an important industry for a few reasons. At its roots, it is value-added manufacturing. It takes commodities and raw ingredients and turns them into a more valuable product that is then sold around the world. The impact really goes beyond the bottles and cans however. The broader cluster of agricultural products, equipment manufacturers and suppliers, and local design, marketing and consulting services are key. When a new brewery opens in another state, they look to Oregon-based firms to help them get started. Additionally, the geographic footprint of the industry is widespread and not just concentrated in the larger urban areas. For more, see our office’s beer report and look at alcohol exports.

Third, from an economic perspective, our office hopes that the newly legalized recreational marijuana market follows in the footsteps of the alcohol cluster. It is not so much the growing and retailing of the product that we’re looking for. That will come regardless and over time the market will be commoditized like any other. It’s really broader than that were the real economic impact will come from. It’s about the value-added manufacturing — extracting oils, creating creams, making edibles. It’s about building up the broader cluster of lab testing equipment, and branding and design companies so that when another state legalizes marijuana they look to Oregon firms to help them. Right now, we’re still in the infant stages of these developments and is something to keep an eye on moving forward. Our friends at the Employment Department recently shared some data that showed there are about 3,000 payroll jobs in the sector, however there have been over 6,000 applications approved for those applying to handle marijuana. Private sector estimates of the number of jobs are higher still, including jobs not covered by unemployment insurance.

Posted by: Josh Lehner | March 1, 2017

Oregon Lottery: Casino Impact Summary

As the opening date for the Cowlitz Tribe’s Ilani Resort and Casino in La Center, Washington approaches, here is our office’s summary of the potential impact on Oregon Lottery revenues.

Our office continues to refine the estimated impact of the upcoming casino in La Center, Washington (16 miles north of Portland) which is set to open in “late spring” 2017. While the casino won approval a year or two ago, legal challenges remained and our office had previously taken a wait and see approach before adjusting the outlook accordingly. Beginning with the June 2016 quarterly forecast, our office started incorporating the casino’s impact.

As of the March 2017 forecast, our office’s estimate of the casino’s impact is a loss of around $110 million per year in video lottery sales, or a nearly $72 million per year reduction in transfers. This represents the same impact that was assumed in the December 2016 outlook.


Back in June 2016, our office’s initial estimate of the casino’s impact was set at a loss of around $100 million per year in video lottery sales. This estimate was based off the Legislative Revenue Office’s previous work on the impact of the proposed Wood Village casino in 2012, with some updates to incorporate the improved economy and the like. That approach started by examining the total gaming market in the Portland region and estimating what share of the market the new casino would take. It was a top-down approach to arrive at an estimate.

In the September 2016 forecast, our office increased the estimated impact to around $120 million per year. This larger estimate was based on a bottom-up approach that started by examining video lottery sales at the individual retailer and neighborhood/zip code level. More than half of Oregon’s statewide video lottery sales occur within the Portland MSA. 11 percent of statewide video lottery sales occur within just the northern portion of the Portland MSA – from the St. Johns neighborhood through the Parkrose neighborhood, including Hayden Island. Anecdotal evidence plus statistical analysis indicated that the border effect with the State of Washington, which does not have video lottery in its bars and restaurants, was large. This is particularly true directly across the two interstate bridges in Portland. However such trends are also seen in the population centers along Oregon’s borders with California and Idaho too. If these northern Portland zip codes see a 40-50 percent decline in video lottery sales, that means total statewide video lottery sales would decline 4.5 to 5.5 percent. Factoring in additional losses of around 10-15 percent throughout the rest of the Portland region brings the statewide total impact to nearly 12 percent, relative to the no casino baseline.

Both the top-down and bottom-up approaches yielded fairly close estimates in terms of the impact of the new casino.

A few months ago the Oregon Lottery research team analyzed video lottery jackpot winner records. As seen in the map below, the share of such winners in neighborhoods (Census tracts) along the Oregon-Washington border are quite large. There is substantial cross-border activity. However, the share of Washingtonian winners in neighborhoods not along the border is considerably smaller, as is to be expected. Given the results of this new research, our office lessened the casino impact last quarter and brought it to the middle of the range established via the top-down and bottom-up approaches.


As always, our office will continue to work on refining the estimates and updating the likely impact in the coming forecasts. Once the new casino has been opened for at least a few months, we should have a better idea on what the initial impact on sales actually is.

Posted by: Josh Lehner | February 22, 2017

Oregon Economic and Revenue Forecast, March 2017

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.

As the U.S. economic expansion approaches its eighth year, it appears to be on solid and stable footing. Thankfully, expansions do not die of old age and the current one appears to be free of imbalances so far. Most encouragingly, it seems that the manufacturing sector is pulling through its malaise of recent years. Combined with better-than-expected data in recent months and expectations that federal policy is likely to at least be somewhat expansionary, the U.S. macroeconomic outlook is modestly brighter today than three months ago. The expansion still has legs and room to run. What can drive recessions, however, are policy mistakes and/or an event that coordinates growing pessimism in the economy. Given the large uncertainty regarding specific federal policies, all eyes are on Washington D.C. at least until better clarity is given.

Oregon’s labor market continues to outperform the typical state, even as growth rates have slowed since last summer. Regional job gains continue to be more than enough to keep pace with a growing population, and all parts of the state are seeing growth. In fact, rural Oregon is adding jobs at a stronger pace than the nation overall. While federal policy uncertainty is not weighing on the outlook today, the range of possible outcomes is large. The most-discussed options generally fall into two camps when estimating their impact on Oregon. Some, like tax cuts, deregulation and infrastructure spending are likely to impact Oregon to the same degree as most states. However, others possible policies like rolling back the Medicaid expansion, worsening trade relations and federal land policy changes are likely to have an outsized impact in Oregon relative to the typical state.


Heading into the income tax filing season, Oregon’s General Fund revenue outlook remains on track. Expectations are virtually the same as they were when the 2015-17 biennial budget was crafted two years ago. Personal income tax collections are currently expected to land within $4 million of the Close of Session estimate, with overall General Fund revenues expected to land within $113 million (0.6%) of the Close of Session estimate.

Early in 2017, growth in personal income tax collections began to pick up. Little growth was seen during 2016 due to the impact of kicker payments for the 2013-15 biennium. With the vast majority of kicker payments now out of the door, growth rates are returning to normal.

As always, the verdict will remain out on personal income tax collections until after the April filing season is tallied.  This year, there is even more uncertainty in the tax season outlook than usual. This year, both federal and state refund payments were delayed until mid-February, and are just now beginning to ramp up.  A new tax processing system is adding to the uncertainty.  The nature and availability of data on tax payments has changed, and as a result, year-over-year comparisons are often misleading.

Corporate tax collections have posted healthy gains in recent months after falling sharply during most of 2016. Given the expectation that collections would return to historical norms, revenue declines were built into the forecast. Nationwide, corporate profits have taken a step back, largely due to rapid appreciation of the U.S. dollar and struggles among energy firms and other commodity producers.  With these downward pressures on profits having now eased, corporate profits and related tax collections are expected to stabilize going forward.

In keeping with a modestly stronger economic outlook, state revenues are revised upward over the 10-year forecast horizon. The majority of the increases come from personal, corporate, estate and liquor revenues. The lottery sales outlook has also been raised due to a somewhat more robust outlook for personal income and consumer spending.


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 | February 16, 2017

Foreign-Born Oregon Residents

On the heels of the recent post on diversity and Middle Eastern ancestry, our office wanted to get a better understanding of the foreign-born population here in Oregon. So we asked Kanhaiya in our office, and Charles Rynerson, demographer at Portland State’s Population Research Center, to help us with some data and information. What follows is a look at the historical trends here in Oregon, which countries our foreign-born residents came from and the like. Thanks Kanhaiya and Charles!

UPDATE: One reason this is important has to do with demography. Many foreign-born or minority households do have higher birth rates. Many of rural Oregon’s counties with a higher foreign-born or minority population share have better population outlooks as the natural increase (births minus deaths) remains positive. The natural increase has slowed considerably across the nation as the Baby Boomers age, and has turned negative in many parts of the country and in some areas here in Oregon.

The first chart shows the foreign-born population here in Oregon going back more than 150 years. The distinct growth and outright decline periods are interesting to note over this time. Clearly a lot of history embedded in this chart. For more seen PSU’s website Road to 4 Million.


Of the current foreign-born population, 40% were born in Mexico. This is by far the largest country of current foreign-born residents in Oregon and significantly larger than other regions of the world for that matter.


Now, what is interesting is that the vast majority of the Mexican-born Oregon residents came to the U.S. a decade or two ago. There has been very little international migration in recent years. There are two reasons for this. One has to do with Mexican demographics and the falling birth rate a generation or so ago, resulting in fewer potential immigrants today. The second has to do with the economy. The Mexican economy has actually performed pretty well in the last decade, while the U.S. has not. The economic incentives switched as the Great Recession wreaked havoc on the U.S. economy. Some national estimates, particularly of illegal residents, show population losses to Mexico in the years since the Great Recession and housing bust. That said, with the strong U.S. dollar and weak Mexican peso, some of these economic incentives are switching back. It will be interesting to see how this impacts international migration.


The county map below shows where within Oregon has the highest and lowest shares of foreign-born residents. The darkest blue counties are significantly above the state average and above the U.S. average as well. They account for about 40% of the Oregon population overall but 65% of the foreign-born population. The second darkest blue counties have a foreign-born share that is roughly equal to the statewide average. All other counties have significantly lower shares.


Lastly, via the U.S. State Department (HT Charles) one can track the number of refugees coming to Oregon. Over the past 15 years, Oregon has seen an average of about 1,000 refugees per year. In recent years about half of these refugees came from the seven countries that are explicitly listed in the executive order. Keep in mind that refugees have a specific definition — those who have been forced to leave their country due to violence or persecution — and the overall international migration flows tend to be larger.


Within Oregon, 84% of these refugees in the past 15 years arrived in the City of Portland. 97% within the Portland MSA overall. As such, obviously very few throughout the rest of the state. For example, I was recently down in Eugene for a presentation and in looking at the data, Eugene and Springfield saw 13 refugees in the past 15 years. For more on the patterns within the Portland MSA I would direct you to contact Charles who has some cool maps looking at neighborhoods, where languages other than English are spoken in the home and the like.

Posted by: Josh Lehner | February 9, 2017

Rural Housing Affordability

As a general rule of thumb rural areas have roughly 20% better housing affordability than urban areas across the U.S. Yes, incomes tend to be lower, however housing costs even more so. That said, a portion of rural communities face significant affordability challenges that are every bit as severe as some of the popular metropolitan areas. This is true here in Oregon, and the broader Mountain West as well.

In presentations our office regularly uses the map below to discuss how affordability really is a statewide challenge. It uses the price to income ratio, or actually the median home value to median household income ratio, for all rural counties in the nation. The color groups are tiered by quintiles, or deciles.

The darkest red counties represent the 10% least affordable rural counties in the country. These areas face affordability challenges on par with the 20% least affordable urban counties in the country. The patterns you see here include many resort towns and vacation destinations. This includes places like the coastal Northwest, the Boundary Waters, the Smoky Mountains, ski towns in Colorado and New England, and the like. One reason for the lack of affordability is the external demand, or the demand for second homes. Housing prices are not entirely representative of local incomes, but rather those able to afford vacation homes in some of the country’s most scenic areas.


However what also stands out is the broader Mountain West which is almost entirely orange or red. And while it can be a bit hard to tell what exactly is going on, we do know that not every one of these counties is a resort destination. In analyzing the data it’s not that incomes are particularly low — roughly inline with rural incomes across the country — rather it’s that housing costs are high. This is certainly true here in Oregon, as seen in the graph below. Furthermore, these affordability challenges stretch across the entire region and across a group of states with considerably different land use laws among other things.
My take is at least some of the regional affordability issues depend upon when development occurred over time and then demographic and population changes in recent decades. It’s no question that most rural communities face demographic challenges, however some more than others. Many of the rural counties that have seen population growth, or at least not large declines, are here in the Timber Belt and the West more generally. As such, demand remains relatively strong.

This is unlike the Plains, which is where I’m from. Many of those communities have housing stocks that were built for a larger population in decades past. For example the southeastern Kansas county where my Grandma spent much of her adult life (She’s still alive! Love you Grandma!) peaked in the 1920s in terms of population and her town literally had a brick factory. The housing market, and overall public infrastructure for that matter was built to accommodate all those residents. However as population has declined, roughly half a percent per year in recent decades, it means vacancy rates are rising and so too is affordability.

Such rural communities, not unlike some of the Rust Belt metros in the Housing Trilemma, face their own sets of challenges that are considerably different than regions with growing pains. That said, rural development does face some challenges itself beyond just market demand. Geographic isolation can raise the costs of materials due to longer transportation hauls, for example.

Would love to hear your input too on this given we don’t have a complete story for why the patterns look the way they do. Email me here and let us know!

Finally, there are a number of additional charts below for those interested, including a histogram of where each Oregon county lines up across the country.

Posted by: Josh Lehner | February 6, 2017

Supply Chains and Trade, States Edition

International trade and the impact of globalization continues to be a hotly debated topic. See Brad DeLong’s thoughtful piece at Vox and Jared Bernstein’s rejoinder, for recent examples. They both highlight the fact that trade policy and individual trade deals are distinct and have different impacts, even as nuance gets lost in conversation.

While much of the current discussion tends to focus on a particular trade deal like NAFTA or trade with a particular country like China, in a world of global, just-in-time supply chains, it gets tricky and complicated really fast. Bill Conerly, economist and member of the Governor’s Council of Economic Advisors, made this point in a recent article. Bill noted that all major manufacturing subsectors rely upon imported parts and materials for some portion of their production, even if the bulk of that production was here in the U.S. It may be an appliance factory that imports a particular valve, or a paper plant that imports a particular machine used in the paper making process. As such it’s not just about direct trade or trade balances necessarily. In fact, the vast majority of states have very little direct trade exposure to any given country or region of the world. The real issue is about the global supply chain and any potential disruptions.

What follows is a high level look at imported supply chains, state industrial structures and then direct trade exposure by state to Latin America and China. Unfortunately the data used here from the BEA and Census is imperfect, as noted on their respective websites, but as good as we have available to us. The findings are suggestive of these trends and potential impact, even if specifics are sure to vary should any disruptions come to pass.

First, approximately 20% of the intermediate goods and commodities used in U.S. manufacturing are imported. That’s a sizable share overall but it does varies considerably by subsector. These figures are calculated using the BEA’s IO tables, their import matrix and use tables specifically. Overall the subsector patterns make intuitive sense. Food, Beverage, Tobacco and Wood Product manufacturing use a lot of domestic inputs (U.S. grown crops). Machinery, Transportation Equipment (cars, heavy trucks, airplanes), Computers and Electronics rely on imported iron, steel, wires and the like. The one item that really stands out, however, is Petroleum and Coal manufacturing. While the U.S. does import a lot of petroleum, I’m not entirely sure this import share perfectly applies here and then not by state either. This is where imperfect data comes in. The BEA compiles domestic vs imported sourcing for all types of commodities and intermediates. They then assume that each sector that uses a given commodity uses the same domestic vs import share. That said, the available data does confirm Bill’s argument of the reliance on imported inputs across manufacturing sectors.


Second, the industrial structure of regional economies can help us assess potential supply chain risk across the country. Not that these are the states that will be most impacted, just that they have a larger concentration of manufacturing in the sectors with higher import shares. This too relies on imperfect assumptions but is the best we can do; the results are suggestive of the general patterns seen in the data. As such, the energy states rise toward the top given their industrial structure. Locally, even as Oregon has a large high-tech manufacturing sector, the state has a lower implied share due to the size of Food and Beverage, and Wood Products.


Third, the work above speaks to global supply chains in general across industries and states. However much of the recent discussions have centered on trade negotiations, or renegotiations with specific countries. To what extent do regional economies trade or rely upon trade?

The first scatter plot shows state level trading patterns with Latin America overall. Mexico is the dominant trading partner here, with surprisingly little trade with the rest of the Caribbean, Central American and South American countries. To normalize the data across states, I show exports and imports as a share of state GDP. Note that the state import data is still relatively new in the data world and is known to be less complete and robust than the export data. That said, most states have relatively low levels of direct trade exposure to Mexico and Latin America more broadly. Clearly this is not the case for states like Michigan (auto and related imports) or Texas and Louisiana (large imports and exports).


The second scatter plot shows state level trading patterns with China. Again, there appears to be relatively small levels of direct trade exposure for most states. That said a few states stand out. On the export side, both Washington (aerospace) and Oregon (semiconductors) trade considerably with China. In Oregon’s case, however, we know some of that is within firm shipments and not necessarily selling products on the open market. To what extent within firm shipments, or vertically integrated companies would be impacted by worsening trade relations is an important question to ask. I don’t have the answer to that but it’s worth considering.


On the import side, California and Tennessee stand out. In both cases, a sizable share of these imports are either computer equipment or communications equipment (both in NAICS 334). For California it’s about 33% of all Chinese imports and for Tennessee it’s about 60%. One question I have would be does this represent direct trade or the fact that Tennessee and California act as distribution hubs. Are some of these goods just sent to warehouses from which they are then sold to customers all over the U.S.? This question brings us back to the start of the post.

Global supply chains mean that every major manufacturing sector relies in part on imported commodities, intermediates and the like. Assessing economic benefits, or costs, is considerably complicated. As the state trading patterns show, not that many states have large levels of direct exposure, however we know it’s not that simple. A disrupted supply chain, should it occur, will have knock-on effects throughout the economy. This is particularly the case during the initial adjustment phase where supply chains may need to be reworked through finding new suppliers, changing cost structure due to taxes or regulations and the like.

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