Central Oregon Will Again Grow Faster Than the Nation

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Our small region comprises less than 5 percent of Oregon’s population, but is producing 15-20 percent of the state’s growth.

National Economy
Even prior to the November election, key barometers of the economy were pointing to a better national picture in 2017 than 2016. Hand-wringing about recession midway through last year eventually gave way to broader optimism as the U.S. showed stronger than expected job and GDP growth (Gross Domestic Product = the sum of all goods and services produced in a given period). Enter the surprising November presidential election outcome, which injected a healthy dose of uncertainty – eliciting reactions from giddy enthusiasm to doomsday predictions as the executive branch is led for the first time in the modern age by a person never before elected to public office.

Highlights
Last year we said that ‘16 would outpace the ’15 economy, which it did soundly. Leading indicators point to the same happening this year, but with 2017 showing even more dramatic and across-the board expansion.

EDCO’s pipeline of projects that are deciding to move, start or grow in the tri-county region is as strong as ever… currently 223 companies.

Policy changes, primarily at the state level, continue to create uncertainty for business growth – and with it, job creation.

Last year we said that ‘16 would outpace the ’15 economy, which it did soundly. Leading indicators point to the same happening this year, but with 2017 showing even more dramatic and across-the board expansion. Certainly there are always risk factors on the horizon including: very high or very low oil prices, performance of European and Chinese economies and sudden policy changes on things such as banking, healthcare or foreign trade, but any substantive change over the next 12 months is doubtful on these fronts. 2018 could be another story.

According to the experts that Economic Development for Central Oregon (EDCO) follows, nearly every major segment of the national economy is slated for expansion in 2017. Surprisingly, industrial production, usually a leading indicator of things to come economically, is out of sync (flat or downward trending) with other key barometers.

As noted in past forecast articles for CBN, our national and regional economy is comprised of many different industries and sub-sectors within those industries. While overall things economically may be improving, each sector has its own business cycle, which may be in or out of sync with the broader economy.

Nationally, sectors out of sync with accelerating growth include office building construction, energy/power plant construction, construction machinery and medical supply manufacturing. But these exceptions will not derail a solid growth year that could see U.S. GDP growth rates back up above 3.5 percent – something we’ve not yet seen in this recovery and expansion period following the Great Recession.

Central Oregon Economy
We can expect much of the same national trends for our tri-county economy – with some notable differences. Central Oregon will again grow faster than the nation. Recent GDP growth here has been 2-3 times faster than the nation. Job growth has been as high as four times faster than the U.S. while 2010-15 manufacturing employment growth was more than five times faster.

Think of it this way, our small region comprises less than 5 percent of Oregon’s population, but is producing 15-20 percent of the state’s growth. These factors all played a role in the Bend-Redmond MSA (Deschutes Co.) securing top rankings in the country among all small metros for economic performance.

For the first time ever, the Bend-Redmond MSA (Deschutes Co.) area topped both the Milken Institute’s Best Performing Cities in the U.S. and Forbes’ Best Small Places for Business and Careers, taking the #1 spot for each. Translation: statistically there was no American small city whose economy fared better in 2016.
For comparison, the metro was ranked #46 by Milken two years ago and climbed to #8 in last year’s report.

Forbes placed Bend-Redmond #15 in 2014 and #4 last year. For EDCO, these relative comparisons of “where jobs are created and sustained” as well as industry diversification are an objective validation that regional economic development efforts are making a difference. Still, headwinds to this continued economic expansion include:

a tightening labor force (and corresponding housing supply imbalance);
rising interest rates;
shortage of existing space for businesses to lease or purchase; and
policy decisions that could damage our business climate.

Tightening Labor
The region continues to see steady in-migration of new residents, however housing availability and cost (particularly rental options) has been a hiring deterrent for many employers. Deschutes County, and collectively all its incorporated cities, welcomed an average of 491 new residents per month over the past year. Builders are struggling to keep up with this steady demand, despite historically strong home building permit activity for most places in the region and more multi-family residential on the books today than we’ve seen in two decades.

A number of factors are contributing to this supply imbalance, including trained construction industry labor shortages, appropriately zoned land/lot shortages, and a shortage of public permit review staff. The result: less housing that’s more expensive. In places like Bend, Redmond and Sisters there is no silver bullet solution in the year ahead for this complex issue so Prineville, La Pine and cities in Jefferson County should expect to see more residential activity than recent years.

Interest Rates
We don’t expect rate increases in 2017 to get out of control, but incrementally, two to three Fed increases in the coming year as the economy heats up will make the cost of borrowing more expensive. Rates are still historically very low but don’t expect the rock-bottom financing we’ve enjoyed in recent years. If you need money for growth, best to secure it sooner than later.

Existing Facilities
Following a 10-year drought in industrial and commercial construction, during which vacancy rates for existing industrial space went from 5 to 25 percent and back to 5 percent, we expect to finally see some new spec buildings constructed in the year ahead. Tenants and owner-users of these new buildings should be ready to swallow the pill of higher rents for this new space – in some cases nearly double what they’ve paid historically for older space. The lack of vacant industrial buildings is not just a Central Oregon phenomenon – metros across Oregon are experiencing similar shortages. But sharing the pain does not erase the fact that most businesses prefer to find existing space rather than building new – a reality that will hurt our ability to sustain our #1 national rankings in 2017.

Policy Changes Impacting our Business Climate
Even as the ashes of Measure 97’s sound defeat were still warm, Oregon’s public employee unions have a host of bill concepts ready for the 2017 legislature – everything from a “son of 97 gross receipts tax” to something called predictive scheduling for employers to public tax reporting for private companies. Billions in unfunded PERS liabilities combined with state spending that is outpacing Oregon’s economic growth are setting up a budget scenario that has businesses again in the sights of policy makers for more revenue.
EDCO, along with our partners at the Oregon Economic Development Association, Chambers of Commerce and other business associations will remind policy makers of the fact that 83 percent of the state’s general fund comes from personal income taxes – i.e. Oregonians with jobs. Policies that compromise job creation (and retention) will have greater negative repercussions in the Beaver State than almost any in the U.S.

EDCO’s Work
EDCO, a small private non-profit, has the charge of positively influencing and changing (diversifying) the region’s $8+ billion a year economy. For our influential board and dedicated staff, it’s all about fostering more and better jobs for our friends, neighbors and the next generation that calls this place home. We focus our limited resources on helping businesses move, start or grow here in the tri-county area.

Our pipeline of job-creation projects is again strong for 2017. We are currently in the final stages with 223 companies that collectively would create more than 2,400 new jobs and invest nearly $2.5 billion in new capital investment in the tri-county area.

Industries represented in this portfolio of firms include advanced manufacturing, aviation, bioscience, brewing & distilling, renewable energy, musical instruments, building products, outdoor gear & apparel, software, data warehousing and specialty food processing. Not all of these projects will come to fruition in the year ahead, but we are confident that a significant number will. These successes will continue the quiet diversification that has transformed our regional economy into a consistent top national-performer.

Roger J. Lee is Executive Director of Economic Development for Central Oregon
541-388-3236
541-390-8989
www.edcoinfo.com

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