(Graphics | Courtesy of Josh Lehner)
The longest-running economic expansion in U.S. history marches on. Growth has settled in around the economy’s potential. The risk of recession is subsiding as the trade war deescalates and the Federal Reserve shifts policy to head off further slowing. The near-term outlook is back on solid footing and calls for ongoing and decent growth in the year ahead.
Closer to home, Oregon’s economy has rarely been better. Not only are household incomes the highest on record, even after adjusting for inflation, but they have surpassed the national figures as well. This is the first time in more than 50 years that this is true. Local income gains are driven by more Oregonians working, for more hours and at higher pay. The strong labor market is translating into more money in the pockets of Oregonians.
Encouragingly, the expansion has reached every sector of the economy, every region of the state, and all populations as evidenced by the narrowing racial poverty gap. Of course differences and issues remain. The urban-rural divide widened last decade. Socio-economic outcomes vary considerably across different racial or ethnic groups or based upon educational attainment. That said, the latest Census data reveals improvements across the board in recent years.
With the flare up of recession risks in the past year, it is helpful to think through the implications and possible outcomes for the state and regional economies for whenever that next recession does come.
Oregon overall has an industrial structure that is pretty similar to the U.S. That is, the share of jobs in each sector in the state is comparable to national figures. Now, Oregon’s manufacturing sector is larger and tilted toward wood products and semiconductors more than aerospace and automobiles like the nation. This larger reliance upon goods-producing industries, which also includes natural resources and construction, helps drive Oregon’s growth during expansions but also contributes to larger losses in recession.
In Central Oregon, the economy has never been more diversified than it is today. The jobs in the region are spread further across the different sectors than in the past. Now, in and of itself, industrial diversity is not necessarily good or bad. If a region has one key industry and that industry is booming — think mining in North Dakota today or timber in Oregon in the 1970s — then the region overall does well. The issue arises when that key sector is down. A less-diverse economy tends to be more boom-bust as it lacks other types of businesses to drive growth and help offset the weak sector.
Looking forward, it is extremely challenging to predict the nature of the next recession or what type of shock will hit the economy, particularly years in advance. As such, without knowing the catalyst for the recession, it is hard to know whether your business or regional economy will fare better or worse than the state or nation overall.
That said, a more diverse economy is better able to withstand different types of recession. Spreading a region’s eggs across more baskets tends to be more resilient over the long run. When one industry goes down, having other sectors that are stronger can help support regional growth.
In the nearby chart, the increases in industrial diversification in Central Oregon are clear. Bend’s evolution from a small timber town to a fast-growing metropolitan area is evident. The growth in professional service jobs in particular is diversifying the local economy while traditional strengths in tourism and construction remain closer to their historical average. Now, keep in mind that the U.S. overall — the baseline comparison in the graph — is continuing to evolve. So when a region’s diversification line moves sideways then the region is diversifying at the same pace as the country overall.
The Prineville economy, like other smaller, rural economies, does see lower levels of diversification. Crook County has higher rates of natural resources and federal government (land management) and lower rates of more urban industries like finance and professional and technical services. That said, Crook County’s diversification has quadrupled in recent decades. These trends in Central Oregon should bode well for the regional economy over future business cycles.
Finally, it is important to keep in mind that there are good and bad ways a regional economy can become more diversified. The good way is when a new business opens up and brings with it jobs and investments from a sector the region didn’t have before. The data centers in Prineville are a perfect example, as are the remote workers in Bend who bring their jobs with them and specialize in occupations that are not as common locally.
Conversely, a region can become more diversified and more like the U.S. if it loses its specialty industry, like the decline of timber here in Oregon. Today, both Oregon and Central Oregon are more like the U.S. mostly due to strong job growth in sectors without historical ties locally, but also in part due to the loss of the timber jobs, which mathematically makes us more like the nation as a whole. The increase in industrial diversification in Deschutes County really began once the old mill shut down and redevelopment of the Old Mill District began.
All told, the Central Oregon economy is expected to remain strong in the decades ahead. Increased industrial diversification should help the regional economy prove more resilient and somewhat less boom-bust in future business cycles. Long-run growth will be driven by the size of the local workforce and how productive each worker is. Migration into the region contributes to the boom-bust nature of the economy, but also drives that long-run growth by bringing in an ample supply of skilled workers. One key risk to the outlook is housing affordability and ensuring an adequate supply of housing to accommodate current and future growth.