California Lutheran University Center for Economic Research and Forecasting Executive Director Bill Watkins says Oregon economy growing quicker than jobs. He forecasts continued bipolar growth but does Watkins’ data add up?
The California Lutheran University Center for Economic Research and Forecasting released its 4th Quarter Oregon Economic Forecast today.
On the CLU CERF website the forecast stated that recent data shows that Oregon lost 7,900 jobs in September, an almost 6 percent annual job loss rate. CBN was not able to confirm where this information came from. According to CERF this represents the largest job loss since the depths of the recession in 2009. Even worse, they said, “these job losses occurred at a time when thousands of workers are building Intel’s new $3 billion Hillsboro research facility.” (The actual Intel project is slated to be $10 billion.)
In actuality Central Oregon’s seasonally adjusted unemployment rates dropped slightly for all three Central Oregon counties in September. The statewide unemployment rate also fell slightly in September (8.7 percent) from the August rate of 8.9 percent. The national unemployment rate improved in September as well, with a decline to 7.8 percent from the August rate of 8.1 percent.
Watkins noted: “We’re sure to see more of Oregon‘s bipolar growth. Output will continue to show large jobs gains, while employment will remain weak. The output growth is driven not just by Intel, but also by Oregon‘s surging server-farm industry in Hillsboro, The Dalles and Prineville.” (Watkins is referring to data centers as making up the server-farm industry perhaps because farm sounds more quaint and rural.)
On a more positive note he added: “If the economy is growing very rapidly, but jobs are growing only slowly, productivity is climbing impressively. The gains in productivity are shared between labor and capital. So, wages have been significantly stronger than jobs. In fact, we forecast total Oregon wages to just about completely recover to pre-recession highs toward the end of our forecast horizon.
“Given that Oregon‘s GDP is far above its pre-recession high and total wages are expected to approach pre-recession highs only in another two years, capital’s share of Oregon‘s output has climbed dramatically. This is a result of the huge investments being made in Oregon.
“This is all good, but it is important to recognize that much of Oregon‘s output growth is result of capital owned by non-Oregonians, and much of the increased value will accrue to non-Oregonians. Failure to recognize that the growth is not organic could lead to overly optimistic growth forecasts.”
Real Estate
While there have been some encouraging signs in Oregon’s real estate data, particularly an increase in the median home price, the state’s real estate markets remain very distressed says Watkins. “Given the weakness in Oregon‘s job creation, we expect the state’s real estate markets will remain soft through the next two years of the forecast.”
One of Oregon‘s real estate market sectors is doing well. New apartment construction is at something close to normal. While apartment starts data is volatile, Oregon‘s apartment markets are likely to remain relatively robust.
Watkins concludes: “This is consistent with our thesis that home ownerships rates in Oregon and the United States are probably higher than is economically optimal.
“While we have seen an increase in Oregon‘s median home price, and while we’ve heard from people active in the markets that there is some strength in at least some markets, we believe that Oregon‘s residential markets are not on the verge of a robust recovery.
“In part, our skepticism is due to our belief that at least part of the increase in Oregon‘s median home price is compositional. That is, we are seeing more higher-value transactions. Low-value units were the first to start to recover after the collapse in sales. Many of those units have been transferred from owner occupants to investors renting the units out. It is natural to see the activity gradually work up to higher-valued homes.
There are other signs that Oregon‘s residential markets will remain soft. Delinquencies and foreclosures remain high. Given the delays inherent in Oregon‘s unusual foreclosure process, it will take a while to work through the overhang.” Watkins charts on his website show foreclosures declining.
Watkins sees two possible sources of a robust recovery for Oregon‘s residential markets. One source would be a robust jobs recovery. “We’re not seeing that. Indeed, while Oregon‘s output growth has been extraordinary, jobs have been declining.”
The other possible source is future investment in Oregon. Watkins hopes that Oregon creates the educational opportunities that allow Oregonians to fill the jobs that are created. “We hope Oregon seeks new ways to make Oregon more welcoming to capital investment.”
He says Oregon‘s commercial market conditions are truly unusual. While demand is mostly weak, the State is seeing huge amounts of new construction. The construction, though, is only in specific purposes. Intel’s Hillsboro project is a large component of the value of new commercial construction. The other source is data centers.
Watkins believes that while the Intel and server farm facilities will create some local demand, they will not generate enough local demand to drive Oregon‘s commercial markets to a robust recovery. “That will have to wait until Oregon sees a more broad-based jobs recovery. This is something that we don’t see happening real soon.
“In the meantime, we expect market conditions to improve only slowly in most of Oregon‘s commercial markets.”
Watkins makes this remark and then reverse: “Oregon’s commercial building activity has climbed through the roof. The values reached $5.8 billion dollars in 2011 Q4, dramatically exceeding the value of $3.6 billion in the boom years of 2007. We estimate that by third quarter 2012 it will reach $6 billion.”
We’re not sure what to make of the competing data and comments? Check out the website if you would like more information on this particular forecast.
http://oregon.clucerf.org.
