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For several years, CBN has been gracious to invite me back to provide some prognostication of what lies in store for our regional economy. I am always honored to be asked, but particularly considering how last year’s forecast matched up to reality. My solace is that I’ve not yet found someone who accurately predicted in January 2020 the regional, national and global impact COVID-19 would come to exact. Looking back, the crux of my forecast included: easier hiring than the year prior, more options for physical office and industrial space, inflation on most business inputs and that our regional economy would outpace those of the state and nation.
On the last point, my prediction clearly missed. While it proved solidly true for Q1, the remaining quarters our regional economy fared worse from state executive orders and general pandemic fear than the state or nation. As in the Great Recession, when we were penalized over our peers elsewhere for having a higher percentage of employment in housing, construction and related sectors, we got slammed for our higher proportion of visitor industry and related jobs in 2020.
But remarkably, the other three forecast outcomes largely came to pass. Skyrocketing unemployment did make hiring easier, but not as easy as one might expect. We still heard from businesses that it was hard to onboard new employees even when jobless rates were spiking at 17 percent. Still, we know dozens of companies that were able to successfully complete searches for hard-to-fill roles. The commercial real estate market softened, particularly the office sector, which has become more of a tenant’s market as most businesses and organizations shifted to work-from-home mode and realize they may have more space than they’ll need moving forward. Industrial space remains tighter, but thanks to more inventory being built (by our calculations over 1.1 million square feet in the past 36 months), there are more options today than were available three years ago. And on inflation, that played out for the most part as well with record lumber prices, climbing costs for steel, aluminum and other commodities, and even some local manufacturers seeing as much as a 25 percent increase in wages for entry-level workers. We’ve spoken with very few businesses that saw the cost of inputs decrease in the last year.
That was then, this is now. What does it all mean for the year ahead? If you take nothing else away from reading this, know that 2021 will be a recovery year. Believe it or not, the national economic forecasters EDCO follows see higher rates of growth in most sectors for the U.S. this year than in 2022 or 2023. But not all sectors nor all businesses will experience the recovery equally.
As the impacts of government closures and pandemic fear took hold this past spring, it was not hard to forecast that if they continued, Q1 2021 would be ugly, economically. January, February and the first weeks of March are historically a low ebb for the visitor industry including commercial airlines, hotels and motels (and resorts), restaurants and bars, breweries and brewpubs, car rental companies, guide operators and so forth. Q1 is a period when these businesses weather with summer profits. For many, 2020 brought no monthly surpluses.
Recovery, therefore, will not start in earnest in Central Oregon until at least midway through the second quarter. But it will come, and Central Oregon will recover faster than Oregon and the U.S., despite what we expect will be lingering state government restrictions. Just as our region rebounded more dramatically from the Great Recession, the same will happen from the Great Cessation.
But why such confidence in our recovery?
First and foremost, our region’s fundamentals play strongly to an optimistic future. At its core, economics is the study of the interplay of supply and demand. And what Central Oregon had to offer pre-COVID was in demand, it has definitely been in demand during the pandemic and will continue to be when it is behind us. Those fundamentals include:
- We remain a national lifestyle destination;
- We have high-quality health care;
- We are expected to continue to have some of the fastest GDP, employment and population and student growth in the state and nation;
- We have the fastest-growing university (OSU-Cascades) in the state;
- With outstanding commercial air service and data/telecom connections, we continue to lead the nation in remote/work from home employment; and
- Our region’s unique welcoming and collaborative business culture.
There are, however, headwinds to this continued economic momentum. Housing costs have become a bigger hurdle in places like Bend, Sisters, Sunriver and to some degree, Redmond. Neighboring communities of La Pine, Prineville, Culver and Madras all stand to benefit as new and established residents weigh the options of more affordable housing and longer commute times. While average residential lot prices in Bend, Sisters and Sunriver have pushed over $200,000, the same size plot of land can be purchased in Prineville, Madras or La Pine for less than a quarter the cost.
State policymaking has also become an increasingly powerful headwind for job growth with more new taxes, regulations and employment laws in the past five years than the previous 15. This year’s Tax Foundation’s State Business Tax Climate Index saw Oregon drop from #8 best in the country last year to #15 overall, and from a corporate tax perspective from #33 to #49, due in no small part to the fact that it was one of only two states to tax both business revenues and profits.
Despite the state legislative and executive branches’ efforts to make our work more difficult, EDCO celebrated its best quarter ever (that’s 40 years in 2021!) in terms of completed projects — 19 to be exact. These are what we call “done deals” — businesses that relocated or expanded to the region, startups that raised capital or otherwise hit a major milestone and existing traded-sector companies that built new space, added machinery & equipment or increased their headcount with EDCO’s help. This eclipsed our past quarterly high-water mark of 15 set first in 2013 and matched again in 2017. In fact, we did not reach 19 done deals on an annual basis until 2012. We, and our regional economy, have come a long way over the years.
Combined, EDCO’s projects in three full quarters of COVID-19 have brought more than $300 million in new, taxable investments to the region and more than 450 well-paying jobs. For the future, our pipeline is filling, rather than draining, with a diverse group of companies in a variety of industries region-wide for the year ahead and beyond. We are optimistic for some exciting announcements in 2021 resulting from behind-the-scenes work over the past three years.
Short of a new pandemic threat unrelated to COVID-19 or some major political/social upheaval, there are good reasons to be hopeful from a macroeconomic standpoint in 2021. From a microeconomic standpoint, more specifically on a business-by-business level, there are already winners and losers from the pandemic and that contrast will play out in more stark ways in the months ahead.
