Job Growth is Likely to be Weak. Expect More of the Same Unemployment Dips in Region.
Economic data through the second quarter is not a disasater as it was just a year ago, In fact, unemployment rates are down in our region and most indicators show some growth, small, but still growing.
And if you talk to anyone at Economic Development for Oregon you’ll hear optimism with the largest number of companies ever looking at Central Oregon to relocate. Even some Generation Yers (age 20-34), the young entrepreneurs who are making their homes here, are saying: we don’t mind paying higher taxes in order to live in place like Bend, Oregon. In fact, Entrepreneur magazine puts Bend in the Success Stories category saying that the variety of businesses in Bend is staggering and local tech companies got their starts with help from a forward-looking city.
Indeed, while our region has struggled through the recession over the last four years, we are bouyed by our assets from the numerous recreational opportunities and cultural amenties to the clean air, water, low crime rate and little traffic. This is clearly a great place to live and play…it’s the work aspect that’s challenging.
Measuring the economy and predicting our business future is confusing, but for what it’s worth here’s what some of the economists are say…
U.S. economic data came in roughly in line with expectations last week with the exception of new home sales which fell sharply for the month of June. The big data release of the week according to Mark Pinkowski, senior vice president, Wells Fargo Commercial Banking Economic Commentary, was the first release of second quarter GDP which indicated that the economy grew at a 1.5 percent pace. Personal consumption slowed compared to the first quarter to a 1.5 percent pace. The new home sales data showed a surprising drop for June.
The manufacturing sector showed some signs of strengthening with durable goods orders rising at a 1.1 percent pace. Based on the data, Wells Fargo has slightly reduced its forecast. They expect growth over the second half of the year to come in around 1.2 percent, supported by personal consumption, business investment and residential construction.
On the second quarter forecasting Bill Watkins of the CLU Center for Economic Research and Forecasting seems to pepper his forecasts with the negative. First he says Oregon has seen aggregated economic growth. That is, output, GDP, has been growing, and that is the definition of a recovery. In fact, real GDP now exceeds its pre-recession high.
Then he takes a turn and adds that Oregon’s unemployment has only fallen because millions have left the workforce. GDP has recovered to its pre-recession high only because of population growth. Per-capita real GDP is still below its pre-recession high.
In many ways, according to Watkins Oregon is well positioned for a vigorous recovery. It has had recent strong output growth. The state has the weather and energy to be an attractive location for internet infrastructure. Housing is as affordable as it has been in decades. Oregon has seen rapid economic growth, even as jobs declined in the state. Server farms, which employ few but create lots of economic value, and Intel, which creates very high-productivity jobs, are the primary explanations.
All that and yet his forecast for Oregon is not pretty.
Watkins: “Job growth is likely to be weak. Wealth gains, like job growth, will come slowly to Oregon. The reason is that much of Oregon’s growth will come from high-capital-intensive and high-human-capital-intensive jobs. Oregonians in general will not directly benefit, because they do not own the physical or human capital.
But Watkins’ in your face message for Oregon is, “stop screwing up. The fiascos associated with Facebook’s taxes and with the auto advertisement did huge damage. They were seen throughout the nation, and some investors saw all they needed to see to take Oregon off their potentials lists. Propositions 66 and 67 were also unnecessary mistakes. Oregon matched the nation’s highest top marginal income tax rates. The predictable result was that income was moved from Oregon to other, lower tax, states.”
The Office of Economic Analysis Economic Forecast – Oregon offers that Oregon’s economy can reasonably expect more of the same in the future. Most forward-looking data suggest that growth will continue. However, there is still ample reason to believe that this growth will remain disappointing from a historical perspective, with the statewide economy likely to struggle to pick up any further momentum.
The typical household still needs to save more, and spend less of their income over the extended horizon. When less spending is combined with the broader effects of an aging baby-boom population cohort, Oregon and other states will face an uphill climb for many years to come.
Even so, improved housing investment, construction activity and spending on home furnishings represents the best hope for a speedier recovery.
The baseline (most likely) employment forecast remains essentially unchanged. Slow growth will continue to be the norm. Oregon is not expected to recover all of the jobs it has lost until the end of 2014—seven years after the recession began.
The U.S. Labor Department said last week that applications fell to a seasonally adjusted 353,000 in the nation. That’s down from a revised 388,000 the previous week and the biggest drop since February 2010.
In Central Oregon all counties have reported unemployment rates decreasing. The seasonally adjusted unemployment rate in June held steady in Crook County at 13.6 percent and was essentially unchanged in Deschutes (11.1) and Jefferson (11.9). In June, Oregon’s seasonally adjusted unemployment rate was 8.5 percent, essentially unchanged from May’s revised rate of 8.4 percent. At the national level, the unemployment rate was 8.2 percent. Central Oregon is improving, but admittedly pretty high compared to the overall state.
Economists are predicting growth slowed in the April-June quarter to an annual pace of just 1.5 percent, down from the tepid 1.9 percent annual pace in the first three months of the year. Growth of 1.5 percent is consistent with less than 50,000 new jobs a month.
The Associated Press on Oregonlive.com says the need for educational funds could drive a restructure of Oregon’s taxes, with the goal of minimizing tax distortions and maximizing tax revenues. This would be done by limiting the progressivity of income taxes and by reducing income tax as a share of Oregon’s revenue. A tax on retail sales is an obvious step in doing this.
There are other issues. From a perspective of maximizing economic growth and hence opportunity for Oregon’s citizens, land use decisions are excessively centralized. Of course, this has been fought out in the polls before, as has Oregon’s tax system. Fighting them again would be divisive, but if Oregon really wants a vibrant economy, it may be a necessary fight.
And there we have it, pick a headline, but it all seems pretty much the same for Central Oregon…slow growth….but living in one of the very best places in the world. pha
