Slow and Steady Rebound Pace Predicted for Central Oregon

Cautious though positive growth message from Bend Economic Forecast. Encouraging signs at the local level. A bright spot was travel and tourism numbers which were reported as doing better than expected and approaching pre-recession levels.

“Slow and status quo” and “learning our way into a new path” were some of the phrases used by keynote speakers to describe Central Oregon’s anticipated sluggish emergence from sustained recessionary impacts during the recent Economic Forecast Vision ’13 conference held at Bend’s Riverhouse Convention Center.

Oregon Economic Forum Director Timothy Duy pointed to recent encouraging signs on the local level such as an uptick in Deschutes County residential units sold and building permits issued as well as an easing in jobless levels illustrating movement in the right direction, “just not as quickly as we would like…”

Focusing on the state and region-wide picture following the presidential election, Duy told attendees at the annual Bend Chamber-presented event: “We are looking at slow and steady growth, which is not the more aggressive kind of post-recession recovery typically associated with Oregon, but is reflective of the new reality.

“People are learning their way into a new equilibrium and a new path going forward.”

Duy, who is also a University of Oregon Professor and member of the Oregon Governor’s Council of Economic Advisors, said the U.S. economy had actually “chugged along relatively steadily” in the last 12 months, but still well below the capacity of pre-recession Gross Domestic Product (GDP) trends, though “sustained stimulus” could propel further momentum.

He said: “In terms of jobs, there have been a lot of seasonal ups and downs, but the 12-month average is somewhat stable.

“In Oregon we are on the upswing in terms of expansion, but much like the national picture the outlook is for slow and steady progress moving forward.

“We are predicting generally continued improving building permit numbers and tepid job growth at least through 2013, especially given the background of a recovering housing market – though this is tempered by weight on other sectors of the economy including fiscal austerity uncertainty worldwide – and the forecast is for somewhat higher growth in 2014 and 2015 more typical of a growing Oregon economy.

“This translates into income growth but I would also like to see the state budget formulated by considering the long-run average and by planning spending across the business cycle rather than along with it, to even out historic volatility.”

Duy added that if the much vaunted “fiscal cliff” consequences, including potential expiration of Bush era tax cuts and implementation of spending cuts, are not avoided and resolved at the federal level by year end we should also expect a “short, sharp recession” in the beginning of 2013.

Bend was broadly following some of the patterns of the state with initial jobless claims spiking during the recession and slowly coming down, though still at a relatively inflated level regionally, and moving in the right direction but again at a slower than hoped for pace.

A bright spot was travel and tourism numbers which were reported as doing better than expected and approaching pre-recession levels, with airline passenger figures also moving in a general upward trend.

He added: “Bend’s residential housing market, which was a large factor that drove the downturn here, is starting to move beyond the low point and slowly recovering in gaining a little traction.

“Unlike most of the U.S., which experienced more of a price bubble, there was more of a construction bubble here and you didn’t have enough sustained in-migration to eat up the excess housing that was built.

“Going forward we see somewhat stagnant non-farm payroll employment and stalled out job growth in the region, which is part and parcel of Central Oregon and other areas not seeing the rebound we would hope, unlike larger metro areas like Portland which were relatively insulated and Eugene where student growth has stimulated activity.

“Measures of economic activity indicate below normal growth in the near future, but to some extent Bend got spoilt between 1990 and 2007 in becoming decoupled from the national picture. Part of the reason it was a tough economy to forecast was that it didn’t really relate to the rest of the economy.

“We are forecasting a general upturn in non-farm payrolls and added traction in the national housing markets, with the continuation of personal equity rebuilding and increased mobility and migration.

“This could help regions such as Central Oregon re-establish some of the patterns of economic benefit and broad based job growth, though there are well-known potential risks out there including fiscal policy questions, and events beyond our control in other countries that could affect volatility and potential paths.”

Earlier in the program fellow speaker Mark Kralj, Principal at Ferguson Wellman Capital Management, examined the post-election national and global economic environment, envisaging a “slow and status quo” theme and a fourth quarter investment outlook illustrative of anemic growth in the U.S., partly due to short term impacts of Hurricane Sandy on the East Coast.

He said: “Growth is slowing everywhere, which is sobering news especially when you consider there have been some 300 major stimulus moves worldwide, including attempts to avoid a ‘hard landing’ in China, and interest rates held at historically low levels, with relatively marginal positive results to show for these efforts.

“The Eurozone is also a drag on the global economy currently, and we are seeing protests across Europe where austerity measures are being implemented and they don’t like it. We are also going to have to face tough fiscal questions, and U.S. job growth remains relatively stagnant.

“We saw warmer winter weather on the East Coast over the first couple of months of this year which helped us temporarily push over the threshold to materially reduce the national unemployment rate, but hiring faces weakening in light of potential ‘Obamacare’ costs, fiscal cliff concerns, and the fallout from the Dodd-Frank proposed rules concerning the financial services industry.

“Only a third of the anticipated 398 Dodd-Frank regulations have been implemented thus far, so there is uncertainty regarding that future playing field.”

Kralj said interest rates would likely “stay low for long” but cautioned that just a one point bump would increase the amount of interest paid on the current $16 trillion federal deficit by some 50 per cent, a prospect which could prove “problematic” in the long-run.

He observed that housing was now adding to GDP growth, with increased affordability, starts and refinancing, though the industry was coming off “a very low point”, adding: “We are going in the right direction, just way too slow. Consumers are feeling a little more comfortable, but we need housing and the stock market to do better.

“It is encouraging to note that historically when a Democratic incumbent keeps the White House the market has on average gone on to rise 20 per cent or more, but post-election sector implications include a mixed outlook regarding healthcare, a likely decline in defense spending, probable increased regulatory oversight of oil, gas and coal production, and the financial industry continuing to see headwinds through enactment of Dodd-Frank measures.”

Kralj speculated that tax rates had “nowhere to go but up” especially if fiscal cliff deliberations become stalled, but commented that California’s recent hike in taxes on its wealthier residents and sales tax increase could see “ruts in the road” from migrating residents heading to other states, including Oregon as its neighbor to the north.

Corporate earnings had undergone an encouraging period, but Kralj said fundamentals appeared to be peaking.

While the pace of growth worldwide “remained challenged” despite stimulus efforts, Kralj said we should be braced for elevated market volatility, and advocated adopting a conservative approach until the implications of potential upcoming legislation and regulations become clearer.

Questions from business leaders among the audience included one directed at what Oregon could do to stimulate growth. Duy recommended a revision to the tax code to reduce reliance on income taxes and stabilize revenue, and the giving of more autonomy to local districts, while Kralj said lowering the capital gains tax rate would “put the brakes on people leaving the state” due to a prospective “liquidity event” such as selling a business.

When asked about the possible impact of a full four-year OSU-Cascades Campus on Central Oregon, Duy described it as a “long fuse project” that could provide significant benefits in bringing in people from outside the region.

He also anticipated the establishment of such an institution, anticipated to cater to some 5,000 students, would enhance the attractiveness of the area to retirees who enjoy the social, cultural and educational opportunities offered by college towns.

Kralj, who serves on the Campaign Cabinet for Oregon State Cascades Campus and as trustee and past chair of the Oregon State University Foundation, concurred regarding multiple positive potential benefits, including the increased student base and pumping of non-education spending into the local economy.

Title sponsors of the Forecast Breakfast event included Merrill Lynch Wealth Management, Providence Health Plans and Wells Fargo.