(Three Sisters Peekaboo — Sunrise over The Three Sisters from Mary’s Peak near Philomath, Oregon | Photo by Dan Wise)
The COVID-19 recession of 2020 began in March and reached its worst depth in April. A two-month recession? Yes, this recession has been unlike any other in U.S. history. The recovery out of this recession has also been unlike any we have seen, with waves of COVID-19 causing school closures, business closures and federal stimulus packages far exceeding anything done before in previous recessions. In the U.S., including Oregon, we saw personal incomes RISE in the same quarter we experienced the deepest job loss since the Great Depression. Let’s try and make sense of what happened to Oregon’s economy in 2020 and contemplate what might happen in 2021.
The shutdowns caused by COVID-19 in March led to the highest unemployment rate and largest loss of jobs since the Great Depression. The unemployment rate in Oregon was 14.9 percent in April, 3 percentage points higher than peak unemployment in the Great Recession in 2009. Total employment in Oregon declined by 14.5 percent between February and April, a loss of over 285,000 jobs in only two months. By comparison, Oregon lost about 148,000 jobs during the Great Recession between 2007 and 2010.
In response, the federal government put together the largest economic stimulus package ever seen in U.S. history, centered on the Coronavirus Aid, Relief and Economic Security (CARES) Act, passed in March. The CARES Act was a $2.2 trillion bill that included $300 billion in one-time cash payments to Americans, up to $1,200 per individual. The bill included $260 billion in increased unemployment benefits — including an additional $600 a week for claimants and expanded coverage of the self-employed — and the $350 billion Paycheck Protection Program (PPP) that provided forgivable loans to small businesses for payroll costs. The Act also included $500 billion in loans for industry and $340 billion for state and local governments. The PPP program got a boost with an additional $350 billion after the original allocation was used up in only 13 days. The program relaunched again in 2021 with $284 billion more in loans available.
The size and scope of the CARES Act was so large that second quarter personal income in Oregon and all other states increased dramatically, more than offsetting losses in wages from COVID-19 related layoffs and closures. Meanwhile, gross domestic product (GDP) — the value of final goods and services produced in the economy — dropped by 4 percent in the first quarter of 2020 in Oregon, followed by a steep drop of 31.9 percent in the second quarter, before rebounding 35.1 percent in the third quarter. Trends in GDP and employment have reliably moved together, and normally trends in wages and income would follow, but that hasn’t been the case this time around due to federal stimulus supporting incomes.
To slow the spread of COVID-19, governments enacted measures to keep people physically apart, what we came to know as social distancing. Events or businesses that put people in close proximity to one another were forced to change how they operated to abide by the new restrictions. Many businesses were unable to make the necessary changes due to increased costs and loss of revenue, resulting in mass layoffs and closures. Business Oregon, in partnership with Travel Oregon and the Oregon Small Business Development Center Network, conducted a survey in April 2020 to gather data on the initial impacts of COVID-19 on Oregon businesses. The results were devastating and showed us the effect COVID-19 had on Oregon businesses during the worst of the shutdowns and recession.
Nearly three-quarters of businesses in Oregon experienced decreased sales due to COVID-19 in April (Figure 1). An astonishing 40 percent of Oregon businesses temporarily closed while 27 percent of businesses laid off workers. Worst of all, 2 percent of businesses reported permanently closing, a number that has undoubtedly increased since April. To give a sense of scale, 2 percent equals nearly 2,250 firms in Oregon.
Oregon’s unemployment rate in December 2020 was 6.4 percent, 8.5 percentage points lower than April. Total nonfarm employment has regained 104,100 of the 285,200 jobs lost since last February. COVID-19 vaccines are finally being delivered and administered around the state. COVID-19 cases and hospitalizations are on the decline after peaking over the holiday season. While we still need to be vigilant about wearing masks and social distancing, it’s hard not to look forward to an accelerated economic recovery in 2021.
Two industries that were hit particularly hard by COVID-19 — accommodation and food services; and arts, entertainment and recreation — will see more jobs return and businesses open when remaining restrictions are finally lifted sometime in 2021. These industries comprise the industry supersector “leisure and hospitality” that includes restaurants, bars, hotels, performing arts, theaters, spectator sports and fitness/recreation centers, amongst others. Many of the 104,100 jobs recovered since last April have come from accommodation and food services, as some COVID-19 restrictions were scaled back. Retail trade and health care have also recovered large numbers of jobs lost since April. Combined, these three industries account for 75 percent of jobs regained since April. Despite the partial recovery, accommodation and food services is still down 64,400 jobs since February 2020, a loss of 34 percent.
There is no doubt accommodation and food services was the industry hardest hit in this recession due to COVID-19 restrictions, but all of those jobs should come back eventually. Unfortunately, it may take a little longer to regain all these jobs than what might normally occur due to impacts in tourism, a key part of demand for this industry in parts of the state, including Central Oregon. Negative perceptions of Portland due to protests, vandalism and violence in 2020 could hinder the recovery of some jobs in leisure and hospitality. A Travel Portland survey in December showed more people nationwide now view Portland as an unappealing travel destination, rather than appealing. This was a big shift from 2019 when Portland was overwhelmingly viewed as an appealing vacation destination. This potential negative impact to tourism may not manifest in other parts of the state like Central Oregon, but we don’t know for sure. As of the December economic forecast from the Oregon Office of Economic Analysis, all jobs lost in leisure and hospitality in Oregon are forecasted to be regained by the end of 2024.
Job losses in this recession, though, were not limited to local service-sector industries like leisure and hospitality. Significant job losses also occurred in traded-sector industries like manufacturing, wholesale trade and professional and business services. Traded-sector industries are those that sell their goods and services outside the regional economy or Oregon. Traded-sector industries are the engine of any economy, as they bring in new dollars from outside the local economy, allowing for growth. They are responsible for the majority of growth, innovation and productivity that occurs in an economy, which leads to higher wages, incomes and living standards. Enhancing the competitiveness of Oregon’s traded-sector is at the heart of Business Oregon’s mission.
While jobs in restaurants, retail stores and hospitals have rebounded, jobs in many traded-sector industries have not (Figure 2). E-commerce and warehousing are the exception, not to anyone’s surprise, as consumers have turned to online retailers for purchases in response to social distancing restrictions and the closure of stores. Manufacturing, on the other hand, has lost nearly 14,000 jobs since February and continues to lose jobs. Job losses have been worst in metals and transportation equipment manufacturing. Manufacturing employment in Oregon has decreased 7.1 percent since February 2020, compared to 4.2 percent nationwide. Only 15 other states have seen manufacturing decline more than Oregon since February. Yes, some — hopefully most — manufacturing jobs will come back too, but the risk of structural job loss in manufacturing is much higher than, say, accommodation, food services and health care. We know this from past recessions in Oregon’s history, where jobs regained in manufacturing during economic expansions have never returned to levels seen prior to each preceding recession since 1980. A healthy, growing traded sector is key to Oregon’s economic prosperity. We must do all we can to help our traded-sector industries retain and grow the quality, accessible and innovative jobs they provide that drive our economy.
The Oregon Office of Economic Analysis is responsible for creating economic and revenue forecasts for the state every quarter. Their most recent economic forecast, published in the fourth quarter of 2020, expects the economic recovery to accelerate in 2021. This makes sense since vaccines are now being distributed and travel and social distancing restrictions are expected to end sometime in 2021. Schools and workplaces will reopen. The pace of recovery is expected to be faster than past recessions given the economy was in good shape prior to COVID-19, and the massive federal stimulus packages have kept incomes and consumer spending afloat, while also boosting personal savings by nearly threefold. By mid-2023, total employment in Oregon is forecasted to return to its pre-COVID-19 level.
While total employment is expected to recover by 2023, not all industries are projected to return to pre-COVID-19 employment levels. In particular, manufacturing and several of its key industries, including computer and electronics, metals and machinery and transportation equipment, are not forecasted to recover all jobs lost in the COVID-19 recession (Figure 3). These accessible traded-sector jobs pay above average wages, so the loss of these jobs, all things equal, lowers wages in Oregon. The loss of these high value-added jobs also decreases GDP per capita in Oregon, lowering productivity, innovation and incomes. It’s important to note as well that the loss of manufacturing jobs in the U.S. and Oregon has led to the shrinking of middle-wage jobs and ever-widening economic disparities between high- and low-wage workers.
Forecast Risks and Beyond COVID-19
As in any economic recovery, there are upside and downside risks that can affect an economic forecast. One concern is the impact of residential and commercial eviction moratoriums coming to an end in 2021. To some degree, the negative impacts of this past recession have yet to be fully realized because households and businesses have been able to stay in their homes and buildings despite being behind on their rent. A report published by the National Council of State Housing Agencies last year estimated that there would be $249-$378 million in unpaid rent in Oregon by January 2021, impacting 100,000-150,000 households. While federal stimulus has helped, and future government programs may help broker deals on rent forgiveness, there may end up being a reckoning sometime in 2021 that negatively impacts and slows economic recovery.
Another risk, or factor, to keep an eye on in this recovery is the impact of working remotely, specifically, how much of Oregon’s workforce will continue to work remotely? Despite what you may think or have heard, the majority of Oregon’s workforce will not be working remotely any time soon. Why? Because the majority of jobs in our economy cannot be done effectively from home.
Prior to COVID-19, 7.3 percent of Oregon workers worked from home in 2019 — the sixth-highest telecommuting rate in the nation. In Central Oregon, that number was even higher at 11.9 percent in the Bend metro area. Depending on whether one looks at 1-year or 5-year data from the Census Bureau, the Bend metro area ranks 5th or 9th amongst U.S. metro areas for telecommuting. During the COVID-19 pandemic, telecommuting skyrocketed in Oregon. The COVID-19 Oregon Business Impacts survey conducted in April revealed that 33 percent of all Oregon businesses had workforces that could work remotely. That number ranged from 85 percent in the information industry — which includes software — to 6 percent for restaurants, bars and other food services. It’s those businesses and industries with the highest percentages of workers able to work remotely (information, professional and business services and financial activities) that presents a risk to our economic recovery.
A downside risk is to commercial real estate if businesses in these industries and others decide to not return to an office environment. Demand for commercial real estate will dampen in the long run (it already has during COVID-19), which could lead to decreased commercial investments and less jobs in construction, engineering and related fields.
Some of the negative impacts of working remotely on commercial real estate and investments could be offset by gains in remote workers who move to Oregon. Much has been made in the media about remote workers leaving high-cost, urban areas — like in California for instance — in search of lower-cost, high-amenity communities where housing costs are lower, wages go further and quality of life is higher.
Sounds familiar, right? That’s exactly what’s happened in Central Oregon over the past two decades with high inmigration from California and some of the highest telecommuting rates in the nation. Will this trend continue? Will it accelerate? Could it possibly, even, decelerate?
For years, Oregon has been seen as a lower-cost state to move to for Californians. They have set up businesses in Oregon, and helped strengthen our competitive workforce and industry groups in Oregon. They represent the largest share of in-migrants to Oregon every year. They’ve driven growth in real estate and tax revenue. Maybe you’re thinking of negative impacts from migration of our neighbors to the south? Perhaps, but there’s no doubt inmigration from California has been a big factor in Oregon’s economic growth for many decades.
Well, it looks like Oregon’s attractiveness to Californian migrants may have topped out. Over the past five years, the share of California out-migrants that moved to Oregon declined (Figure 4). The decline was small, and you would be forgiven for not noticing it because the total number of California out-migrants to Oregon actually increased over the past five years.
That’s counter-intuitive, but here’s what’s going on. For years, outmigration from California has eclipsed domestic inmigration, resulting in a net population loss from domestic migration. This loss in California has increased a robust 7 percent a year since 2009. High cost of living, including high taxation, have driven more and more Californians to leave for greener pastures. COVID-19 and the increase in telecommuting may result in the largest net population loss ever from domestic migration in California in 2020. Even though Oregon’s share of this outmigration pie has declined, the overall size of the pie has increased enough to result in more total migrants to Oregon. We’re losing market share, but the market is growing enough for now to mask our loss of competitiveness.
It may very well be that Oregon’s increasing cost of living is beginning to catch up with it. Oregon is now the 12th-most-expensive state to live in the U.S. according to U.S. Bureau of Economic Analysis regional price parity data (California is the second-most-expensive behind Hawaii). Just ten years ago we ranked 20th, and below the U.S. average. Only Washington has seen its cost of living increase more than Oregon since 2009. The share of Californians moving to Oregon is waning. Instead, they’re moving to places in Idaho, Pennsylvania, Texas, Florida and Utah in greater numbers. Great, some of you might say. Well, to the degree that California outmigration helps fuel Oregon’s economic growth, we might be entering a period of more modest growth in Oregon than we have become used to.
This migration data will be very interesting to look at in the coming years, as will all of these factors impacting the Oregon and Central Oregon economies. These things will start playing out as we move forward through 2021, giving us a hint if we are on track for that predicted recovery in 2023.