We learned the painful lesson recently that Oregon and our region of the state are very much linked to the national economy. The 2001 recession—hardly a bump in the road for the Central Oregon economy—gave us false confidence that we could buck the national business cycle. Fast forward to 2013 and officially three years and half years after the official end of the “Great Recession” and it is finally feeling like our local economy is on the mend. But will the good times roll? Well, there is a reason it’s called the business cycle. More on that later.
Local/Regional Tail Winds
Tail wind indicators include the fact that Central Oregon is returning to month-over-month job increases. Over the past year in Deschutes County, a surprising employment sector is leading all others: manufacturing. Commercial brokers are taking notice since industrial building vacancies have dropped dramatically over the past 18 months. Crook County no longer has the distinction of having the highest unemployment rate in Oregon. Building permits are up in Bend as the market responds to a brisk year of home sales and a mere two-month inventory of existing homes is currently available for purchase.
Residential foreclosures and short sales compose a rapidly decreasing portion of homes on the market and the forecasted flood (shadow inventory) of these properties appears not to be materializing. Quietly, the Central Oregon economy has been diversifying – gradually replacing jobs lost in the recession and its aftermath – via a myriad of small companies doing really cool and amazing things. Many of them you’ve never heard of.
National Trend
But what about the national economy, to which we are most certainly hinged? Even as recent monthly new job starts in the U.S. are better than analysts’ forecasts, our sources (not EDCO research) are pointing to the declining rate of growth in many critical sectors, including corporate bond prices, purchase managers’ indices, and industrial production.
In particular, the Institute for Trend Research (ITR, www.itreconomics.com) predicts a solid year for the national economy, but notes there are some dark cloud on the horizon for 2014 and then brighter days starting in 2015. ITR has been remarkably accurate over the past seven decades in forecasting the overall U.S. business cycle and its connection with today’s global economy. EDCO’s 2013 Annual Luncheon on March 6 will feature Alan Beaulieu, principal with ITR, who will provide specifics about what we can expect in the years ahead and, most importantly, how to capitalize on ever-changing economic conditions.
Headwinds for Our Region
For the most part, 2013 will feel like a solid growth year. So it’s never fun to talk about challenges on the horizon just as our region’s long-awaited positive momentum is starting to pick up steam. It may seem crazy, but with industrial vacancy rates in Bend now in the single digits, we may be facing another employment land shortage. That’s good for landowners, but not so good for industrial users. Similarly, vacant retail space is being absorbed at a rapid clip as healthy businesses improve their locations and that in Bend, with an eight percent vacancy rate, we’re rapidly approaching the magic six percent point where new construction is triggered.
Expect retail sales, care sales and defense-related orders to be flat to down in 2013, particularly later in the year. Expect also to see some overall prices increases for fuel and goods in general as inflation starts to rear its head more assertively. Case in point, the Bureau of Labor Statistic just reported that compensation costs for civilian workers increased 1.9 percent for 2012 – a trend that has been down or flat for more than five years. With change in the air, however, we would suggest overall caution rather than unbridled optimism or pessimism.
Forecast for EDCO Efforts
While EDCO is and must be a student of the broader economy, we are much more focused on changing it for the better at the regional level. 2012 was actually the best year on record for EDCO, during which we closed 26 business deals with companies that are on their way to adding nearly 900 new jobs and investing more than $215 million in capital investment. Not bad for a little non-profit with a handful of staff and small army of unpaid volunteers. Our pipeline for 2013 is as full as ever with quality companies in a variety of industries that provide well-paying jobs. Owners and managers of these employers are either in the process of making a decision to relocate or expand here or they are in the middle of executing on decisions they have already made.
We don’t count these as “done deals” until the hiring starts, new building is occupied or the equipment is in production. While it’s a bit early to tell, 2013 could keep pace with the record-setting year EDCO just concluded for job creation and capital investment. That’s great news for the Central Oregon economy.
Traded-sector industries in our region that will see the most traction in the year ahead are consistent with what has been hot in recent years—what we at EDCO affectionately shorthand as “Brew| Bio|Rec| Tech.” In other words: brewing and distilling operations, biosciences including pharmaceuticals and medical devices, recreational equipment and apparel, high technology including software, electronics and data centers.
It’s surprising to many when we actually talk about the critical mass in these value-producing sectors: almost two dozen companies in the fermentation business, Oregon’s center of brainpower in pharmaceutical research, 50 plus companies in recreational equipment and three dozen software firms. On a global scale, many of these companies are small, but they are thriving and competing well within their own niche industries.
Don’t count out our significant local building products manufacturing industry – construction in the U.S. is making a small rebound. However with big investments in automation, companies in this industry are able to meet growing market demand with ever-
fewer employees.
Aviation/aerospace, particularly production of light aircraft and related parts, is seeing some stabilization, albeit at a much lower level than six years ago. We expect to see some local growth from this sector in the year ahead. Professional business services and government (the biggest losers of jobs over the past year in our region) should also see some leveling off and even modest job creation.
Overall, growth of our regional economy is still a mixed bag but the trend is climbing slow and steady upwards. That we’re not growing crazily in any given sector is reason for long-term optimism – lower chances of another painful bust when that growth evaporates.
