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From Emergency Room To Recovery Room
To Leaving the Hospital:
The Oregon Economy is Healed (with a Few Lingering Ailments)
2015 RETIREMENT ASSOCIATION OF PORTLAND STATE UNIVERSITY
JANUARY 15, 2015
Dr. Tom Potiowsky
Director, Northwest Economic Research Center
NORTHWEST ECONOMIC RESEARCH CENTER
COLLEGE OF URBAN AND PUBLIC AFFAIRS
PORTLAND STATE UNIVERSITY
Established in 2011
Hosted by the College of Urban and Public Affairs (CUPA)
Directed by Dr. Thomas Potiowsky
Assisted by Dr. Jenny H Liu
NORTHWEST ECONOMIC RESEARCH CENTER
COLLEGE OF URBAN AND PUBLIC AFFAIRS
PORTLAND STATE UNIVERSITY
Photo Credit: www.wheretowillie.com
Economic Forecasting is NOT Easy…
May 7, 2008
"I do believe that the worst is likely to be behind us."
—Treasury Secretary Henry Paulson in an interview in
The Wall Street Journal
U.S. ECONOMY
State Coincidence Index
(October 2014)
Coincident Index Components
1.
Nonfarm Employment
2.
Average Hours Worked Manufacturing
3.
Unemployment Rate
4.
Inflation Adjusted Wages and Salaries
Long-term growth trended to state GDP.
Source: Federal Reserve Bank of Philadelphia
State Coincidence Index
(November 2014)
Coincident Index Components
1.
Nonfarm Employment
2.
Average Hours Worked Manufacturing
3.
Unemployment Rate
4.
Inflation Adjusted Wages and Salaries
Long-term growth trended to state GDP.
Source: Federal Reserve Bank of Philadelphia
Quarterly Real GDP
Year over Year Percentage Change (1948 Q1 – 2014 Q3)
Q2: 4.6%
Q3: 5.0%
Relatively Slower Expansions
Relatively Longer Expansions
Source: Federal Reserve Bank of St. Louis
Real Trade Weighted Exchange Assisting Exports
1973 = 100 (January 1973 – November 2014)
Source: Federal Reserve Bank of St. Louis
U.S. Top 10 Export Trading Partners
(2010–2013) . In goods only
Top 10 Countries of Export from U.S. (Billions of Dollars)
$350
$300
$250
$200
2010
$150
2011
2012
$100
2013
$50
$0
Source: U.S. Census Bureau
U.S. Exports of Goods by Principal End-Use Category
(2010–2013) .
U.S. Exports of Goods by Principal End-Use Category
(Billions of Dollars)
$600
$500
$400
2010
$300
2011
2012
2013
$200
$100
$0
Foods, Feeds,
Beverages
Industrial Supplies
Capital Goods
Automotive
Vehicles, etc.
Consumer Goods
Other Goods
Source: U.S. Census Bureau
U.S. Economy Brief Summary
2011
2012
2013
2014
2013
Q2
2013
Q3
2013
Q4
2014
Q2
2014
Q3
2014
Q4
Real GDP
Growth
1.8%
2.8%
1.9%
N/A
1.8%
4.5%
N/A
4.6%
5.0%
N/A
CPI Change
3.1%
2.1%
1.5%
N/A
0.4%
2.2%
N/A
3.0%
1.1%
N/A
Core CPI
Change
1.7%
2.1%
1.8%
N/A
1.4%
1.8%
N/A
2.5%
1.3%
N/A
Unemployment
Rate
8.9
8.1
7.4
6.2
7.5
7.2
7.0
6.2
6.1
5.7
3-Month
Treasury Bill
0.05
0.09
0.06
0.03
0.05
0.03
0.06
0.03
0.03
0.02
10-Year
Treasury
Constant
Maturity Rate
2.78
1.80
2.35
2.54
1.99
2.71
2.74
2.62
2.50
2.28
Source: Federal Reserve Bank of St. Louis
U.S. Employment Loss by Recession
Percent Employment Loss Since December 2007 to March 2014 (Monthly)
U.S. Duration of Unemployment
Monthly Seasonally Adjusted (January 1968 to December 2014)
December 2014: Average = 32.8 Median = 12.4
Source: Bureau of Labor Statistics
Emergency Room to Recovering Room to leaving the
Hospital

Federal Rescue Packages have been over for some time.

Congress has little stomach for anything that moves
spending or taxes.

Even the Federal Reserve is pulling the life-line plug, ending
quantitative easing last October.
Milton Friedman’s Helicopter
Source: http://gaianeconomics.blogspot.com
Bernankellen?
Source: http://www.freakingnews.com
“Taper” is Such a Non-Threatening Word

$25 Billion per month (late July 2014)

$15 Billion of Longer-Term Treasury securities and $10 billion of Agency MortgageBacked securities

QEIII ended in October 2014.

Appears that Fed is going to shrink their portfolio, finally ushering in some rising
interest rates. Ending QEIII is baked into the numbers, do not expect volatile
moves in financial markets.

This pending rise in interest rates will not be smooth (no surprise here). Ups,
downs, spurts, and stall outs due to all sorts of events from European Union, to
geopolitical risks, to other central bank policy changes, to exchange rate
movements, can influence the flow of funds in and out of the US.
Source: Board of Governors of the Federal Reserve System and NERC
Federal Reserve issues FOMC statement, July 30,2014
Effective Federal Funds Rate
Daily Percent (July 1954 – January 12th 2015)
Fed cannot
manipulate funds
rate to stimulate
economy as it is
effectively zero.
Source: Federal Reserve Bank of St. Louis
Excess Reserves of Depository Institutions
Billions of Dollars (January 1959 – December 2014)
Source: Federal Reserve Bank of St. Louis
“The outlook for growth in the U.S. economy over the next four
years is little changed from the survey of three months ago,
according to 42 forecasters surveyed by the Federal Reserve Bank
of Philadelphia. On the jobs front, the panelists have revised
upward their estimates for job gains in the next two quarters.”
(November 17, 2014)
Source: Federal Reserve Bank of Philadelphia
REGIONAL ECONOMY
(mostly Oregon)
Oregon Employment Loss by Recession
Employment Since January 2007 Peak to Nopvember 2014
Source: Oregon Office of Economic Analysis
Oregon Unemployment
Seasonally Adjusted (Jan 1976 – Nov 2014)
14.0
12.0
10.0
8.0
Recession
Oregon
6.0
November
2014 at 7.0%
4.0
2.0
0.0
Jan-76
Jan-79
Jan-82
Jan-85
Jan-88
Jan-91
Jan-94
Jan-97
Jan-00
Jan-03
Jan-06
Jan-09
Jan-12
Source: Bureau of Labor Statistics
Recent Oregon Economic Facts
 7.0% unemployment rate for November 2014 (November 2014 U.S. rate was 5.8%)
is down from 7.3% a year ago in November 2013 and down roughly 4.6 percentage
points from the recession high (11.6% in 2009).1
 Total nonfarm employment increased 2.6% year-over-year for November 2014,
which was the 6th fastest for all states. Total nonfarm up 43,800 since November
2013 with the private sector up 36,100 through November 2014.2
 4.4% personal income growth for 3rd quarter of 2014 over 3rd quarter of 2013.
Annual 2013 growth at 4.47%. 3
 Oregon 2013 GDP in millions of dollars $219,590 and GDP per capita $55. For 2013
Oregon ranks 14th for all states4.
Sources:
1Oregon
Employment Department;
2Oregon
Employment Department and W. P. Carey School of Business at Arizona State University;
3Oregon
Office of Economic Analysis,
4Federal
Reserve Bank of St. Louis, Bureau of Economic Analysis
Oregon Population Growth by Region
Population Forecast 2015-2035
Metro
Central
30.40%
18.23%
Northwest
15.77%
Valley
15.77%
Eastern
0.84%
Southwest
10.89%
Source: Oregon Geospatial Enterprise Office (GEO), County Boundaries;
Oregon Office of Economic Analysis; 2013 Release Long Range County Demographic Forecast
Population Growth by State
Population Forecast 2010-2030
State
2010
2030
Change
(2010-2030)
Washington
6,724,540
8,154,193
21.3%
Oregon
3,837,300
4,768,000
30.2%
Idaho*
1,567,582
1,969,624
25.6%
California
37,309,382 44,279,354
18.7%
*Note: Idaho 2030 projection was released in 2005
Source: (Oregon) Oregon Office of Economic Analysis. 2013 Release Long Range County Demographic Forecast.
(Washington) Washington Office of Financial Management. 2013 Release State Population Forecast.
(California) California Department of Finance. P-2: State and County Population Projections by Race/Ethnicity and Age (5-year groups), 2010-2060.
(Idaho) U.S. Census Bureau. 2005 Interim State Population Projections.
Nonfarm Employment
Year Over Year Change (Jan 1991 – Nov 2014)
Source: Bureau of Labor Statistics
Oregon’s Industrial Winners
Percent Change in Employment Since Jan 2008 through Nov 2014
Source: Bureau of Labor Statistics
Oregon’s Industrial Losers
Percent Change in Employment Since Jan 2008 through Nov 2014
Source: Bureau of Labor Statistics
Unemployment Rate
Seasonally Adjusted (Jan 1976 – Nov 2014)
Source: Bureau of Labor Statistics
Employment Loss: Oregon and Washington
Percent Change from Jan 2008 (Jan 2008 – Sep 2014)
Source: Bureau of Labor Statistics; Current Employment Statistics
Percent Change in Manufacturing Employment
Quarterly Data Indexed to 1990 Q1 (1990 Q1 – 2024 Q1)
December 2014 Forecast
Source: Oregon Office of Economic Analysis
HOUSING
Housing and Government
Were Drags on the Recovery.
But Housing is Now Contributing to Growth
but from a Very Low Base and
Government is Slowly Gaining Revenues
and Turning the Corner on Hiring.
U.S. One Unit Housing Starts
Seasonally Adjusted Annual Rate, Monthly Data (January 1990 – November 2014)
Source: Federal Reserve Bank of St. Louis
WHY DIDN’T CANADA HAVE A BANKING CRISIS IN
2008 (OR IN 1930, OR 1907, OR ...)?
Michael D. Bordo, Angela Redish, Hugh Rockoff
Working Paper 17312
http://www.nber.org/papers/w17312
NATIONAL BUREAU OF ECONOMIC RESEARCH
WHY DIDN’T CANADA HAVE A BANKING CRISIS IN
2008 (OR IN 1930, OR 1907, OR ...)?
Michael D. Bordo, Angela Redish, Hugh Rockoff
Working Paper 17312
http://www.nber.org/papers/w17312
NATIONAL BUREAU OF ECONOMIC RESEARCH
Purchase Only Housing Price Index - % Change
Pacific and Mountain Regions (1991 - 2014 Q3)
Source: Federal Reserve Bank of St. Louis
Forecast: Oregon Housing Starts and Price Index
December 2014 Forecast
December 2014 Forecast
Source: Oregon Office of Economic Analysis
Note: *FHFA House Price Index, 1980 Q1 = 100
US and Region Expansions: Going Forward Will Be Slower
The Region will follow the US economy with slower growth compared to past expansions

Slow growth following major financial crisis

Slowing of population growth

Falling labor participation rate
Manufacturing and exports have lead the way. Traditional boost from housing is finally coming
around. Government taking longer to stem the tide of declining tax revenues, but the corner has
been turned.
Pothole versus Falling Off the Cliff. This recession is somewhat of a game changer. We are not
on the same road, but the road at the bottom of the Cliff is gradually rising. Changing
spending behavior, savings rates, home ownership rates, need to be taken into account.
Job growth to be subdued but picking up steam. Employment In California has recently reached
its previous peak. Oregon rises up to previous peak of early 2008 sometime in early to mid
2015.
HEADWINDS (AND TAILWINDS)
Short Term and a Few Long Term Risks
– An Incomplete List:
Rosier Outlook or Dimmer Prospects?

Ukraine

Geopolitical Risks

Fiscal and Monetary Policy (Dodd-Frank, Health Care,…)

China Economic Growth

Financial Overhang (Stalled Housing Recovery for one)

Europe Sovereign Debt Issues

Energy Prices (Rapidly Falling Oil Prices is a Problem – Really?)

Cyber Attacks, Income Disparity, Climate Change
Total Debt Balance Composition
Trillions of Dollars (2003 Q1 to 2014 Q3)
Source: Federal Reserve Bank of New York
400
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
Rising Cost of College Tuition and Fees
(January 2003 to April 2014)
800
700
600
500
CPI- All Items
CPI- College Tuition and Fees
300
200
100
0
Source: Bureau of Labor Statistics
Home Ownership Trends
 US home ownership peaked at 69.2% in 2004.
 Oregon home ownership peaked at 70.1% in the 4th quarter of 2005. Dropped
down to 63.3% in the first quarter of 2013. First quarter 2014 at 63.7%.
 Washington home ownership peaked at 69.2% in the 4th quarter of 2005. Dropped
down to 62.3% in the fourth quarter of 2013. First quarter 2014 at 63.5%
 California home ownership peaked at 60.7% in the 3rd quarter of 2006. Dropped
down to 54.0% in the 2nd quarter of 2013. First quarter 2014 at 54.5%.
 What is the trend going forward?
Source: Current Population Survey/Housing Vacancy Survey, U.S. Census Bureau, Washington, DC 20233
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Income Inequality
Source: Oregon Office of Economic Analysis
Postscript: Financial Crisis and Our Approach to Get Out
“If Stupidity Got Us Into This Mess,
Why Can’t It Get Us Out?”
- Will Rogers
“When
the capital development of a country
becomes a by-product of the activities of a
casino, the job is likely to be ill-done”
― John Maynard Keynes
Contact – Follow NERC
Northwest Economic Research Center (NERC)
503-725-8167
[email protected]
http://www.pdx.edu/nerc/