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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/