Cortright: Oregon Economic Outlook
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Transcript of Cortright: Oregon Economic Outlook
Outlook for the Northwest Economy
Joe Cortright – October 2009
Synopsis
• The national economic outlook
• Implications for the Northwest
• From recession to recovery
• A foundation for the future
We’re in a recession again
• Brad DeLong Arrows chart
A Different Kind of Recession
• An Asset Bubble– Housing Collapse
• Speculative Finance– Deregulation, “too big to fail”– Multiplied the shock– Accommodative Fed
• Punctured by Energy Prices– Running up against real limits
Last September . . . Financial Market’s Wiley Coyote Moment Dow
Industrials
An abrupt fall
This recession
Oregon caught in the downdraftEmployment Growth12-Month Change in Non-Agricultural Payroll Employment
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bureau of Labor Statistics
OREGON
US
Unemployment RateOregon and U.S. Seasonally Adjusted Percent of Labor Force
3
4
5
6
7
8
9
10
11
12
13
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bureau of Labor Statistics
OREGON
US
Oregon & US unemployment spiked
Analyzing Oregon’s Performance
• Since the Peak (November 2007)– Wage and salary employment– US: -7.9 million jobs: -5.7%– Oregon -131,000 jobs: -7.5%
• Why is Oregon worse off?
Breaking it down
92,000 jobs lost, in 3 categories:
• Housing and Finance Bubble -30,000
• Durable Goods Mfg. -20,000
• Contagious Pessimism -42,000
12 month change in Oregon Wage & Salary Employment
Housing and Finance Bubble
Sector Jobs Lost % Change
• Construction (18,000) -19%
• Real Estate (5,000) -12%
• Finance (6,500) -6%
• Total (29,500)12 month change in Oregon Wage & Salary Employment March 2008 to March 2009
Oregon Building permits down 44% in 2008; US housing starts at lowest level since 1946 <600k
Late to the housing collapseOregon Lags US Housing CyclePortland and U.S. Housing Price Change (12 months)
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Case-Shiller House Price Index
Portland
US
Construction decline later, but steeperOregon Construction Peaked Later, Caught Up to USConstruction Employment (Index 2000=100)
80
85
90
95
100
105
110
115
120
125
130
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Source: Bureau of Economic Analysis
OREGON
US
Durable Goods Collapsed
#1 in Durable Goods DependenceOregon Most Dependent on Durable GoodsPercent of State GDP from Durable Goods Manufacturing
0% 5% 10% 15% 20%
District of ColumbiaAlaskaHawaii
WyomingDelawareMontanaMarylandNew York
New JerseyNevadaFlorida
ColoradoLouisiana
VirginiaGeorgia
New MexicoCalifornia
West VirginiaNebraska
MaineTexas
Rhode IslandNorth Dakota
MassachusettsIdaho
ArizonaOklahoma
MissouriSouth Dakota
IllinoisWashington
PennsylvaniaNorth Carolina
MinnesotaNew Hampshire
ConnecticutVermont
UtahMississippi
ArkansasSouth Carolina
KansasTennessee
KentuckyAlabama
IowaOhio
MichiganWisconsin
IndianaOregon
Source: Bureau of Economic Analysis
Durable Goods Manufacturing
Sector Jobs Lost % Change• Transp. Equipment (5,400) -33%• Wood Products (5,200) -19%• High Tech (4,600) -12%• Metals/Machinery (4,700) -14%• Total (19,900)
12 month change in Oregon Wage & Salary Employment March 2008 to March 2009
Exports declined dramatically
Vulnerable to export shockOregon is in top ten in exports per capitaExports Per Capita, 2007
- 2,000 4,000 6,000 8,000 10,000
Oregon
Source: WISERTrade , 2007
Ranking among 50
States
Contagious Pessimism
Sector Jobs Lost % Change
Retail (14,100) -7%
Temps (10,900) -30%
Wholesale (6,200) -8%
Transportation (5,500) -9%
Restaurants (5,500) -4%
Total (42,200)12 month change in Oregon Wage & Salary Employment March 2008 to March 2009
Unemployment RateOregon and U.S. Seasonally Adjusted Percent of Labor Force
3
4
5
6
7
8
9
10
11
12
13
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Bureau of Labor Statistics
OREGON
US
Unemployment: Special Factors
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
2001 2002 2003 2004 2005 2006 2007 2008
Net migration is strong
11th 6th 17th 24th 10th 8th 10th 9th Oregon Rank
Oregon net domestic migration, percent of current population
Source: Census Bureau estimates
2008: Oregon ranked 8th highest in net in-bound percent of United Van Lines Moves
What’s the outlook?
• Insights from the Economic Forecasts
--Wells Fargo
--Oregon Economic Forecast
GDP expected to recover
Wells Fargo Securities, Monthly Outlook, October 7, 2009
Unemployment persistsHigh unemployment projected to persist for yearsNational Unemployment Rate (Percent)
0
2
4
6
8
10
12
2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3
Source: Wachovia Economic Forecast
FORECAST
Wells Fargo Securities, Monthly Outlook, October 7, 2009
State forecast has bottomedOregon Total Nonfarm Employment (000s)
1,600
1,650
1,700
1,750
1,800
1,850
1,900
1,950
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
Mar-08
Sep-08
Dec-08
Mar-09
May-09
Sep-09
Alternative Scenarios
September 2009 Revenue Forecast
Oregon Non-Farm Employment
News Flash: Recession Over
Mid-September Good News . . .
• Sept. 14th: Governor Yellen
• Sept. 15th: Chair Bernanke
“Recession may have ended in summer”
What’s the evidence?
“Over” = GDP growth not declining
Evidence:
- Retail sales up
- House prices up (slightly)
- Job losses easing
- More normal financial markets
Risks
• Retail sales: temporary spurt– “Cash for Clunkers”
• Housing– Huge backlog of foreclosures– Millions underwater on mortgages– Shadow inventory
• Financial Markets– CRE: the other shoe
Retail sales “rebound”
Retail sales are up!Retail Sales, Seasonally Adjusted, Millions (monthly)
Category July August ChangeTotal Retail Sales 342,280 351,418 2.7%Auto Sales 58,089 64,221 10.6%Gas Station Sales 29,727 31,239 5.1%Retail,
ex. Gas & auto 254,464 255,958 0.6%
But very little after adjustingRetail Sales, Seasonally Adjusted, Millions (monthly)
Category July August ChangeTotal Retail Sales 342,280 351,418 2.7%Auto Sales 58,089 64,221 10.6%Gas Station Sales 29,727 31,239 5.1%Retail,
ex. Gas & auto 254,464 255,958 0.6%
Home prices may have “bottomed”
The Other Shoe: CRE
Two Year Lag between residential and commercial peaks
First Time Buyers Giveway
• 2009: – 350,000 additional sales– Cost: $15 billion– = $43,000 per additional sale
• 2010– 500,000 additional sales– Cost: $30 billion– = $60,000 per additional sale
• These are the National Association of Realtors estimates, and may be low.
A very different recession
• Financial collapse
• Liquidity trap (monetary policy impotent)
• Massive wealth effect
• Global scope
= “Out of sample” forecasting
Here we go again
As in 2002, we are in a recession – Let’s remember the lessons from last time:
1. Recessions end2. “Recovery” is a misnomer: we don’t
recover the same jobs and businesses we lost
3. Recession is time to lay the foundation for building during the next expansion
A very different “recovery”
• Letters:– Not “V”– Maybe “U” or “W”– Possibly “L”
• Adjectives– “Tepid”– “Protracted”
Key drivers for the future
• Cluster performance
• New business formation
• Innovation
• Sustainability
• Institutions
Parallel to the 1930s
• New Institutions for a changed world
• Then: Industrial Economy
• Now: Knowledge Economy/Sustainability
Four Key Changes
• Energy
• Housing
• Transportation
• Health Care
“May you live in interesting times.”
www.ImpresaConsulting.com
Joe Cortright – June 2009
Debt: Still over leveraged
Equity: We lost $14 trillion