After a strong start to 2012, the economy downshifted midyear and never regained momentum. Concern about the ongoing European recession, a decline in exports, cuts in government, and uncertainty surrounding the looming fiscal cliff proved to be significant headwinds to growth.
Looking out in 2013, some of these headwinds remain and new ones may come into play. Growth will remain sluggish in the immediate future as government cutbacks and payroll tax increases weigh on the economy. Additionally, future orders for manufactured goods have slowed for many local manufacturers. However, the fundamentals of the economy appear to be on reasonably solid footing according to the OEA, setting the stage for stronger growth later this year and into next:
- The U.S. economy has been adding jobs fairly steadily, to the tune of about 180,000 jobs a month; hardly robust but strong enough to slowly lower the unemployment rate.
- Consumer spending has been rising, although it might take a hit from the increase in Social Security taxes that took effect at the beginning of the year.
- Business balance sheets look good: profits are high, financing costs are low, and access to capital is improving - paving the way for acceleration in investment spending and growth later this year.
- Real income in Oregon is rising. After an expected pullback in the first quarter, income is forecasted to increase 2.0 percent this year and 3.7 percent in 2014.
- The housing recovery is solidly underway and gaining momentum. Although activity is still below normal, all signs point to continued growth.
- The stock market has regained its recessionary losses. This, along with home price appreciation, should support continued consumer spending moving forward.
In other words, consumers and businesses have the resources to power growth. OEA expects this to take shape starting later this year. First, though, they anticipate a period of weakness in the near-term as the economy absorbs the impacts of federal cutbacks and tax increases.
All major industries are forecasted to expand this year. Professional and business services will add the largest number of jobs (+4,900; +2.5%), which will raise employment above the pre-recession peak. Leisure and hospitality will also make a full recovery this year, adding 3,600 jobs (+2.1%). Trade, transportation, and utilities will post strong gains (+4,500; +1.4%); nonetheless employment will remain below its pre-recession level by close to 20,000 jobs. The public sector will add jobs for the first time since 2010 (+1,000; +0.3%). Most of the gains will occur in the hard hit local education component (e.g. K-12), which cut 8,500 positions over the past three years.
Although the prospect of another recession is still on their radar, OEA isn't factoring one into its current forecast. Barring unforeseen shocks to the economy, Oregon is expected to fully regain the nearly 150,000 jobs lost during the Great Recession by the second quarter of 2015 - nearly six years after hitting bottom. Meanwhile the unemployment rate, which tends to be one of the last indicators to improve as the economy recovers, will slowly decline from 8.7 percent in 2012 to 7.0 percent in 2015.
The OEA's complete report is available at www.oea.das.state.or.us.