Central Oregon’s Business Cycle ParadoxFebruary 8, 2018 When we look back on 2017, many of us will remember local headlines about a tight labor supply and affordable housing concerns. Yet, it was a year with healthy job growth, a diversifying economy, and noteworthy wage gains. By most measures, 2017 was a stellar year for the Bend-Redmond metro area. However, as we move along the business cycle we simultaneously see both opportunities and challenges. One person can benefit while another person must overcome obstacles at the same point in the business cycle. A paradox.
During the depths of the recession there was an abundance of housing (good), but we had a large number of people underwater on their mortgage and high foreclosure rates (bad). During the depths of the recession there was an abundance of skilled labor on the market for businesses to hire from (good), but there was high unemployment amongst the workforce (bad).
We see similar paradoxes today. During our current expansion, we have struggled with sufficient housing availability and affordability (bad). However, fewer people are underwater on their mortgage and homeowners are growing equity in their homes (good). During our current expansion, the labor supply became tight after years of sustained job growth, making it difficult for businesses to find qualified workers (bad), but workers have more opportunities and have seen wage increases (good).
As we enter a new year many folks are curious if 2018 will be a good year for the local economy. The answer is, “it depends.” We are seeing the pace of job growth slow considerably. This does not mean that we are expecting an impending recession. The early part of expansions are often characterized by fast growth. Eventually expansions mature or slow, typically due to supply constraints. In a natural resource based economy that supply constraint might be timber, coal, oil, or gold. However, in our service and information economy that supply constraint is labor.
Our job growth continues to outpace population and labor force growth. As a result, we no longer have the glut of available labor we once had during the depths of the recession. Today in the Bend-Redmond metro area, there are only around two unemployed individuals per help wanted ad. That ratio was closer to 10 unemployed per help wanted ad back in 2011.
If you are a business looking to hire in 2018 don’t expect these labor supply constraints to ease. Recruiting outside the region is a good strategy for expanding an applicant pool, but know that the lack of housing options may slow the hiring process.
If you are a reliable worker you should have options in 2018. Smart, creative, and reliable individuals are in high demand across the High Desert. And, you have leverage for a pay raise. The average annual wage in Deschutes County rose 6.5 percent over the past three years, amongst the fastest growth in the West. Labor supply constraints are placing upward pressure on wages.
If you are looking for housing in Central Oregon in 2018, it will continue to be challenging. There are no signs that we will see prices drop anytime soon. The rate of growth in home prices is slowing, but it is also becoming more expensive to borrow with rising interest rates. Building activity has ramped up the past several years and we are starting to see the first signs that new housing units are easing the housing availability constraint. There may also be some relief on rental prices with many new apartment units coming on the market this year.
We want affordable housing, but we also want to see our homes appreciate in value. We want businesses to have access to skilled labor, but we don’t want high levels of unemployment. We want businesses to be profitable, but we also want to see wage growth. How do we have all of this at the same time? The answer is that we don’t. Regardless of where we sit in the business cycle, there are going to be both opportunities and challenges.
My grandfather was a dryland wheat farmer. He relied on the rain in the spring and a warm dry summer. Too little rain in the spring would reduce his yield. Summer rains would harm or delay the harvest. When Mother Nature brought the perfect combination of rain and sun he took advantage of it and maximized the harvest. He knew that next year the conditions may not be so favorable. Take advantage of the opportunities that present themselves in today’s business climate. Tomorrow will bring new opportunities and new challenges.