Oregon Economic Forecast: The Square Root Recovery

by Amy Vander Vliet

May 27, 2020

Oregon entered into a severe recession virtually overnight due to the outbreak of COVID-19 and the public health measures put in place to contain it. The state lost more than one-quarter of a million jobs in March and April (-13.6%), wiping out six years of job growth. Meanwhile the unemployment rate soared from the lowest on record to the highest in a single month.

Oregon’s job decline thus far is on par with the nation’s (-14.0%) and ranks 22nd (steepest) among all states. Michigan topped the list, losing nearly one-quarter of all jobs, followed by Vermont, New York, and New Jersey. On the other end of the still-grim spectrum, Oklahoma, Wyoming, and the District of Columbia suffered the mildest losses, ranging between eight and nine percent.

Chapter 1: Falling Off a Cliff

The second quarter will be brutal, with losses totaling more than 400,000 jobs across virtually all industries according to the latest forecast from the Office of Economic Analysis (OEA). In comparison, Oregon lost 146,000 jobs over eight quarters during the Great Recession.
The leisure and hospitality industry will contract at an alarming rate, slashing nearly two-thirds of its workforce (-128,100 jobs) and accounting for one out of every three jobs lost in the state. Bars and restaurants were among the first and most severely impacted businesses; spectator sports are canceled, amusement parks are shuttered, and hotels are experiencing skyrocketing vacancy rates as travel and tourism comes to a grinding halt.

Private health care and social assistance will shrink by 25 percent (-65,900 jobs) in the second quarter. Elective surgeries, non-urgent care, dental cleaning, and eye exams were on hold through April. Some of these services resumed in May, albeit with restrictions and limited capacity.

Retailers will cut 50,700 jobs, or one-quarter of its workforce. While some stand-alone retail that was previously closed was allowed to open May 15, many stores and shopping malls remain shuttered. Others have announced plans to close permanently.

Chapter 2: The (partial) Bounce Back

All but two counties in Oregon (Multnomah and Washington) have begun to gradually reopen under Phase 1 requirements and guidelines. These counties account for 66 percent of the state’s population and 57 percent of jobs. In Phase 1, and as areas move into Phase 2, companies will start bringing back workers, people will venture out more, and workplaces will adjust for safe distancing. Spending will bounce back –to a degree– from the second quarter’s unprecedented plunge as pent-up demand from months of quarantine and uncertainty is released.

This initial rebound will be substantial, transitioning the economy from recession to recovery. Yet it will be far from complete. The state will add back roughly 150,000 jobs in the second half of this year, or 38 percent of what was lost in the second quarter. The unemployment rate will remain in record territory, businesses will employ fewer people, others will fail, and household income (overall) will fall.
Most industries will add jobs in the second half of this year, although none will make a full recovery. The three major industries suffering the largest second quarter losses will gain the most in the second half: leisure and hospitality (+74,100 jobs); private health care and social assistance (+45,600); and retail trade (+26,000). All totaled, these sectors will recover by about 60 percent.

Oregon’s goods-producing industries will see losses continue through 2020 as the drops in household income and spending work their way through the economy. It’s one thing to buy dinner at a restaurant this summer, it’s an entirely different thing to purchase a house, a car, or a big screen TV. Consumers might hold off buying big-ticket items until their incomes recover or they feel more confident.  

Chapter 3: The Waiting Game

After the initial (and incomplete) bounce back, the rest of the story is dictated by the path of COVID-19. The virus is in control. Firms and consumers will remain somewhat hesitant as we wait for a vaccine or treatment. Large public gatherings, conventions, concerts, festivals, and live-audience sports will remain on hold. This period of slow growth is the period following the second-half rebound in what OEA has named the “square root” recovery. Not a ‘V’, not a ‘U’, rather something in between.
Chapter 4: Recovery Complete

Once there’s a treatment, vaccine, or herd immunity, the rest of the recovery should be swift. OEA lists three reasons:

  • We entered the recession on firm footing. Prior to the virus, there were no major weaknesses or imbalances in the economy.
  • Economic activity and spending are being suppressed due in part to the public health measures put in place following the outbreak. Households, particularly higher income ones, are seeing their savings increase as a result. They have money to spend, but not the usual opportunities. When restrictions lift and confidence returns, consumer spending will strengthen.
  • The Federal response has been swift and more targeted than in past downturns. It started with interest rate cuts, followed soon by a variety of programs designed to keep credit flowing and to support businesses and the unemployed. These policies will take the edge of the recession and help restore confidence in the economy.
Assuming the virus is largely under control within the next year or two, OEA expects the economy will return to 2019 employment levels by mid-decade.

The OEA's complete report is available at www.oregon.gov/das/OEA/Pages/forecastecorev.aspx.

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