Oregon Employment Forecast: Solid Fundamentals, More UncertaintyOctober 16, 2019 The U.S. economic expansion turned 10 years old this summer, making it the longest expansion in recorded history. Locally, Oregon continues to add jobs and our unemployment rate remains at record lows. In addition, incomes are rising and initial claims for unemployment insurance (a measure of layoffs) are down. All told, the state’s economy continues to hit the sweet spot.
How long will this last? In their latest employment forecast, Oregon’s Office of Economic Analysis (OEA) asserts that expansions don’t die of old age. Instead, they’re usually snuffed out by bad behavior or policy mistakes. The Federal Reserve is currently adjusting monetary policy in an attempt to keep borrowing cheap, businesses and consumers confident, and the next recession at bay. The key question is whether they can successfully walk the tightrope of stimulating the economy without overheating it.
There are also risks associated with the ongoing and escalating trade war. OEA doesn’t see the direct effects of tariffs to date – in the form of price increases – sending the economy into a recession. It’s the indirect effects of the trade war that are of greater concern. Businesses are wary and financial markets are on edge. The concern is that if firms become more uncertain and cautious, they could pull back on hiring which would negatively impact job growth and, in turn, income, consumer confidence, and household spending: key ingredients for a recession.
We’re not there. But the trade war and a slowing global economy are causing cracks to form beneath the solid fundamentals of job growth, low unemployment, and income gains. Oregon manufacturers are cutting the number of weekly hours worked per employee. This is also happening nationally, but not as rapidly. When business slows or profits are down, employers tend to cut hours before cutting jobs. Additionally, exports are down although Oregon is faring better than the average state. OEA doesn’t see these cracks foretelling full-blown recession, yet they do spark talk of a manufacturing recession.
For now, the outlook calls for slow and stable growth. OEA expects the state to add roughly 2,000 jobs a month for the remainder of this year and into 2020. While this pace is significantly slower than the 4,000+ monthly jobs Oregon was adding just a few years ago, it’s enough to absorb new entrants into the labor force and hold unemployment down.
Growth in several broad industries are projected to slow over the next year. The manufacturing sector is flat heading into 2020, weighed down by trade issues and global risks. Construction also decelerates even as the housing rebound continues; growth rates topping 8 percent in recent years are simply unsustainable. The trade, transportation, and utilities sector settles down after the Amazon surge of the past few years which saw thousands of jobs created in the warehousing component.
Other industries will take up the slack. The public sector will outperform its recent past across most components: Local government will grow as revenues continue to improve in step with the economy, and the federal component will be bolstered by Census hiring. Private education and health services also accelerates, primarily due to the healthcare component as our population continues to grow and age. Professional and business services rebounds from its recent slump and outperforms all other broad industries.
Oregon’s forecasted growth depends on maintaining three major competitive advantages that have served us well in the past: our ability to attract and retain a skilled labor force; our industry structure; and a favorable climate for new business formation.
It also depends on the national economy. While many leading indicators are leaning positive for the near-term, the next recession is a matter of when, not if. Outside of unforeseen financial or geopolitical shocks, it’s unlikely to happen within the next year. Both IHS Markit, a contributor to OEA’s state forecast, and the Wall Street Journal Economic Forecasting Survey put the probability of a recession over the next year at around 35 percent.
The OEA's complete report is available at www.oregon.gov/das/OEA/Pages/forecastecorev.aspx.