Office of Economic Analysis

1
Agency Budget Kickoff Meeting
Oregons Economic and Revenue Outlook
Employment Department Auditorium March 6, 2008

• Office of Economic Analysis
• Tom Potiowsky, State Economist
• Dae Baek, Deputy State Economist
• Kanhaiya Vaidya, Senior Demographer
• Michael Kennedy, Senior Economist

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Quick Look at US Economy...
Office of Economic Analysis
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State of the US Economy

• Housing and Energy slowing the economy.
• Households are slowing spending.
• Major economic indicators point to further
  slowing.
  
• January jobs down, first decline since August
  2003.
  
• Major forecasting firms, Global Insight and
  Moodys Economy.com add recession scenario to
  their baseline forecast during the first week of
  February.

4
Bottom Line For US Economy

• The U.S. economy is in a danger zone credit
  conditions are tightening and growth is slowing
  
• Weakness in consumer spending and investment is
  cushioned by strength in export markets
  
• Home sales and construction should hit bottom
  this spring and stay rather anemic through the
  year, but prices will fall into 2009
  
• Inflation will settle near 2
• The corporate profits boom is over
• Given a recession scenario in the baseline
  forecast, Global Insights optimistic and
  pessimistic scenarios
  
• Touch and Go (25 Probability)
• Double-Dip Recession (25 Probability)

Source Global Insight, January/February 2008
5
Look at Oregon Economy...
Office of Economic Analysis
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Unemployment Rate by Region, January 2008(Not
seasonally adjusted Portland MSA includes Oregon
counties only)
Oregon 6.3 (seasonally adjusted 5.5)
U. S. 5.4 (seasonally adjusted 4.9)
5.2
7.4
6.2
8.7
8.2
8.6
Source Oregon Employment Department
Office of Economic Analysis
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Unemployment rate by MSA designations, January
2008Note Portland-Vancouver-Beaverton includes
Clark and Skamania counties in Washington State
Office of Economic Analysis
Source Oregon Employment Department
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Residential Building Permits Percentage Change
December 2007 Year-to-Date
Area
Total Building
Single Family
Permits
Permits
-21.4
OR
-18.8
Salem
-9.9
-10.4
Portland-
Vancouver-
-17.7
-14.4
Beaverton
Bend
-45.6
-48.8
Eugene-Springfield
-12.6
-19.4
Medford
-15.7
-8.5
US
-24.9
-29.5
Source U.S. Census Bureau
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Residential Building Permits Percentage Change
December 2007 Year-to-Date for Select Oregon
Counties
Source U.S. Census Bureau
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Annual Percentage Change in OFHEO House Price
Indexes through 2007 Q4
Selected State and US House Price Appreciations
California
Washington
Oregon
US
Source Office of Federal Housing Enterprise
Oversight
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Annual Percentage Change in OFHEO MSA House Price
Indexes through 2007 Q4
Selected Oregon MSA House Price Appreciations
Bend
Medford
Eugene-Springfield
PDX-Vanc-Bevrtn
Salem
Source Office of Federal Housing Enterprise
Oversight
12
OREGON EMPLOYMENT DURING NATIONAL
RECESSIONS(QUARTERLY CHANGE AT SEASONALLY
ADJUSTED ANNUAL RATE)
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LEGISLATIVE REVENUE OFFICE
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Last Two Recessions, Oregon faired better in
1990-91 and much worse during 2001

• 1990-91
• National duration 8 months, about the same for
  Oregon
  
• V shaped recession
• 0.4 decline in Oregon jobs
• Inflation at 6.0
• Oregon unemployment rate peak 7.5 (about same as
  US), 22 months over 7

• 2001
• National duration 8 months, about 31 months for
  Oregon
  
• W shaped recession
• 4.0 decline in Oregon jobs
• Inflation at 3.4
• Oregon unemployment rate peak 8.5 (higher than
  US), 37 months over 7

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Oregons Position in the Latest Downturn

• Nationwide, foreclosure-related filings (e.g.,
  default notices, auction sale notices, etc.)
  increased 75 nationwide from 2006 to 2007.
  Oregon had a 12 increase over the same period,
  43rd slowest rate in the U.S.
• Oregons foreclosure rate at 0.533, half the
  national average and well below 1.5 plus rate of
  NV, FL, CA, AZ, OH, MI.
  
• Oregon still has positive single family house
  price appreciation (overall, but Medford and Bend
  are slightly negative)
  
• Housing correction has less to adjust compared to
  other high population growth areas. But,
  residential building permits down -67.5
  total and -51.3 single for Jan. 08 compared to
  Jan. 07.
• Job growth in the fourth quarter of 2007 running
  at 2.5 annual rate, unemployment rate
  unchanged.
  
• Unemployment initial benefit claims up by 3,000,
  trend pointing to slower economic growth.

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Outlook for Oregon
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(No Transcript)
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Housing Related Sectors Impacted4th Quarter 2007
Oregon Employment Sectors
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(No Transcript)
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Contribution to OILI Index change(positive
change contributes to negative index change)
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Oregon March 2008 Forecast Comparison
Alternative scenarios (Does not assume a US
recession)
(Percent change)
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Oregon Economic Assessment Going Forward

• Wood Products is in terrible shape, slight help
  from exports, but very depressed.
  
• Exports a sign of relieve for agriculture,
  manufacturing, and service sectors with overseas
  business.
  
• Housing starts will continue to drop this year,
  correction and mild growth in 2009.
  
• House price appreciation may go negative but
  adjustment should be quick.
  
• Job losses are possible in 2008, but may look
  more like 1990-91 rather than 2001.
  
• Strong Federal Reserve cuts in rates and Fiscal
  Stimulus Package likely out in May will lessen
  the downturn.

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Budget Driver Populations Past and Future Decades
Sources Census Bureau OR Office of Economic
Analysis
Office of Economic Analysis
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(No Transcript)
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General Fund Revenue Forecast . . .
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2007-09 General Fund Forecast
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Current GF Forecast
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Progression of 2009-11 GF Forecasts (Bil.)
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Risks

• U.S. economy deteriorates more than currently
  expected.
  
• Stock market woes persist, undermining capital
  gains realizations in 2008.
  
• Corporate profits fall significantly, depressing
  taxable incomes.
  
• Policy actions, both federal and state.

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Lottery Revenue Forecast . . .
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Current Lottery Forecast
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Lottery Funds and Programs
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For more information
Office of Economic Analysis 155 Cottage Street NE
, U20 Salem, OR 97301-3966 [phone] email
oea.info_at_state.or.us http//oregon.gov/DAS/OEA
/
Office of Economic Analysis