Office of Economic Analysis

1
Agency Budget Kickoff Meeting
Oregons Economic and Revenue Outlook
Employment Department Auditorium March 15, 2004

• Office of Economic Analysis
• Tom Potiowsky, State Economist
• Michael Kennedy, Senior Economist

2
Economic and Revenue Forecast
3
Quick Look at U.S. Economy...
Office of Economic Analysis
4
U.S. Business Investment Drops Eight Consecutive
Quarters Bottom Out?
(Nominal Fixed Nonresidential 1998Q1- 2003Q4
advanced)
Bureau of Economic Analysis
5
The Fed Aggressively Lowers Rates in 2001
Additional Drops as Recovery Remains Weak Fed
now on Hold
4.75 Drop in a year
Sixth increase occurred in May 2000
Office of Economic Analysis
Global Insight February 2004
6
Recovery Will Bring an End to the Lowest Mortgage
Rates in 40 Years
(a) Thirty-year mortgage, 80 loan.
Office of Economic Analysis
Global Insight February 2004
7
Recent News Recovery Signal or Double-Dip?

• U.S. Recession officially ended November 2001
  So this is recovery?
• GDP 2003 up 4.1 (Q4), 8.2 (Q3) from 3.1 (2Q)
  and a mild 2.0 (Q1)
• Leading Indicators Jan. is up -- rising since
  Feb. 2003.
• Productivity 2.7 (4Q), 9.4 (3Q), 7.0 (2Q)
  up 4.2 for all of 2003.
• Residential Construction down in Jan. but still
  holding up, Nonresidential is down. Existing
  Home Sales down 5 in Oct and Nov but still
  relatively strong -- Dec. up 3.9 and Jan. down
  5.2 -- slowing is expected.
• Vehicle Sales - high but slowed in 2002 and
  again in 2003.
• ISM Index up and down last 9 months are
  above 50.
• Payrolls rise (Jan.) for the fifth month after
  falling since January 2003 high productivity
  allows output to go up without more labor.
  Unemployment Rate falls to 5.6 (Feb.), but Dec.
  and Feb. payroll numbers are very weak.
• Consumer Confidence down in February after a
  rise in January. Present conditions and future
  expectations down in February but basically up
  since Oct.
• Oil prices staying relatively high for the near
  term. Low inventories support higher prices,
  OPEC calls for production cut (Feb).

Office of Economic Analysis
8
Oregons Economy...
Office of Economic Analysis
9
Real Gross State Product 1991-2001 (1996 Dollars,
millions)
Office of Economic Analysis
Bureau of Economic Analysis
10
Oregon Exports Major Contributor to Slowdown in
Manufacturing Recent Signs of Recovery SARS
Bump in the Road
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Oregon Employment Growth (1980Q1 - 2003Q4)
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Unemployment Rates for Selected States
Office of Economic Analysis
13
Unemployment Rate by Region, January 2004 (Not
seasonally adjusted Portland PMSA includes
Vancouver, WA)
Oregon 8.9 (seasonally adjusted 7.7)
8.2
Feb. s.a. 7.1
9.4
8.6
11.2
12.1
9.6
Source Oregon Employment Department, February
2004
Office of Economic Analysis
14
Unemployment Rate by Region, October 2003 (Not
seasonally adjusted Portland PMSA includes
Vancouver, WA)
Oregon 6.9 (seasonally adjusted 7.6)
7.5
6.9
6.7
7.0
5.9
6.7
Office of Economic Analysis
Source Oregon Employment Department, November
2003
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Flat Employment in Oregon
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Oregon Index of Leading Indicators Six Month
Annualized Percent Change
Nonfarm employment
Index of Leading Indicators
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Employment Expected to Grow Above U.S. Average
After 2005 -- Slow Growth
Office of Economic Analysis
Global Insight February 2004
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High Tech Manufacturing Resume Growing but at a
Slower Rate Out Years Questionable
Office of Economic Analysis
Global Insight February 2004
19
Annual Population Growth Rate U.S. and Oregon,
1990-2011
Source Census Bureau Office of Economic
Analysis Global Insight
20
Inflation Measures
Inflation rate calculated on fiscal year average
value in deflators.
Office of Economic Analysis
21
Per Capita Income Long Road Since 1980
Source Regional Economic Information System
Bureau of Economic Analysis
22
Risk Factors To The Forecast 2003-2005

• Upside Downside
• Congress and Fed Reserve Moderate Mild
• Geopolitical Mild Moderate
• International Moderate Moderate
• Energy Prices Mild Strong
• Stock Market 50-50 50-50
• State and Local Govt Mild Strong
• Mad Cow/Chicken Flu Mild Moderate
• High Tech Industry Moderate Moderate
• Forrester Research - Estimated no. of High
  Skilled U.S. Jobs Moving Offshore 588,000 in
  2005 and 3,300,000 in 2015
• Percent of U.S. labor force 0.4 in 2005
  and 2.0 in 2015

Office of Economic Analysis
23
General Fund Revenue Forecast . . .
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Composition of GF Revenues
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Historical GF Growth
Adjusted for Kicker and Pension Refunds
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Current Revenue Situation
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2005-07 Revenue Forecast
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Progression of 2005-07 GF Forecasts
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Risks

• Numerous tax law changes in recent years.
• Inflation
• Equity price volatility
• Industrial composition
• Policy actions

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Lottery Revenue Forecast . . .
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Current Revenue Situation
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2005-07 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 (503)
378-3405 email oea.info_at_das.state.or.us http//w
ww.oea.das.state.or.us
Office of Economic Analysis