Cortright: Oregon Economic Outlook

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Joe Cortright's October 2009 presentation on the outlook for the Oregon economy.

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  • 2009CSHomePrice_History_033114.xls; data updated through Jan 2009, April 14, 2009.
  • rockefeller_state_tax_collections_2008.xls
  • https://www.wachovia.com/common_files/MonthlyEconomicOutlook_Oct2009.pdf
  • Source: March 2009 forecast
  • This summer likely marked the end of the recession and the economy should expand in the second half of this year.
  • Still 30 percent below the peak!
  • Source: calculated risk: http://4.bp.blogspot.com/_pMscxxELHEg/SrfgAatRn0I/AAAAAAAAGYU/lt9A4b8T4No/s1600-h/CREpricesJuly2009.jpg
  • https://www.wachovia.com/common_files/Is_the_Recovery_Sustainable.pdf
  • https://www.wachovia.com/common_files/Is_the_Recovery_Sustainable.pdf
  • Cortright: Oregon Economic Outlook

    1. 1. Outlook for the Northwest Economy Joe Cortright – October 2009
    2. 2. Synopsis <ul><li>The national economic outlook </li></ul><ul><li>Implications for the Northwest </li></ul><ul><li>From recession to recovery </li></ul><ul><li>A foundation for the future </li></ul>
    3. 3. National Economic Situation <ul><li>Housing collapse </li></ul><ul><li>Financial meltdown – credit freeze </li></ul><ul><li>Recession started in December 2007 –already longer than the average post WWII recession </li></ul>
    4. 4. Job growth slowing since 2006 National data
    5. 5. We’re in a recession again <ul><li>Brad DeLong Arrows chart </li></ul>
    6. 6. A Different Kind of Recession <ul><li>An Asset Bubble </li></ul><ul><ul><li>Housing Collapse </li></ul></ul><ul><li>Speculative Finance </li></ul><ul><ul><li>Deregulation, “too big to fail” </li></ul></ul><ul><ul><li>Multiplied the shock </li></ul></ul><ul><ul><li>Accommodative Fed </li></ul></ul><ul><li>Punctured by Energy Prices </li></ul><ul><ul><li>Running up against real limits </li></ul></ul>
    7. 7. Last September . . . <ul><li>Financial Market’s Wiley Coyote Moment </li></ul>Dow Industrials
    8. 8. An abrupt fall This recession
    9. 9. Oregon caught in the downdraft
    10. 10. Oregon & US unemployment spiked
    11. 11. Analyzing Oregon’s Performance <ul><li>Since the Peak (November 2007) </li></ul><ul><ul><li>Wage and salary employment </li></ul></ul><ul><ul><li>US: -7.9 million jobs: -5.7% </li></ul></ul><ul><ul><li>Oregon -131,000 jobs: -7.5% </li></ul></ul><ul><li>Why is Oregon worse off? </li></ul>
    12. 12. Breaking it down <ul><li>92,000 jobs lost, in 3 categories: </li></ul><ul><li>Housing and Finance Bubble -30,000 </li></ul><ul><li>Durable Goods Mfg. -20,000 </li></ul><ul><li>Contagious Pessimism -42,000 </li></ul>12 month change in Oregon Wage & Salary Employment
    13. 13. Housing and Finance Bubble <ul><li>Sector Jobs Lost % Change </li></ul><ul><li>Construction (18,000) -19% </li></ul><ul><li>Real Estate (5,000) -12% </li></ul><ul><li>Finance (6,500) -6% </li></ul><ul><li>Total (29,500) </li></ul>12 month change in Oregon Wage & Salary Employment March 2008 to March 2009 Oregon Building permits down 44% in 2008; US housing starts at lowest level since 1946 <600k
    14. 14. Late to the housing collapse
    15. 15. Construction decline later, but steeper
    16. 16. Durable Goods Collapsed
    17. 17. #1 in Durable Goods Dependence
    18. 18. Durable Goods Manufacturing <ul><li>Sector Jobs Lost % Change </li></ul><ul><li>Transp. Equipment (5,400) -33% </li></ul><ul><li>Wood Products (5,200) -19% </li></ul><ul><li>High Tech (4,600) -12% </li></ul><ul><li>Metals/Machinery (4,700) -14% </li></ul><ul><li>Total (19,900) </li></ul>12 month change in Oregon Wage & Salary Employment March 2008 to March 2009
    19. 19. Exports declined dramatically
    20. 20. Vulnerable to export shock Ranking among 50 States
    21. 21. Contagious Pessimism <ul><li>Sector Jobs Lost % Change </li></ul><ul><li>Retail (14,100) -7% </li></ul><ul><li>Temps (10,900) -30% </li></ul><ul><li>Wholesale (6,200) -8% </li></ul><ul><li>Transportation (5,500) -9% </li></ul><ul><li>Restaurants (5,500) -4% </li></ul><ul><li>Total (42,200) </li></ul>12 month change in Oregon Wage & Salary Employment March 2008 to March 2009
    22. 22. Unemployment: Special Factors
    23. 23. Net migration is strong 11 th 6 th 17 th 24 th 10 th 8 th 10 th 9 th Oregon Rank Oregon net domestic migration, percent of current population Source: Census Bureau estimates 2008: Oregon ranked 8th highest in net in-bound percent of United Van Lines Moves
    24. 24. Oregon’s Labor Force Keeps Growing Source: Office of Economic Analysis; Employment Dept. data
    25. 25. What’s the outlook? <ul><li>Insights from the Economic Forecasts </li></ul><ul><li>--Wells Fargo </li></ul><ul><li>--Oregon Economic Forecast </li></ul>
    26. 26. GDP expected to recover Wells Fargo Securities, Monthly Outlook, October 7, 2009
    27. 27. Unemployment persists Wells Fargo Securities, Monthly Outlook, October 7, 2009
    28. 28. State forecast has bottomed
    29. 29. Alternative Scenarios September 2009 Revenue Forecast Oregon Non-Farm Employment
    30. 30. News Flash: Recession Over <ul><li>Mid-September Good News . . . </li></ul><ul><li>Sept. 14th: Governor Yellen </li></ul><ul><li>Sept. 15th: Chair Bernanke </li></ul><ul><li>“ Recession may have ended in summer” </li></ul>
    31. 31. What’s the evidence? <ul><li>“Over” = GDP growth not declining </li></ul><ul><li>Evidence: </li></ul><ul><li>- Retail sales up </li></ul><ul><li>- House prices up (slightly) </li></ul><ul><li>- Job losses easing </li></ul><ul><li>- More normal financial markets </li></ul>
    32. 32. Risks <ul><li>Retail sales: temporary spurt </li></ul><ul><ul><li>“ Cash for Clunkers” </li></ul></ul><ul><li>Housing </li></ul><ul><ul><li>Huge backlog of foreclosures </li></ul></ul><ul><ul><li>Millions underwater on mortgages </li></ul></ul><ul><ul><li>Shadow inventory </li></ul></ul><ul><li>Financial Markets </li></ul><ul><ul><li>CRE: the other shoe </li></ul></ul>
    33. 33. Retail sales “rebound”
    34. 34. Retail sales are up! <ul><li>Retail Sales, Seasonally Adjusted, Millions (monthly) </li></ul><ul><li>Category July August Change </li></ul><ul><li>Total Retail Sales 342,280 351,418 2.7% </li></ul><ul><li>Auto Sales 58,089 64,221 10.6% </li></ul><ul><li>Gas Station Sales 29,727 31,239 5.1% </li></ul><ul><li>Retail, ex. Gas & auto 254,464 255,958 0.6% </li></ul>
    35. 35. But very little after adjusting <ul><li>Retail Sales, Seasonally Adjusted, Millions (monthly) </li></ul><ul><li>Category July August Change </li></ul><ul><li>Total Retail Sales 342,280 351,418 2.7% </li></ul><ul><li>Auto Sales 58,089 64,221 10.6% </li></ul><ul><li>Gas Station Sales 29,727 31,239 5.1% </li></ul><ul><li>Retail, ex. Gas & auto 254,464 255,958 0.6% </li></ul>
    36. 36. Home prices may have “bottomed”
    37. 37. The Other Shoe: CRE Two Year Lag between residential and commercial peaks
    38. 38. First Time Buyers Giveway <ul><li>2009: </li></ul><ul><ul><li>350,000 additional sales </li></ul></ul><ul><ul><li>Cost: $15 billion </li></ul></ul><ul><ul><li>= $43,000 per additional sale </li></ul></ul><ul><li>2010 </li></ul><ul><ul><li>500,000 additional sales </li></ul></ul><ul><ul><li>Cost: $30 billion </li></ul></ul><ul><ul><li>= $60,000 per additional sale </li></ul></ul><ul><li>These are the National Association of Realtors estimates, and may be low. </li></ul>
    39. 39. A very different recession <ul><li>Financial collapse </li></ul><ul><li>Liquidity trap (monetary policy impotent) </li></ul><ul><li>Massive wealth effect </li></ul><ul><li>Global scope </li></ul><ul><li>= “Out of sample” forecasting </li></ul>
    40. 40. Here we go again <ul><li>As in 2002, we are in a recession – Let’s remember the lessons from last time: </li></ul><ul><ul><li>Recessions end </li></ul></ul><ul><ul><li>“Recovery” is a misnomer: we don’t recover the same jobs and businesses we lost </li></ul></ul><ul><ul><li>Recession is time to lay the foundation for building during the next expansion </li></ul></ul>
    41. 41. A very different “recovery” <ul><li>Letters: </li></ul><ul><ul><li>Not “V” </li></ul></ul><ul><ul><li>Maybe “U” or “W” </li></ul></ul><ul><ul><li>Possibly “L” </li></ul></ul><ul><li>Adjectives </li></ul><ul><ul><li>“Tepid” </li></ul></ul><ul><ul><li>“Protracted” </li></ul></ul>
    42. 42. Key drivers for the future <ul><li>Cluster performance </li></ul><ul><li>New business formation </li></ul><ul><li>Innovation </li></ul><ul><li>Sustainability </li></ul><ul><li>Institutions </li></ul>
    43. 43. Parallel to the 1930s <ul><li>New Institutions for a changed world </li></ul><ul><li>Then: Industrial Economy </li></ul><ul><li>Now: Knowledge Economy/Sustainability </li></ul>
    44. 44. Four Key Changes <ul><li>Energy </li></ul><ul><li>Housing </li></ul><ul><li>Transportation </li></ul><ul><li>Health Care </li></ul>
    45. 45. “ May you live in interesting times.”
    46. 46. www.ImpresaConsulting.com Joe Cortright – June 2009
    47. 48. Debt: Still over leveraged
    48. 49. Equity: We lost $14 trillion

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