Oregon Employment Forecast: Clear Skies for Now, Clouds Appear Next Year

Oregon’s economy closed the books on 2018 up 38,000 jobs over 2017 for a growth rate of 2.0 percent; the slowest pace in six years, yet still fast enough to absorb new workers entering the labor force and keep the unemployment rate near record lows. Despite slowing growth, the outlook for 2019 remains positive according to the latest Oregon Economic and Revenue forecast from the Office of Economic Analysis (OEA). Growth this year should be similar to last: 39,000 jobs, or 2.0 percent.

Why continued optimism? OEA doesn’t see any warning signs such as the bubbles or imbalances that have derailed the economy into the past few recessions. And the majority of individual economic indicators they track point to continued growth. However, a few have weakened: housing permits; the (strong) dollar; and semiconductor billings. Several others aren’t improving: declines in temp help employment; manufacturing hours worked (primarily in the food processing component); air freight tonnage; and new incorporations. The remaining nine indicators, including capital goods orders, initial claims for unemployment, and consumer sentiment, are improving. Taken as a whole – as is best – the group indicates continued expansion in the near term.

Others agree. IHS Global Insight puts the probability of recession over the next year at 25 percent and the Wall Street Journal consensus at 17 percent; while an increase over just a few months ago (20% and 18%, respectively), they are still considered still fairly low.

Looking further out clouds form, growth slows, and the risk of a recession increases. OEA points to four main contributing factors:

• Unwinding federal fiscal policy. The Tax Cuts and Jobs Act of 2017 and temporary increases in federal spending, while stimuli in the short term, will become drags on growth once the tax cuts play out and the spending increases end.
• Tighter monetary policy. If the Federal Reserve continues to increase interest rates, the economy could cool as lending activity slows.
• Supply side constraints. Expansions don’t die of old age, but it’s inevitable that, at 9.5 years old and counting, the economy will hit supply-side constraints. These include a tight labor market (as we’re seeing today as employers struggle to find enough workers), infrastructure/transportation, high energy costs, and capacity utilization.
• Tariffs and a strong dollar. Both of these will slow production and exports, although the impact won’t be enough to derail the expansion. The greater risk is if things escalate into full-fledged trade wars.

Oregon should still fare well relative to the rest of the country. IHS Economics expects growth in the state's Real Gross State Product to be the 12th fastest among all states and employment growth to rank 9th. Manufacturing will be a bright spot, outperforming all but three states.

This article was written by regional economist Amy Vander-Vliet.