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Economic & Revenue Outlook

This report analyzes the economic and revenue outlook, discussing the possibility of a recession and the factors affecting economic growth. It also provides an overview of the regional Oregon outlook and the current state of the economy.

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Economic & Revenue Outlook

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  1. Economic & Revenue Outlook August 26, 2011 Office of Economic Analysis Josh Lehner Mark McMullen

  2. Macroeconomic Outlook

  3. Is Recession Imminent?

  4. Pessimism Sets In Average LT Growth Soft Patch Better Growth Data “Headwinds” Revisions, Stock Market, Debt Ceiling 4 Office of Economic Analysis

  5. Where is the slowdown? Coincident Index Components 1) Nonfarm Employment 2) Average Hours Worked Manufacturing 3) Unemployment Rate 4) Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. 5

  6. Where is the slowdown? Coincident Index Components 1) Nonfarm Employment 2) Average Hours Worked Manufacturing 3) Unemployment Rate 4) Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. 6

  7. U.S. Economic Growth Continues at Subdued Pace • The economic expansion is sluggish by historical standards, with momentum being lost during the first half of 2011. • With home prices still falling, the housing recovery has yet to support growth. • Sustained job growth and an easing of commodity price pressures will enable consumers to spend more confidently. • Core inflation will rise only gradually. • The Fed is expected to begin raising interest rates in mid-2013. • Business equipment investment, exports, and consumer durables are driving growth; recoveries in housing and commercial construction markets will come later.

  8. Regional Oregon Outlook

  9. 9.5% unemployment rate for Jul 2011 (Jul US rate is 9.1%) is down from the highest rate of 11.6% in May and June 2009. The 2010 average was 10.8%. 13th fastest job growth at 1.62% for all states for July 2011 over July 2010. Total nonfarm employment increased 1.4% year-over-year for the 2nd quarter of 2011. S.A. job gains in nine of the last ten months since Oct. 2010 (down in March). Total nonfarm up 30,000 since Sept 2010 with the private sector up 33,500. 4.4% personal income growth for 1st quarter of 2011 over 1st quarter of 2010. Annualized 1st quarter 2011 growth at 7.7%. Oregon exports increased 18.6% in 2010 compared to 2009. June YTD in 2011 up 5.8% over June YTD 2010. Recent Oregon Economy Facts 9

  10. All Sectors Returned to GrowthDuring 2011 Q1….

  11. …but Have Lost Steam Since2011 Q2

  12. Unemployment Rate by Region, July 2011(seasonally adjusted) Oregon: 9.5% Source: Oregon Employment Department Office of Economic Analysis

  13. Unemployment Rate Change, Dec ‘09 to Jul ‘11(seasonally adjusted) Oregon: -1.5% Dec 09: 11.0% July 11: 9.5% Source: Oregon Employment Department Office of Economic Analysis

  14. Oregon Indexes Still Showing Growth(Data through June 2011) 14

  15. Hours Worked Holding Steady 15

  16. Exports • Non Computer and Electronic Product exports continue to do well • Agricultural Products benefit from higher commodity prices • Computer and Electronic Product exports coming down off of record levels • China, Malaysia, Costa Rica 16

  17. Two Main Drags on Growth 17

  18. Drag #1: Housing

  19. Drag #2: Government 19

  20. State Employment

  21. Local Employment

  22. Employment Outlook 22

  23. Long Run Forecasting

  24. Working Age Cohort Declining

  25. Labor Force Participation Rates

  26. Expansions’ Average Growth

  27. Revenue Outlook

  28. Revenue Growth Is a Mixed BagApril-June Quarter, % change vs. year ago

  29. CIT Collections Hit the Wall Corporate Income Tax Collections % change year ago, 3 month moving sum

  30. PIT Collections Bounce Back Personal Income Tax Collections % change year ago, 3 month moving sum

  31. Q4 Total General Fund Forecast Errors(Total General Fund Revenues, % error, April-June quarter) +2 Standard Deviations (6.8%) +1 Standard Deviation (3.4%) -1 Standard Deviation (-3.4%)

  32. Forecast ChangesDifference from May forecast, millions 32

  33. 2011 Close of Session 33

  34. September Forecast 34

  35. Reserves 35

  36. Accounting for the Decline 36

  37. Capital Gains OutlookTax years, March 2011 revenue forecast 2011 Wilshire 5000: 14,000, 18% growth 7% 33% 63%

  38. Personal Income Tax Forecast$ billions, 4 quarter moving sum 2011-13 -$167 (million) 2015-17 -$299.1 2020-21 -$368.2 2013-15 -$220.5 2017-19 -$324.1

  39. Corporate Taxes and ProfitsPercent change year ago, tax years

  40. Corporate Income Tax Forecast$ millions, 4 quarter moving sum 2011-13 $12.2 (million) 2013-15 -$14.1 2019-21 -$14.4 2015-17 -$22.2 2017-19 -$3.9

  41. Biennial Revenue Growth 41

  42. For More Information Standard Contact: 155 Cottage Street NE Salem, OR 97301 (503) 378-3405 oea.info@state.or.us www.oregon.gov/das/oea Social Media: oregoneconomicanalysis.wordpress.com @OR_EconAnalysis

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