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Economic & Revenue Outlook Presented to Washington State National Institute of Government Procurement

Economic & Revenue Outlook Presented to Washington State National Institute of Government Procurement. Steve Lerch Executive Director January 21, 2014 Seattle, Washington. Summary. The U.S. and Washington economies continue to grow, although at a slow pace

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Economic & Revenue Outlook Presented to Washington State National Institute of Government Procurement

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  1. Economic & Revenue OutlookPresented toWashington State National Institute of Government Procurement

    Steve Lerch Executive Director January 21, 2014 Seattle, Washington
  2. Summary The U.S. and Washington economies continue to grow, although at a slow pace Construction activity has been a big contributor to Washington employment growth; employment is rising in most Washington industries except aerospace and the federal government Risks to the forecast are generally from factors outside the state, including a weaker Chinese economy, uncertain federal fiscal policy and possible disruptions to the housing recovery State revenue collections have returned to pre-recession levels
  3. ERFC Forecast Process National Economic Forecast The national economic forecast is based on the Global Insight model Preliminary Washington State Economic Forecast Review by Work Group Review by Governor’s Council of Economic Advisors & Economic and Revenue Forecast Council Final National and Washington Economic Forecast ERFC and Revenue-Generating Agencies Create Revenue Forecasts Review by Forecast Council Final Washington General Fund Revenue Forecast
  4. Three major risks to the forecast Baseline Forecast
  5. China’s Economic Growth has Slowed Source: Blue Chip, IMF, ISI; data through 2013
  6. Exports have weakened outside of China Source: WISERTrade; 2013 data through November
  7. Government expenditures remain weak Source: BEA; data through 2013 Q3
  8. Debt ceiling debate created uncertainty Source: U.S. Treasury; data through January 16, 2014
  9. Consumer confidence slowly improves Source: University of Michigan; Conference Board, data through December 2013
  10. Housing affordability is high but falling Affordability is 100 when the median income can just afford the median priced home. Above 100 means the median income can afford more than the median priced home Source: Global Insight, WA Center Real Estate Research, ERFC; data through 2013Q3
  11. Mortgage rates are increasing Source: Freddie Mac; data through December 2013
  12. Many adults continue to live at home with their parents Source: U.S. Census, ERFC, data through 2012
  13. Euro area GDP has returned to positive growth but risks remain Eurozone Forecast: 2013: -0.4% 2014: 0.9% 2015: 1.3% Source: Eurostat; data through 2013Q3
  14. U.S. GDP is growing Source: ERFC November 2013 forecast; historical data through 2012
  15. Oil prices are expected to be slightly lower in the near term Source: DOE, ERFC November 2013 forecast; historical data through 2013Q3
  16. Washington personal income is expected to increase by 5.2% in 2014 Source: ERFC November 2013 forecast; historical data through 2012
  17. Washington housing permits forecast is lower in the near term Source: U.S. Census, ERFC November 2013 forecast; historical data through 2012
  18. Like the U.S., Washington employment will return to pre-recession levels in 2014 Source: ERFC November 2013 forecast; historical data through 2012
  19. Washington nonfarm employment is up 45,100 so far this year Source: Employment Security Dept., ERFC; data through November 2013
  20. Initial unemployment claims are declining Source: U.S. Dept of Labor/BLS; data through January 4 2014
  21. Washington manufacturing activity has turned up An index greater than 50, implies growth Source: Institute of Supply Management; data through December 2013
  22. After nearly 6 years, Washington employment has still not recovered Washington remains 20,000 jobs below the start of the recession Source: WA ESD, ERFC; data through November 2013
  23. Washington employment will recover slightly faster than the U.S. Date of regaining peak: WA: 2014Q2 U.S.: 2014Q3 Source: ERFC November 2013 forecast; historical data through 2013Q3
  24. …and state personal income will recover slightly faster than the U.S. Source: ERFC November 2013 forecast; historical data through 2013Q2
  25. Aerospace employment is declining Source: ERFC November 2013 forecast; historical data through 2012
  26. Boeing has over 7 years of commercial orders on its books Excludes the military’s new refueling tanker Source: Boeing, data through December 2013
  27. Washington construction employment is recovering Source: ERFC November 2013 forecast; historical data through 2013Q3
  28. Single-family home prices continue to increase Oct 2013 U.S. is up 13.6% Seattle is up 13.1% Source: S&P/Case-Shiller; data through October 2013
  29. Multifamily building permits improving but single family permits have stalled Source: U.S. Census Bureau; data through November 2013
  30. Nonresidential activity is trending up but remains volatile Source: Dodge, ERFC; data through November 2013
  31. Revenue collections have recovered slowly after the last recession Revenue Act collections have now exceeded their previous peak reached in Q1 2008 Source: ERFC; data through 2013 Q3
  32. Revenue from liquor sales has been volatile since privatization Source: DOR, ERFC; data through December 2013
  33. REET base strengthening along with spikes of large commercial sales Even after last year’s rush in sales of commercial property due to federal tax changes, large commercial sales are still occurring at an above-average rate Residential prices and sales volume grew in 2013 but have flattened in recent months Source: ERFC; Monthly data through December 2013 preliminary
  34. General Fund-State* forecast by fiscal year General Fund-State Revenue 4.2% 4.1% 3.2% 2.8% 6.1% 1.5% 7.9% (9.6%) (4.1 %) *General Fund-State & Related Funds for FY 07-09, General Fund-State new definition for FY 10-17 Source: ERFC forecast, November 2013
  35. Conclusion We expect the slow pace of economic recovery to continue in both the U.S. and Washington economies Washington is still likely to outperform the nation, but by a small margin Washington construction activity has been strong but rising mortgage rates could slow the housing recovery Other threats to economic recovery include slowing Asian economies and uncertainty around federal fiscal issues
  36. Questions Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560
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