Northwest Economic Research Center October 2018 Economic and Population Outlook for Portland MSA

Portland MSA

Economic & Population Outlook October 2018

Acknowledgements NERC is based at Portland State University in the College of Urban and Public Affairs. The Center focuses on economic research that supports private and public policy decision-making, and relates to issues important to the Pacific Northwest and the Portland Metropolitan Area. NERC serves the public, nonprofit, and private sector community with high quality, unbiased, and credible economic analysis. Dr. Tom Potiowsky provides expert research direction and forecasting expertise.

Peter Hulseman is NERC’s Senior Economist, and is responsible for model design and data management. Economist Emma Willingham designed this report and contributed to research, and additional support was provided by Adam Rovang and Devin Bales. All parties were involved in writing and review.

Special Thanks to our Technical Advisory Committee, whose expertise informed this report: Josh Harwood, Josh Lehner, Jeff Renfro, Amy Vander Vliet, and Michael Paruszkiewicz.

Northwest Economic Research Center Portland State University College of Urban and Public Affairs PO Box 751 Portland, OR 97207-0751 503-725-2315 nerc@pdx.edu www.pdx.edu/NERC @nercpdx

Portland MSA Economic & Population Outlook October 2018

Special Thanks to Our Sponsors:

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Portland MSA Economic & Population Outlook October 2018

Table of Contents Introduction ............................................................................................... 1 Macroeconomic Trends: US and Oregon ............................................. 2 Tariffs, Tariffs, and More Tariffs: A Local Look at a National Issue... 6 The Portland MSA ..................................................................................... 10 New Minimum Wages: Potential Impacts on the Portland MSA..... 18 Comparing Across The Counties ............................................................ 22

Clackamas ..................................................................................... 24

Clark ............................................................................................... 26

Columbia ....................................................................................... 28

Multnomah ................................................................................... 30

Skamania ....................................................................................... 32

Washington ................................................................................... 34

Yamhill ........................................................................................... 36

Image & Data Sources ............................................................................... 38

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Portland MSA Economic & Population Outlook October 2018

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Introduction With both the U.S. and Portland MSA economies in their ninth year of expansion, I’ve been getting more questions about when a recession will hit. Based on history and human nature, long streaks inevitably come to an end—in sports, winning game streaks do not last forever and thankfully for the Cleveland Browns, losing streaks don’t either. Even the Curse of the Billy Goat could not prevent the Cubs from winning the 2016 World Series. Yes, just as one day we will have the Cascadia subduction zone earthquake, this economic expansion will come to an end.

But we have to be careful to not let human nature influence our judgement in all cases. You may notice a player at one of our state’s Oregon Lottery machines lean their chair up to reserve their seat when they step away for a moment; the machine hasn’t paid out for some time so it must be ready to “hit.” I probably don’t need to tell you that rather than a clever strategist, this indicates a person who is challenged by statistics. That machine will indeed eventually “hit,” but the length of time without a “hit” does not influence when the machine will pay out: each push of the button is a brand new roll through probability.

I believe most people do not see a marriage as ending merely because the couple have been married for a long time.

Instead, marriages end based on some cause, be it sudden and jarring, as with infidelity, or the torturous slow burn of poor communication. As economists, we concede that this economic expansion will come to an end, but the exact timing is very elusive. We are more interested in why an economic expansion ends, and by examining business cycles, we may have a better idea of what might cause this economic expansion to finally turn the corner. As in marriage, it is not the time period itself that is important, but the type of behavior that can push an economy into recession.

The Great Recession has been extensively studied to investigate what behaviors—by individuals, businesses, and governments—contributed to the recession, and what caused these behaviors to take place. So, we scour over the data looking for hints of what could elicit these behaviors, and thus potentially the next recession.

We have two featured articles that look at issues that could contribute to a slowing economy. One of these articles, New Minimum Wages: Potential Impacts on the Portland MSA (pg. 18), summarizes and draws from existing analysis in order to explore how the rising minimum wage may impact our local economy (and other parts of the US in which similar policy has been implemented). As with other policy changes, this issue is the subject of much debate. Thus far, the consensus is not that this will push us into recession, but that such wage increases could result in slower growth in some sectors, and raising of prices. The second article, Tariffs, Tariffs, and More Tariffs: A Local Look at a National Issue (pg. 6), examines the recent tit-for-tat tariffs on international goods and services, and how they could influence our economy. Unlike the minimum wage, the expert consensus is a bit more adamant that full-scale tariff wars, should they come to pass, would be very disruptive on world economies and could realistically be the tipping point into recession.

Inside our publication, you will find these two articles, our assessment of the US, Oregon, and Portland metropolitan statistical area (MSA) economies, and our usual section showing detailed outlooks for the seven MSA counties. Our greatest concerns that could point an end to this economic expansion are national in nature: both the policies of the federal government and the Federal Reserve System are cause for worry.

As always, we welcome your comments on the October 2018 forecast release as we strive for continual improvement.

Best Regards,

Tom Potiowsky

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Macroeconomic Trends: U.S. and Oregon The U.S. expansion rolls onwards, hitting its 111th consecutive month of growth in September. If this continues, July of 2019 will mark the longest US expansion on record – surpassing the Great Moderation of the nineties.

Similarly, Oregon recently surpassed 100 consecutive months of job growth. However, longevity is no indication of durability, and risks to the outlook seem to grow by the day.

The effects of the Tax Cuts and Jobs Act are still undetermined, and early indications of its ability to spur long-term growth are mixed. The first quarter of Real GDP underwhelmed, while the second quarter showed the best reading since 2014. Overall, economists expect 2018 to surpass 3% growth for this first time in this expansion—before falling back to earth in 2019 and beyond.

While the uncertain effects of the Tax Cuts and Jobs Act remain an item of considerable import to forecasters, growing disputes over trade are seemingly the clearest path to a recession. This isn’t to say that potential effects of the ongoing negotiations are only negative, simply that changes to such a vital part of the economy alter both the outlook’s upside and downside. Even the small changes to trade policy made so far have had a noticeable effect on GDP (discussed in the following section).

For more on the potential risks of trade discussions, and the outlook for Oregon and the Portland MSA, see Tariffs, Tariffs, and More Tariffs: A Local Look at a National Issue (pg. 6).

Figure 1: Gross Domestic Product Growth, U.S. Annualized Quarterly Percent Change, 1980Q1-2021Q1, dots indicate Federal Reserve forecasts

Real GDP Both the Tax Cuts and Jobs Act and trade discussion have already made their mark on the economy in the second quarter of 2018. Real GDP increased at an annual rate of 4.2%, the best quarter since 2014 (see Figure 1). The economist’s challenge is to figure out if this is due to the tax cuts, tariffs, underlying fundamentals, or simply random error.

The good news is that there are very real reasons for the strong second quarter. The bad news is that this pace of growth doesn’t look to be sustainable. Of the 4.2%, 1.17% is attributed to changes to net exports, which is, by far, the largest amount since 2013. Furthermore, 1.03% of the 1.17% (i.e., 88% of the 1.17%) is attributed to exports of goods, Northwest Economic Research Center

suggesting that much of this growth is due to stockpiling of U.S. goods in anticipation of upcoming tariffs. There were $50 billion in tariffs imposed on China on July 6th, with an additional $200 billion announced on September 17th.

Stockpiling wasn’t the only unsustainable influence. The second quarter was tax refund season, and last year’s tax cuts boosted refunds and spending. Personal Consumption Expenditures (PCE) went up at an annualized rate of 3.8%—accounting for 2.55% of the 4.2% real GDP growth. This increase was across the board, as people purchased more of everything from footwear to financial services. However, since most tax refunds are received before June, PCE is unlikely to see similar growth in the coming quarters.

Portland MSA Economic & Population Outlook October 2018

While a good portion of the quarter’s strong growth is due to short-term impacts from recent policies, it is unlikely that these policies are responsible for the entirety—or even most—of said growth. All in all, this was a strong report and further evidence that the expansion has not yet begun to stagger. However, one weak spot would be residential fixed investment, which decreased for the second consecutive quarter with a reading of -1.6% (annualized). This weakness is evident in the housing permits data.

Housing The housing narrative has not changed significantly over the past six months. The same problems acting as weight on residential investment continue to plague the housing supply: restricted land supply, local regulations, affordability, and difficulty in hiring laborers. This is shown by the plateauing of permits in Figure 2. However, one positive sign is the continued hiring of construction workers across the country—a leading indicator of future residential investment.

Figure 2: U.S. Housing Permits by Type Thousands of units, Monthly annual rates, Seasonally adjusted, January 1990-August 2018

Figure 3: U.S. Labor Force Participation Rate Percent of Population Aged 25-54, Monthly, January 1970-August 2018

Figure 4: Total Nonfarm Employment in U.S. and Oregon YoY Growth Rate, Monthly, January 1991-August 2018

Employment The employment data has shown no signs of slowing for either Oregon or the U.S. The Seasonally Adjusted Annualized Rate (SAAR) for the U.S. has stayed consistently between 1.18% and 2.62% in 2018— representing an average of 207,000 people added each month. This considerably exceeds estimates for labor force growth1, and indicates that “slack” remains in the form of discouraged workers. As they return to the workforce, their participation pushes employment growth beyond

simple population trends (see Figure 3). Oregon has seen similarly strong employment growth, with an estimated 29,400 employees added Northwest Economic Research Center

since December. This is a notable number, representing very strong 1.6% employment growth in only seven months (see Figure 4).

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Portland MSA Economic & Population Outlook October 2018

Figure 5: Broad Unemployment Rates Percent, Monthly, Seasonally adjusted, January 1994-August 2018

Figure 6: Implicit and Core Implicit Price Deflators with Target Rate Annualized Quarterly Percent Change, Seasonally adjusted, 2009Q1-2018Q2

One notable industry stands out this year. From August 2017 to August 2018, construction employment is up 4.26% for the U.S. Topping that, construction employment in Oregon is up an incredible 11.5% in July, yearover-year (YoY). While this is a good sign for permit growth, some of this is due to large public works projects— particularly in Oregon. Construction labor shortage is still cited as a major concern for housebuilders.

Manufacturing employment—the decline of which is purportedly a major reason behind the recent tariffs—jumped up in the first couple of quarters of 2018. The first quarter saw an SAAR of 2.66%, with the second quarter coming in at 2.36%.

However, the third quarter looks to be a bit less robust—July came in at 1.7% and August declined by 0.28%.

Economic theory says that the tariffs should help some industries, such as aluminum, but gains may not show up in the aggregate numbers as the increased cost of intermediate goods raises pressure on other sectors and puts downward pressure on employment.

The overall stability of the economy is further borne out in the unemployment data. Both the U.S. and Oregon have been hovering around 3.9% unemployment—which is the lowest rate since April 2000 for the U.S. and the lowest on record for Oregon. Broad unemployment rates continue to plateau, increasing pressures on prices and wages (see Figure 5).

Figure 7: Various Interest Rates Percent, Monthly, July 1954-August 2018

Wages and Inflation Perhaps due to this increasing pressure, the Federal Reserve’s preferred measure—the Personal Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Consumption Expenditure Implicit Price Deflator—has oscillated around the target of 2% in 2018. The first quarter came in at a SAAR of 2.43% while the second followed with 1.87% (see Figure 6). Moreover, the YoY change for 2018Q2 is at 2.17%, ostensibly inciting the Fed to pull on the interest rate lever to keep inflation under control.

While this may be the most obvious reason for the increasing activity of the Fed, there is another more subtle motivation: should another recession hit in the coming years, it is important that the Fed be able to lower interest rates to dampen the impact. This requires that interest rates be high enough that lowering them does something—so the effective federal funds rate needs to be above the current rate of 1.9% (see Figure 7).

Of course, if the Fed raises rates too quickly, the dampening effect could spur the very recession that they are

working to avoid. As always, monetary policy walks a thin tightrope.

With inflation hovering around the Fed’s target, interest rates continuing to rise, and a labor shortage across several industries, wages should be rising. Unfortunately, this is not the case, as Real Average Hourly Earnings in the U.S. were unchanged from June 2017 to June 20182 (Figure 8). One reason for this apparent dissonance is that the Tax Cuts and Jobs Act could raise wages through increased investment, but it takes time before this effect will be felt. On the flipside, the recent flurry of stock buybacks and tax rebates don’t show up in the hourly wage data, but do cause inflationary pressure.

The Outlook While the outlook for U.S. housing, employment, and output remains moderate, policy risk has grown. If

Figure 8: Real Average Hourly Earnings in U.S. and Oregon Dollars per hour, Monthly, Seasonally adjusted, January 2013-August 2018

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the Fed tightens the money supply too quickly or the U.S. is buffeted by strong counter-tariffs3, the economy will suffer. The Portland MSA generally tracks with the U.S., but its unique combination of size, rate of growth, and industrial composition present different barriers and risks, discussed in The Portland MSA (pg. 10).

1

Most estimates for monthly labor force growth are less than 100,000. For example, see: Bidder, Rhys, Tim Mahedy, and Rob Valetta. (2016.) Trend Job Growth: Where’s Normal? Federal Reserve Bank of San Francisco. Retrieved from www.FRBSF.org.

2

Bureau of Labor Statistics. (July 17 2018.) Real average hourly earnings unchanged from June 2017 to June 2018. Retrieved from BLS.gov.

3

As of September 2018, China has already countered the U.S.’s tariffs with $60 billion worth of tariffs on U.S. goods.

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Portland MSA Economic & Population Outlook October 2018

Tariffs, Tariffs, and More Tariffs: A Local Look at a National Issue Recently the U.S. has found itself in a trade dispute with the potential to globally disrupt supply chains.

In March, U.S. trade officials announced they would be imposing import tariffs on a number of trade partners, including Canada, the EU, and China. Steel and aluminum imports now face taxes of 25% and 10%, respectively. The imported items being taxed are largely sheeting, tubing, and bars used to manufacture goods in the U.S., and officials cite the national security implications of reduced metals production as the need for the tariffs.1 The administration also frequently accuses trade partners of undercutting U.S. manufactured goods prices, resulting in lost jobs.

While the common belief is that free trade has increased production and reduced prices, these changes have come with a cost: the U.S. lost more than 2 million manufacturing jobs between 1999 and 2011 solely from increased trade with China.2 In the Portland MSA, manufacturing employment has seen little growth in recent decades, hovering between 120,000 and 130,000 jobs since 1990. With these issues in mind, how might these tariffs, either positively or negatively, impact the U.S. and the MSA? Under the economist’s ideal of free trade, U.S. manufacturers compete with international firms to sell at the lowest price: When two nations produce a comparable good, the nation that offers a lower

price inevitably sells more. For the losing firms, this means decreased production, layoffs or shutting down; but for everyone else the result of free trade is lower prices for consumers and, in theory, higher production overall from increased competition.

Whether it is called an excise tax, toll, or duty, a tariff is a tax intended to raise prices of imported goods.

For example, the tariff to support metals plants has two effects within the U.S. First, the tariff increases the price of the metals within the U.S., making U.S. manufacturers’ products more competitive within the U.S. and increasing their production of steel and aluminum.

The second effect is the result of the first: higher prices hurt steel and aluminum consumers, reducing the amount they can or want to buy. These opposing forces on the market introduce uncertainty in the outcome of a tariff. As intermediate goods used in countless products, the hope is that demand for metals will remain steady with the price change. However, a pricier intermediate good—in this case, steel or aluminum—means increased prices for final goods that range from staples to automobiles.

If intermediate markets aren’t also buoyed from international competition by tariffs, they only face the second, production-reducing and consumer-hurting effect.

Thus, the tariffs help raw materials producers while hurting companies

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and consumers down-market, pitting a large benefit to a few against a smaller cost to many.

The 2017 Canadian lumber import tariffs provide an example of a regional benefit to limiting free trade. Implemented in April and June, they place a 21% tax on softwood lumber imports, a likely boon to Oregon’s logging industry.

Since then the price of lumber has more than doubled.3 However, similar wood products that were not impacted by tariffs have also increased in price. Industry analysts attribute the price increases to overall market tightness, due in part to recent severe fire seasons.4 It is difficult to separate the compounding impacts of tariffs and market troubles. One application of these impacts is in home prices: a recent report from the National Association of Home Builders (NAHB) suggests that recent lumber price increases, though only partly from tariffs, raised the cost of a newly built home by $9,000.5 Meanwhile, U.S. lumber production grew by 4.4% in 2017. Adding to the mixed causality, the nation finds itself in the final months of another severe fire season, and it may take time for producers to increase capacity and reduce prices.

In the case of steel and aluminum tariffs, metals producers (the intended beneficiaries of the policy) are located predominately in the Midwest. Sadly, no amount

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Portland MSA Economic & Population Outlook October 2018

of tariff is likely to revive The Dalles Aluminum Smelter, the last aluminum smelter in Oregon, which closed in 1984. The only smelters recently operating in the PNW are in Ferndale and Wenatchee, WA. The Wenatchee plant closed in 2015 in part due to low aluminum prices, though it shows no sign of starting up amid the impacts of the tariffs.

As mentioned above in the lumber tariff example, the tariffs have increased prices beyond the tariff rates. While this benefits producers, companies who use steel and aluminum in their products will now have to pay more for their base material. Local production companies, such as Vigor Industrial with facilities in Vancouver, Clackamas, and Portland, may be impacted: Figure 9 shows recent trends in metals prices indexed to the start of 2018. Some estimates indicate price increases as high as 40% in steel and 15% in aluminum since the beginning of the year.6,7 These price increases are also partly due to increased demand (as companies tried to stock up before the tariffs went into effect), and have begun to decrease as markets adjust to the new rates. So again, the immediate impact of the tariffs is split between the market responses to the tariffs, and the value of the tariffs themselves.

The tariff impacts discussed above are a general and far-reaching instance that is only the beginning of the current trade disputes. These initial tariffs have spawned an evergrowing list of counter-tariffs and counters to counter-tariffs. Markets from agriculture to whiskey are set

to be impacted by international responses to U.S. tariffs, and further responses threaten microchip imports, a concern for local chip maker Intel. This chip manufacturer, one of Oregon’s largest employers, produces microchip raw materials locally and then ships the materials to other countries for processing.

They expect to be able to avoid, to some degree, the negative impacts of importing microchips by shifting production to countries not affected by the tariffs.8 However with new tariffs on equipment used to make microchips, Intel, along with a number of microchip-related equipment manufacturers in the area, may take a hit from higher import costs.9

Conversely, other local businesses stand to benefit from the growing list of tariffs. Paper companies, such as Vancouver’s North Pacific Paper Co., saw a boost in business with an up to 30% increase in newsprint prices.10 Taking a look at what places will face a heavier impact, economists from the Brookings Institute broke down the employment in industries affected by China’s retaliatory tariffs to the county level.11 Their analysis considered only the 40 most impacted industries by the first $50 billion in tariffs imposed by China.

According to their data, Yamhill County is at a higher exposure to the tariffs with 7.1% of workers in those

Figure 9: Hot-Rolled Steel and Aluminum Price Indices Index (January 2018 = 100), Bimonthly, May 2017-September 2018

Source: SteelBenchmarker.com; Federal Reserve of St. Louis

Figure 10: Workers in Key Industries by County Employment in Affected Industries County Name Yamhill County, OR Skamania County, WA Columbia County, OR Clark County, WA Washington County, OR Clackamas County, OR Multnomah County, OR Source: Brookings Analysis of QCEW and EMSI data

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2016 2,334 50 194 2,018 3,903 1,309 2,374

Share 7.1% 2.4% 1.9% 1.5% 1.5% 0.9% 0.5%

Portland MSA Economic & Population Outlook October 2018

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Figure 11: Manufacturing Employment vs. Output Index (1987 = 100), 1987Q1-2018Q2

Source: Federal Reserve of St. Louis

industries. Though a smaller share of workers is present in Washington County, that area also faces potential losses with 3,903 jobs put under pressure.

Thus far, no one policy is responsible for current market conditions.

Lumber tariff impacts are tainted with market tightness. Metals and other products have seen price increases beyond the markup of the tariffs. Industries that call for the help of tariffs are likely already facing market challenges, complicating analysis. However, economists’ opinions on the broader effects of the tariffs suggest the final impact is less indeterminate.

The region may face a heavier burden in the ensuing trade skirmish. A piece by Oregon State economist Josh Lehner indicates that Oregon and Washington will

be slightly more impacted by the counter-tariffs than the rest of the U.S.12 Without detailed information on the growing list of tariffs, it is difficult to assess how much the MSA specifically will be impacted by shifts in trade. As the economic hub for Oregon, the MSA may anticipate a larger share of the impact.

Only considering GDP growth points to a potential positive result of the tariffs. U.S. GDP grew by a higher than average 4.1% in the second quarter of 2018. However, economists speculate that this is a result of conditions before the tariffs went into effect. A group of analysts led by Morgan Stanley economist Ellen Zentner predicted growth of 4.7% and attributed as much as 2.2 percentage points to pre-tariff stockpiling.13, 14 Similarly, only considering trade balance may also be misleading. Using a Global Trade

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Analysis Project model, researchers found that imposing the threatened tariffs on Chinese goods will improve the U.S. trade balance, but at the cost of decreased GDP and welfare in both countries.15 If preserving U.S. manufacturing jobs is the intent of the tariffs, policymakers are diverting attention to the wrong problem.

Figure 11 shows the longrunning divergence between manufacturing employment and output. According to BLS data, manufacturing employment fell by 27.2% from 1987 to 2018, a slight improvement from recent years).

However, manufacturing output increased by 69.5% over the same time frame. This suggests that manufacturing workers are 2.3 times more productive than they were 30 years ago. Such a drastic change in productivity is largely due to increases in manufacturing technology and automation.

Addressing automation by preparing manufacturing workers for a more automated future may prove more effective with regard to recovering lost manufacturing jobs.

Any long-term production decision depends on how long the tariffs are expected to stay in place, and with frequent trade talks and threats, expectations are difficult to pin down. With any luck, the U.S. will negotiate a more U.S.-friendly deal with its trade partners, such as current attempts to rework NAFTA, but progress seems to fluctuate with the weather. Ultimately with a longlasting trade war, U.S. consumers pay for the tariffs, both in jobs lost

Portland MSA Economic & Population Outlook October 2018

and in the increased prices they pay for either more expensive U.S. goods or taxed international goods.

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Thompson, Elizabeth. (June 18, 2018.) Builder Confidence Slips Two Points as Lumber Prices Soar.

National Association of Home Builders. Retrieved from NAHB.org.

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11 Muro, Mark, Jacob Whiton, and Robert Maxim. (April 20, 2018.) How China’s proposed tariffs could affect U.S. workers and industries.

Metropolitan Policy Program at Brookings.

Retrieved from brookings.edu.

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Office of the President of the United States.

(April 30, 2018.) Adjusting Imports of Steel Into the Unites States. Federal Register. Retrieved from GPO.gov.

2

Acemoglu, Daron et al. (August, 2014.) Import Competition and the Great U.S. Employment Sag of the 2000s. MIT Press. Retrieved from economics.MIT.edu.

3

Eavis, Peter. (June 11, 2018.) How Trump’s Lumber Tariffs May Have Helped Increase Home Prices. The New York Times. Retrieved from NYTimes.com.

4

Lowney, Brendan K. (July 2, 2018.) No, the so-called Trump lumber tariffs will not threaten the U.S. housing recovery. Lumber and Building Material Journal. Retrieved from LBMjournal.com.

SteelBenchmarker. (September 10.2018.)

Price History Tables and Charts. Retrieved from SteelBenchmarker.com.

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Federal Reserve Bank of St. Louis and US. Office of Management and Budget. (September 20, 2018.) Retrieved from FRED.com.

12 Lehner, Josh. (July 19, 2018.) Welcome to the Trade Skirmish. Oregon Office of Economic Analysis. Retrieved from oregoneconomicanalysis. com.

13

Ellen Zentner will be the keynote speaker at the 2019 NERC conference.

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Nellis, Stephen. (June 18, 2018.) Intel has paths around Trump’s China tariffs, analysts say. Reuters.

Retrieved from reuters.com.

14 Lanman, Scott. (July 26, 2018.) What Economists Are Saying Ahead of Friday’s U.S. GDP Report.

Bloomberg. Retrieved from bloomberg.com.

9

Notarianni, John. (August 25, 2018.) Trump’s Tariffs Hit Oregon’s Semiconductor Industry.

Oregon Public Broadcasting. Retrieved from opb. org.

10 Mauldin, William. (August 27, 2018.) Bad News for U.S. Papers, but Tariffs Are Paying Off for One Rock Capital. The Wall Street Journal. Retrieved from wsj.com.

15 Saiful Alim Rosyadi and Tri Widodo. (February 1, 2018.) Impact of Donald Trump’s tariff increase against Chinese imports on global economy: Global Trade Analysis Project (GTAP) model.

Journal of Chinese Economic and Business Studies.

Retrieved from tandfonline.com.

Marine Terminal 6 Cargo Cranes, Port of Portland

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

The Portland MSA When looking at the nonfarm employment numbers, one could debate whether or not the current expansion started in the first or second quarter of 2010. What is less debatable is that job expansion is now into its 9th year, making this one of the longest expansions on record – and just five quarters shy of the 1990s expansion. But while this expansion will likely turn out to be longer than that in the 1990s, the job growth has not been as robust. The previous ten year period of growth in the 1990s increased jobs by 248,000, an increase of 33.4%. Based on history and our forecast out to 2020Q2, the expansion of the last ten years will surpass the 1990s with jobs up 264,700, but the percentage increase will be lower, at 27.1%.

This section will discuss employment, income (along with wages and inflation), and housing dynamics for the most recent period, and the near term outlook for those variables.

Additionally, this report includes our annual long term outlook for employment. We will end with a comparison of the current forecast with the past two forecasts, and a summary of factors on our watchlist that could impact our economic outlook.

Employment Just as it seemed the steam was coming off of this expansion at the end of 2017, an upward revision of job numbers and a robust first half of 2018 show that some strong growth is still left in this old-timer recovery. The first quarter job growth of 2018 was a strong 3.9%, followed by an equally

Figure 12: Employment Growth in US, Oregon, and Portland MSA YoY Growth Rate, Monthly, January 2000-August 2018 & September 2018-December 2020

strong showing of 2.6% for the second quarter. The Portland MSA registered 2.55% job growth year-over-year (YoY) in July 2018 and ranked 100th out of 399 metro areas nationwide.

The latest unemployment rate for the MSA stands at 3.6% for July 2018, the lowest rate reported by the Oregon Employment Department since January of 1990. From January 2017 thru July 2018, the MSA reports the lowest unemployment rates over time since 1995.

This most recent employment performance is related to a few strong industries that have countered a few weaker industries. Construction has been particularly strong, with double digit job growth in the fourth quarter of 2017 and first quarter of 2018, followed by a nearly double digit seasonally adjusted annual rate of 9.2% (SAAR) in the second quarter of 2018. As mentioned in our last Northwest Economic Research Center

forecast, some large developments like South Cooper Mountain and South Hillsboro, along with other construction upticks (when is the next hotel opening?), have boosted this sector’s employment to 73,150 in 2018Q2, easily surpassing its peak before the recession of 66,150 jobs in 2007Q2.

After a rather weak 2016 and start of 2017, durable manufacturing has shown strong growth with above 5% SAAR growth in jobs for the first two quarters of 2018. Professional and business services continued to show job growth strength. Additional support to the overall job growth came from Leisure and hospitality, and Nondurable manufacturing.

The public sector dampened the overall jobs numbers with weakness from state and federal employment and mixed growth from local

Portland MSA Economic & Population Outlook October 2018

government. The numbers are skewed for state government, as a redefinition of state workers to Health services caused a large decrease in the reported job numbers for the public sector.

We like to group our industrial sectors for employment by short term forecast growth strength: fast, medium, and slow. These are relative measures of how these sectors compare to each other over the next two forecast years—from 2018Q3 to 2020Q2. (For near-term SAAR growth rates for all industries, see Figure 19 on pg. 16).

For our fast job growth industrial sectors, we have Transportation services, warehousing, and utilities; Health and education services; Professional and business services; and Federal government.

As mentioned in our previous publication, new Amazon distribution and customer fulfillment centers will be boosting employment in Multnomah County, and Clackamas County has seen recent strong job growth in this sector. Health and education services continues to have strong growth that we believe will continue over the next two years, in part fueled by the aging metro population. The “education” part of this sector will take a hit with the closure of Marylhurst University in Lake Oswego. Professional and business services also came back strong in 2018 and should continue to be a driver for job growth. We normally would not have the Federal government in the fast growth category, but on the horizon there is a notable event, namely the decennial Census. This massive government undertaking bumps up federal jobs, but only temporarily.

Figure 13a: Employment in Fast-Growth Industries, Portland MSA Index (2010 = 100), 2010-2028

Figure 13b: Employment in Medium-Growth Industries, Portland MSA Index (2010 = 100), 2010-2028

Figure 13c: Employment in Slow-Growth Industries, Portland MSA Index (2010 = 100), 2010-2028

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Portland MSA Economic & Population Outlook October 2018

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Notable Employment Events: •

Lionbridge Technologies Inc., an international firm providing testing solutions to tech companies, will lay off 119 workers at its Vancouver location in June. (The Columbian, 04/09/2018)

•

SolarWorld Americas Inc. in Hillsboro is being acquired by California-based SunPower Corp. SolarWorld laid off 360 workers last summer after its parent company declared itself insolvent. The acquisition could save the company’s remaining 350 jobs. (The Oregonian, 04/18/2018) [Note:Tariffs have been placed on solar photovoltaic cells and modules imports. Tariffs exemptions have been given to SunPower solar components made overseas and brought into the US.]

•

Marylhurst University near Lake Oswego will close due to declining enrollment. It employs 37 fulltime and 106 part-time faculty.

(Portland Business Journal, 05/17/2018)

•

QTS Data Centers, a Kansas data hosting company, will build a massive 100-megawatt data center on more than 90 acres in Hillsboro.

(The Oregonian, 05/28/2018)

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Construction will begin in 18 to 24 months on an 11-story Hyatt Place Hotel in Portland’s Pearl District. It will feature about 176 rooms.

(Portland Business Journal, 06/11/2018)

•

Vista Condominiums, a 21-story building with 153 luxury condominiums, will open in Portland’s Pearl District in October. (Portland Monthly Magazine, 06/29/2018)

•

Dongchun Co., a magnetic bumper maker, will open a plant in St. Helens. It plans to employ 200 people. (Columbia County Spotlight, 07/27/2018)

•

Rainier Springs –a hospital providing behavioral health, mental health, and substance abuse services –will open in Vancouver. It will employ 350 people. (The Columbian, 07/31/2018) Source: State of Oregon Employment Department

For our medium job growth industrial sectors, we have Construction, Local government, Wholesale, Retail, Other services, Information, State government, and Financial Services.

This is a large grouping of industries with two-year forecasted average quarterly SAAR job growth rates from 1.58% to 0.08%. Construction has been more resilient than we have forecast in the past and leads the medium growth category at 1.58%.

We have construction jobs as very strong in the second half of 2018; only after mid-2019 does the growth slow to push this sector into our medium growth category. We expect that the pipeline for construction work will be slowing, but stay vigilant for any new projects that might be announced.

And while internet sales are pushing the supply chain up for Transportation services and warehousing, we do not completely count out Retail and

Figure 14: Unemployment Rates by County, Portland MSA Percent, Monthly, January 2007-August 2018 (WA counties seasonally adjusted by NERC and OR counties seasonally adjusted by OED)

Wholesale, which have seen a bit more job growth than we previously expected. We will watch the Retail and Wholesale sectors in light of Northwest Economic Research Center

several closures at Safeway, Sears, Kmart, and Orchard Hardware stores.

Local government (and to a lesser extent state government) jobs tend

13

Portland MSA Economic & Population Outlook October 2018

CPI-U and Inflation: Update on Measures The tables to the right repeat our tables from the April 2018 forecast publication comparing the PortlandSalem All Items CPI-U with the West CPI-U. The Portland-Salem CPI-U was discontinued at the end of 2017. Many analysts for the Portland area are moving to the West CPI-U as the new Pacific CPI-U lacks history, having been established in January of 2018.

The West CPI-U aggregates all states to the west of a north-south boundary from New Mexico to Montana. If you take out the north-south boundary states of Idaho, Nevada, Arizona and those states east, you are left with the Pacific CPI-U. The bottom table compares the U.S., West, and Pacific CPI-Us for the most recent data in 2018. The first half measure for the Pacific CPI-U might be underestimated for we do not have the second half measure of this statistic for 2017, and thus simply used the starting base of 100.0. The monthly changes are too noisy to compare, so we use only the first half of the year. There is a slight trend of accelerated inflation increase, at least compared to 2015 and 2016.

to reflect population growth with strong economic growth, pushing up the need for services and rising taxes to accommodate the demand.

Information, which includes software publishers, will still see slowing in traditional publishing businesses such as newspapers and periodicals.

The closure of Puppet Labs, an IT automation maker, added to the slower jobs growth, but not enough to move this sector out of our medium growth category.

For our slow job growth industrial sectors, we have Nondurable and Durable manufacturing, Leisure and hospitality, and Mining and logging.

Nondurable manufacturing had a rather strong 2017 and a mixed first

Average Annual Rates of Change Year

US CPI-U

2015 2016 2017

-0.4% 1% 2.1%

Portland-Salem CPI-U 1.2% 2.1% 4.2%

West CPI-U 1.2% 1.9% 2.8%

Average Annual Rates of Change from Half Year Year

US CPI-U

West CPI-U

Pacific CPI-U

2018H1

2.6%

3.3%

3.2%*

*Annual rate is not available. Calculated based on half-year index and base year 100.0

half of 2018 in terms of job growth.

Food processing, for which half of the business units in Oregon are located in the Oregon counties of the Portland MSA, has seen some recent slowing.

Durable manufacturing seems to have shaken off the Intel restructuring of 2016, but we still believe the longer forecast horizon is for very slow job growth. Leisure and hospitality would seem to be growing faster with the opening of a number of hotels, but the slowest growth for this sector since 2017Q3 has been in Multnomah County, which has the largest number of jobs compared to the other counties.

Our annual update of our long term employment forecast extends the Northwest Economic Research Center

forecast out an additional 30 years to 2058. We use the long term forecast from Moody’s Analytics, which takes into account the issues of productivity and ability to grow based on resources in the economy (e.g., labor force, capital equipment, energy). From 2029 to 2058, the annual average growth rate for jobs in the Portland MSA is estimated at 0.56%. This is a smoothed estimate through the business cycles and assumes that technology does not significantly change. If you have issues with this long term forecast, please call us in 2058.

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Portland MSA Economic & Population Outlook October 2018

Income, Wages, and Inflation For the Portland MSA, personal income growth picked up in 2015: a strong 7.6%, with the following year coming in at 4.3%. We will have to wait until this November (2018) for the 2017 numbers to be released.

Our forecast for 2017 mirrors 2016 and comes in at 4.38%. The strongest expected personal income growth in 2017 manifests in Clark and Washington counties. With the Tax Cut and Jobs Act, we expect personal income growth to be 6.19% in 2018 and 6.26% in 2019, before lowering back to 5.72% in 2020 as some of the provisions in the tax act expire. Our long run outlook for personal income growth is in the low 5% range. Wages and salaries (the largest component of personal income) show the same pattern, with annual growth rates of 4.7% and 6.7% for 2017 and 2018.

As economies reach full employment, resources become scarcer relative to demand, and the expectation is that prices will rise. The boxed item on CPI (pg. 13) is an update from our previous forecast publication, now that we have a few more months of data on the West CPI-U and the new Pacific CPI-U. Though only a few data points do not make a trend, there appears to be some mild drift upwards of inflation, and prices are likely rising a bit faster in our area compared to the country as a whole.

Housing Based on the latest S&P CoreLogic Case-Shiller 20-City Composite Index, house prices in the city of Portland rose 5.8% for the year ending in June 2018. This ranks Portland 12th in the 20-city index, well below the double digit percentage price increases of Las Vegas, Seattle, and San Francisco.

Figure 15: Historic and Forecast Total Personal Income Growth Annual Percent Change, 2005-2027

Figure 16: S&P CoreLogic Case-Shiller Index for Select Areas YoY Percent Change, Monthly, January 2000-July 2018

This slowing of housing prices is a welcome sign. Though you still hear stories of people flipping houses, we do not have the same fever of activity that led to the housing crisis of 2007.

Price growth seems to be slowing down due to new supply, and issues of affordability have softened demand.1 Figure 16 uses price data from Zillow to compare some cities in the US to Portland. The house price-to-income ratio is a rough indication of single family housing affordability. Portland is just about back to the same priceto-income ratio as during the height of Northwest Economic Research Center

the housing boom in 2006. If you look closely at the Portland ratio from 2017 to mid-2018, the rate at which this ratio is rising has slowed, indicating that affordability is worsening, but not as quickly as in recent years past. Be thankful for good tidings, even if they are small.

Figure 17 shows building permits for single and multifamily housing, 1

A very good summary of these actions can be found here: Lehner, Josh. (July 25 2018.)

The housing market is rebalancing, at least in Portland. OregonEconomicAnalysis.com.

15

Portland MSA Economic & Population Outlook October 2018

in recent history and forecast in the near term. Along with the slowing of house price growth, permitting has also cooled a bit. As we mentioned in the past, multifamily permits were temporally clustered in Multnomah County due to the timing of the inclusionary zoning regulation. We expect single family building permits to pick up a bit in the next year and a half to average around 4.5% growth, much lower than the recent strong growth of 7.5% in 2015. Multifamily permits are expected to decline in absolute terms, due the “bunching up” mentioned above in order to get in under the wire before inclusionary zoning is implemented. That said, we expect some spillover for multifamily permits out of Multnomah County and into the adjacent counties, where there remains a greater capacity for additional growth. Still, the net effect after the dust settles is for a slowing of said permits in the Portland MSA.

Figure 17: Portland MSA Housing Permits, Historical and Forecast Total Permits, Quarterly, 2004Q1-2027Q4

Figure 18: Current and Previous Employment Forecast Comparison

Quarterly Seasonally Adjusted Annual Rates and Year-over-Year Percent Change

While the job numbers since our April 2018 forecast are the primary source of forecast adjustments, other factors

Apr 2018

Oct 2017

3.90% 2.65%

1.97% 1.83%

1.79% 1.81%

2018Q3

2.21%

1.79%

1.72%

2018Q4 2019Q1 2019Q2 2019Q3

2.17% 1.64% 1.66% 1.58%

1.80% 1.43% 1.55% 1.55%

1.74% 1.34% 1.03% 1.06%

2018 2019 2020 2021

2.66% 1.82% 1.21% 0.70%

1.83% 1.63% 1.07% 0.73%

1.93% 1.38% 0.99% 0.86%

SAAR 2018Q1 2018Q2

Headwinds and Tailwinds Figure 18 compares employment projections for the Portland MSA in our previous three forecasts to this one. We did not have complete data on the first or second quarters of 2018 for our April 2018 forecast. Note that 2018Q1,Q2 (colored purple) are historic, not forecast. The estimates and revisions to the numbers showed a much stronger first half of 2018 than we had estimated. We carry this strength into the second half of 2018 and show the same pattern of slowing growth as in our earlier forecasts, albeit to a higher stable level, essentially matching the April 2018 forecast in 2019Q3.

Oct 2018

YoY

also come into play. We highlight two such factors in our special reports: New Minimum Wages: Potential Impacts on the Portland MSA and Tariffs, Tariffs, and More Tariffs: A Local Look at a National Issue. Here is a brief sample of special events, data releases, and factors to track that have influenced our forecast over the ensuing months, taken from research Northwest Economic Research Center

and expert consultations: • World and US economic performance, and the passage of the Tax Cuts and Jobs Act in December.

• Oregon Economic Outlook report from the Oregon Office of Economic Analysis

Portland MSA Economic & Population Outlook October 2018

16

• Adidas expansion, AWS Elemental layoffs, PDXNext airport expansion and renovation • Past policies at the state and local levels, especially transportation and housing, that continue to play out their full impact on the region The actual direction of the economy in the future is subject to many events, some of which are known but have impacts that are difficult to tease out or assess in entirety, and some for which impacts are unknown. Here is a partial list of potential headwinds

and tailwinds that could significantly impact our outlook: • The degree of impacts, both positive and negative, from the federal Tax Cuts and Jobs Act

• Possible new housing policies both in and outside of Multnomah County • Immigration regulation • Geo-political risks

• Federal Reserve interest rate policy going forwards • Oregon State budget problems • Broad tariffs that may raise costs of imported supplies and finished products to businesses and consumers, and possible retaliatory tariffs that may hamper exported goods and services

Longer-term issues include climate change, income inequality, and cyber security, all of which are likely already shaping current trends but the influence of which may intensify over the coming years.

Figure 19: Forecast SAAR Growth Rates for All Industries, Portland MSA Seasonally Adjusted Annual Rates, 2018Q3-2020Q2

2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2.2%

2.2%

1.6%

1.7%

1.6%

1.4%

1.1%

1.5%

Private Nonfarm

2.4%

2.3%

1.7%

1.8%

1.7%

1.5%

1.1%

1.0%

Construction

5.4%

3.3%

1.2%

0.9%

0.9%

0.4%

0.2%

0.3%

Mining and Logging

0.5%

0.1%

0.5%

1.2%

0.4%

0.5%

0.1%

0.8%

Manufacturing

1.1%

0.6%

0.2%

0.8%

0.2%

0.4%

0.1%

0.1%

Durable Manufacturing

0.9%

0.6%

0.1%

0.9%

0.1%

0.4%

0.0%

0.0%

Nondurable Manufacturing

1.6%

0.6%

0.6%

0.6%

0.6%

0.6%

0.4%

0.3%

2.6%

3.0%

1.2%

1.2%

1.2%

0.7%

0.6%

0.5%

Transportation, warehousing, and utilities

8.5%

11.8%

1.4%

1.6%

1.6%

1.1%

0.6%

0.0%

Retail

1.2%

1.2%

1.2%

1.2%

1.2%

0.5%

0.6%

0.6%

Total Nonfarm

Trade, transportation, and utilities

Wholesale

1.5%

1.0%

1.2%

0.9%

0.8%

0.8%

0.8%

0.8%

Health Services and Education

3.3%

3.6%

3.6%

3.7%

3.7%

3.8%

3.3%

3.0%

Financial Activities

1.2%

1.1%

0.9%

0.7%

0.8%

0.7%

0.5%

0.6%

Information

0.6%

1.0%

0.8%

1.0%

0.9%

0.9%

0.9%

0.8%

Professional and Business Services

3.0%

2.9%

3.1%

2.9%

2.9%

2.4%

1.4%

1.4%

Leisure and Hospitality

0.9%

1.0%

0.8%

0.9%

0.8%

0.3%

0.3%

0.0%

Other Services

1.3%

1.4%

1.0%

0.9%

0.9%

0.9%

0.5%

0.4%

1.0%

1.0%

0.9%

0.9%

0.8%

0.7%

1.4%

5.0%

Federal Government

-1.5%

-0.2%

-0.2%

-0.2%

-0.2%

-0.2%

6.5%

39.8%

State Government

1.1%

0.9%

1.0%

0.9%

0.9%

0.6%

0.5%

0.4%

Local Government

2.2%

2.2%

1.6%

1.7%

1.6%

1.4%

1.1%

1.5%

Government

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Portland Aerial Tram

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

New Minimum Wages: Potential Impacts on the Portland MSA

With income inequality rising and affordable housing harder to find in cities across the United States, policy makers seek tools to help address these issues. With encouragement from movements like “Fight for $15,” a favorite tool of states and local municipalities (especially on the West Coast) has been increasing the minimum wage. However, some disagreement around the effectiveness of such policies exists. In 2016 the Oregon Legislature enacted Senate Bill 1532, establishing an annual minimum wage increase for Oregonians. This article looks at the recent reports on Seattle’s minimum wage increase, and local early economic indicators with an eye toward implications for the Portland MSA. Measuring the effectiveness of minimum wage policies has proven difficult for economists. Isolating the impacts that raising the minimum wage has on targeted populations is nearly impossible due to data limitations and the complex nature of regional economies. Despite these limitations, economists have employed multiple methods to estimate the effects of changing the minimum wage. Some concluded that wages for low wage workers significantly increased with no significant negative impacts on employment, while others found that increases in the minimum wage

resulted directly in job losses for those the policy was intended to help.

NERC’s analysis is guided by two recent oft-cited reports on Seattle’s minimum wage. The first is a collaboration between the University of Washington (UW) and the National Bureau of Economic Research. The University of Washington’s paper is of particular import, because of their access to a confidential dataset. The state of Washington is one of only four states that collects data on hours worked for hourly employees as part of their state unemployment payment structure (Oregon is one of the other three). The State of Washington partnered with UW in order to gain analytic insight on this data to increase the nuance and precision of their estimates on the policy’s effects on wages, employment, and total hours worked for employees from all sectors.

The City of Seattle was one of the first to pass municipal level minimum wage legislation, providing

Minimum Wage Increase

economists looking to understand potential impacts in their own municipalities with as good an empirical research opportunity as they could hope for. When trying to understand what will happen in the Portland MSA, these advantages are amplified. First, Seattle’s minimum wage increase of 37% over the course of the study period is significantly larger than those in most available empirical studies.1 New Jersey’s 1992 statewide increase was 13% and the last jump in the federal minimum wage was just under 11%.2, 3 This large change makes potential impacts easier to identify, as businesses are forced to adjust faster. Additionally, the size of increase for the Portland MSA almost mirrors that of Seattle.

The minimum wage in the MSA has grown 30% since the policy’s implementation.4 There are other similarities as well. Both cities have similar population sizes, rapidly expanding economies, and worsening affordability problems.

Said similarities between the two cities, coupled with the incredibly detailed data provided to the

Seattle 2014 - 20165

Portland 2016 - 2018

$9.47 - $13.00 (37%)

$9.25 - $12.00 (30%)

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

UW team, impart this study with significant weight as a tool to assess potential impacts on the Portland MSA. In their most recent report, released in October of 2017, the UW team found that while the 2016 Seattle minimum wage increase (from $11 to $13 per hour) generated 3% growth in wages for workers making the minimum wage, it also resulted in a 9% reduction in hours worked for those same employees.6 While it is clear that the policy achieved its goal of increasing wages for low wage workers, those gains were undone by a reduction in total hours worked. This could suggest a shift to more part time work, a shift to higher wage labor, or some low wage employees losing their jobs, and is likely is a combination of all three. This finding is consistent with classical economic theory: if the wage rises above the level the market dictates, less labor will be demanded by businesses. Some workers—who saw their wages increase and maintained their hours—might be better off, but on average, low wage workers brought home less pay then they would have otherwise.

The second report that NERC focuses on is out of the University of California Berkley’s Center on Wage and Employment Dynamics (CWED). This report will be updated consistently as the policy unfolds over the next decade. One caveat for the CWED report is that it does not include data on hours worked or information on workers from all sectors. Instead, one sector with a high level of minimum wage workers

acts as a sample for all affected by the policy: the fast food industry serves as a proxy, due to its high concentration of minimum wage workers. Interestingly, this study uses analysis methods consistent with many previous studies on the effects of minimum wage increases, but comes to slightly different conclusions. The CWED report finds that in Seattle, over the same study period as used in the UW paper, wages rose but employment was unaffected. This suggests that the policy succeeded in its goal of improving earnings for low wage workers.7 While the two studies seem to come to different conclusions, they agree on nearly everything the other does given their respective situations. The CWED paper acknowledges that the previous version of the UW paper found small reductions in hours for low wage workers, and when the UW team performed an analysis of the fast food industry, they too find near negligible effects on employment.

Both reports note that one of their major limitations is the ability to analyze the effects on specific groups of workers. While the UW team was able to see an industry breakdown of their workers, the demographic information ends there. Some opponents of the minimum suggest that these policies fail to center on families as most minimum wage earners are not primary bread winners for a household. A related piece of research by the same team at UW explicitly states that their current work does not attempt to examine impacts on the most vulnerable

Northwest Economic Research Center

populations.8 While the precise demographics of low wage workers in the Portland MSA are unknown, national averages and local estimates provide insight. Women are more likely to be minimum wage workers.

In the U.S. women make up 63% of minimum wage jobs while making up only 47% of the total workforce.

Minimum wage workers are more likely to be younger than workers at higher wages; as of 2014 at least half of minimum wage workers in the U.S. were under 26. They are also less likely to have a college degree or any college experience, and tend to work part time.9 Low wage workers are concentrated in certain industries, primarily leisure and hospitality and retail.

These include food service and preparation, cleaning, front and back of house retail work, and other integral service jobs. We examine data from those industries to explore potential early impacts from increasing the minimum wage.10, 11 The first look at employment data for the Portland MSA since the initial increase in the minimum wage suggests impacts like those in Seattle, but somewhat tempered.

As mentioned in The Portland MSA (pg. 10), overall employment in the Portland MSA has remained strong, and unemployment hovers around its all-time low of 3.6%.

Employment in the leisure and hospitality industry has continued to grow consistently, while employment in retail has tracked similarly to that of total nonfarm but with more volatility. Some

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Portland MSA Economic & Population Outlook October 2018

of this volatility could be partially explained by businesses preparing for the minimum wage. In late 2015, before the first increase in Oregon, retail employment decreased.

This could have been business preemptively adjusting their staff to deal with the upcoming increase.

However, this volatility could just as easily be due to a plethora of other changes facing the retail industry. While the relative lack of data for the Portland MSA renders findings inconclusive, theory dictates that these early numbers could be products of the overall strong economy making minor adjustments to changes, including the increase to the minimum wage.

Since the policy went into effect, the total number of minimum wage jobs in Oregon has nearly doubled, but the average household income for those in the bottom twenty percent of income earners has fallen.11,12 While these statistics are state level, Oregon’s high concentration of population in the Portland MSA makes it likely that these patterns exist in the MSA as well. The growth in minimum wage jobs suggests three things. First, strong overall employment growth in the Portland MSA has increased the number of jobs across the board. Second, firms may be shifting to more part time minimum wage labor. Finally, many workers previously just above the minimum wage now earn the minimum wage.13 One way businesses may adjust is by deciding to hire fewer new workers than they would have otherwise. This is taken into account in our employment forecast; job growth levels off for industries likely to be impacted.

Figure 20: Portland MSA Employment Growth (SAAR) Percent Change, Quarterly, January 2005 - June 2018

As in Seattle, we’ve seen that wages have increased for low wage workers, but overall earnings might be falling. A recent report out of the Oregon Employment Department shows that the largest increase in wage gains have been for those Oregonians in the lowest 20% of wage earners.14 However, a separate report from the Oregon Office of Economic Analysis shows that since around 2016, the average household income for homes earning under $25,000 per year has fallen by 2.8%.15 While this cannot be directly attributed to the increase in the minimum wage and is likely the result of a variety of factors including stronger household formation, the correlation indicates that this could be a variable to watch moving forward.

It is important to note that the structure of Oregon’s minimum wage law differs from that in Seattle.

Oregon has geographic bounds

Northwest Economic Research Center

for wage levels that vary based on population density (Portland Metro, Nonurban Counties, and Standard), while Seattle passed its law at the city level. This suggests that impacts felt in the Portland MSA will be different than those felt in Seattle. Shifting low wage labor out of the Portland MSA will not save businesses as much as shifting it out of Seattle. The more cohesive structure of Oregon’s law will likely decrease spillover effects near the Portland MSA, resulting in less drastic impacts.

With multiple minimum wage increases still ahead and the data only now emerging, only time will tell the full story of the impact of increasing minimum wages, but UW’s data is the most detailed of any minimum wage study ever conducted, and its analysis is on an economy very similar to that of the Portland MSA’s, and thus is likely a good predictor of the effects

Portland MSA Economic & Population Outlook October 2018

Oregon’s minimum wage increase will have on the Portland MSA. If Portland is anything like Seattle, and the early numbers are any indication going forward, it appears that there will be almost no impact on overall employment, above-average wage growth for low wage workers, and modest decreases in overall hours worked that temper the earnings for those same workers.

4

Oregon minimum wage rate summary. (July 2016). State of Oregon. Retrieved from Oregon. gov

5

Seattle’s minimum wage law differs based on company size and benefit offering. Presented data is for large companies providing no benefits.

6

Jardim, Ekaterina et. Al. (June 2017). Minimum wage increases, wages, and low-wage employment: evidence from Seattle. University of Washington Minimum Wage Team. Retrieved from Evans.UW.edu

7

Reich, Michael et. Al. (June 2017). Seattle’s minimum wage experience 2015-16.Center on Wage and Employment Dynamics. Retrieved from IRLE.Berkeley.edu

8 1

Garfinkel, Martin. (April 1 2015). Minimum Wage Ordinance. Seattle Office of Labor Standards.

Retrieved from Seattle.gov

2

Card, David et. Al. (October 1993). Minimum wage and employment: A case study of the fast food industry in New Jersey and Pennsylvania.

NBER. Retrived from NBER.org

3

History of the federal minimum wage rates under the fair labor standards act, 1938-2009. (July 2009). U.S. Department of Labor. Retrieved from DOI.gov

Jardim, Ekaterina et. Al. (October 2017). The Seattle Minimum wage ordinance October 2017 update: report on employer adjustments, worker experiences, and price changes. University of Washington Minimum Wage Team. Retrieved from Evans.UW.edu

9

Beleiciks, Nick et. Al. (February 2016). Oregon’s minimum wage jobs: facts, figures and context.

Oregon Employment Department. Retrieved from QualityInfo.org

10

Kaufman, Aaron. (2016). Policy analysis: minimum wage in the Portland Metropolitan Area. Hatfield Graduate Journal of Public Affairs.

Columbia Theater, St. Helens OR

Northwest Economic Research Center

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Retrieved from PDXScholar.library.PDX.edu 11

Nelson, Jessica. (September 17 2018). Who are the working poor? Oregon Employment Department. Retrieved from QualityInfo.org 12 Krumenauer, Gail. (July 1 2018). Oregon’s minimum wage increases on July 1, 2018. Oregon Employment Department. Retrieved from OregonEmployment.blogspot.com 13 Lehner, Josh (September 13 2018). Oregon poverty and progress, 2017 edition. Oregon Office of Economic Analysis. Retrieved from OregonEconomicAnalysis.com 14 It is likely that the increase to the minimum wage has a ripple effect on wages just above it.

Over time, those wages will likely increase as well.

15

Runberg, Damon (August 1 2018). Who’s driving Oregon’s wage growth? Oregon Employment Department. Retrieved from QualityInfo.org

Portland MSA Economic & Population Outlook October 2018

22

Comparing Across the Counties Population Share of Portland MSA (2017) Total population (2017) Clackamas Clark Columbia Multnomah Skamania Washington Yamhill

411,284 468,620 51,176 801,015 11,584 594,725 106,331

Current and Forecast Population Growth Rate

Historic Net Migration by County

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Historic and Forecast Income Per Capita (Thousands of Dollars)

Single Family/Multifamily Split in Housing Construction

Note: Columbia, Skamania, and Yamhill Counties do not have consistent multifamily construction.

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Clackamas County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Clark County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Columbia County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Multnomah County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Skamania County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Washington County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

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Portland MSA Economic & Population Outlook October 2018

Yamhill County Major Industries: Total Jobs 2018Q2

Average Annualized Employment Growth in Major Industries

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Employment in Notable Fast- and Slow-Growth Industries, Indexed to 2005Q1

Historic and Forecast Average Annualized Nonfarm Wage Growth

Historic and Forecast Housing Permits, Single Family and Multifamily

Northwest Economic Research Center

37

38

Portland MSA Economic & Population Outlook October 2018

Image & Data Sources Cover:

Data Sources:

Oregon Convention Center Aerial Shot [CC BY 2.0 (https:// creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Income and GDP – BEA CPI and Wages - BLS

Table of Contents:

Employment – BLS, Oregon Employment Department, Washington State Employment Security Department

Columbia County Courthouse: Gary Halvorson, Oregon State Archives [Attribution], via Wikimedia Commons

Population – PSU Population Research Center, Washington State Office of Financial Management, U.S. Census

Yellow flower (Balsamorhiza sagittata): By Matthew P. Del Buono [CC BY-SA 3.0 (https://creativecommons.org/ licenses/by-sa/3.0)], from Wikimedia Commons

Interest Rates – U.S. Treasury and Freddie Mac Housing Permits - U.S. Census

Horse ring with red horse: By Another Believer [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons Lower Lewis Falls: By PJ Blalock [Public domain], from Wikimedia Commons Oregon City Elevator: Gary Halvorson, Oregon State Archives [Attribution], via Wikimedia Commons Streetcar: By Shubert Ciencia (Flickr: Go by Streetcar (Portland, Oregon)) [CC BY 2.0 (https://creativecommons. org/licenses/by/2.0)], via Wikimedia Commons Pg. 9 Marine Terminal 6 Cargo Cranes: By M.O. Stevens [CC BY-SA 4.0 (https://creativecommons.org/licenses/ by-sa/4.0)], from Wikimedia Commons Pg. 17 Portland Aerial Tram: By Julie Gentry [Public domain], via Wikimedia Commons Pg. 21 Columbia Theater: Gary Halvorson, Oregon State Archives [Attribution], via Wikimedia Commons Pg. 39 Mollala River State Park: By Ian Poellet (User:Werewombat) [CC BY-SA 3.0 (https:// creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], from Wikimedia Commons

Northwest Economic Research Center

Portland MSA Economic & Population Outlook October 2018

Mollala River State Park, Clackamas County OR

Northwest Economic Research Center

39

Northwest Economic Research Center College of Urban and Public Affairs

October 2018 Portland MSA Economic and Population Outlook

National and Oregon

Gross Domestic Product Growth, U.S. Annualized Quarterly Percent Change, 1980Q1-2021Q4, dots indicate Fed forecasts 10% 8% 6% 4% 2% 0% -2% -4% -6% -8%

10/9/2018

Source: BEA

2020

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

-10%

3

Total Nonfarm Employment, U.S. and Oregon YoY Growth Rate, Monthly, January 1991-August 2018 6% US

Oregon

4% 2% 0% -2% -4% -6%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

-8%

10/9/2018

Source: BLS

4

U.S. Housing Permits by Type Thousands of Units, Monthly, Seasonally Adjusted, January 1990-August 2018 2,000 1,800

Multifamily

1,600

Single Family

1,400 1,200 1,000 800 600 400 200 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

10/9/2018

Source: Census

5

Broad Unemployment Rates, U.S. Percent, Monthly, Seasonally Adjusted, January 1994-August 2018 18% U1

U2

U3

U4

U5

U6

16% 14% 12%

10% 8% 6% 4% 2% 0% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 10/9/2018

Source: BLS

6

PCE Implicit Price Deflators Continuously Compounded Annual Rate of Change, Quarterly, Seasonally Adjusted, 2009 Q1-2018 Q2 5% Implicit Price Deflator 4%

Core Implicit Price Deflator

Fed Target

3% 2% 1% 0% -1% -2% -3% 2009 10/9/2018

2010

2011

2012

2013

2014

2015

2016

2017 Source: BEA

2018 7

Various Interest Rates Percent, Monthly, July 1954-August 2018 25%

Federal Funds Rate 30-Year Fixed Rate Mortgage

20%

10-Year Treasury Constant Maturity Rate

15%

10%

5%

0% 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 10/9/2018

Sources: Freddy Mac, Board of Governors of the Federal Reserve System (via FRED)

8

Real Average Hourly Earnings, U.S., OR, and MSA Dollars per Hour, Monthly, Seasonally Adjusted, January 2013-August 2018 $28 US

Oregon

Portland MSA

$27 $26 $25 $24 $23 $22 $21 2013 10/9/2018

2014

2015

2016

2017

2018 Source: BLS

9

Portland MSA Outlook

County Net Migration Annual, 2001-2017 12,000

Clackamas Skamania

10,000

Clark Washington

Columbia Yamhill

Multnomah Mult Wa

8,000

Clark Clack

6,000 4,000 2,000 Yam 0

-2,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10/9/2018

Source: PRC, OFM

11

Housing Price to Income Ratio Quarterly, 1990Q1 – 2018Q2 11 10 9

SF

8 7 Sea Por Den

6 5 4

U.S.

3

Cha

2

Pit

1 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

10/9/2018

United States

Seattle, WA

Portland, OR

Pittsburgh, PA

Charlotte, NC

San Francisco, CA

Denver, CO

Source: Zillow

12

Employment Growth YoY Growth Rate, Percent, Monthly, January 1991-August 2018, Forecast September 2018-December 2020 6% US

Oregon

Portland MSA

4% 2% 0% -2% -4% -6%

10/9/2018

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

-8%

13

Unemployment Rates by County, Portland MSA Percent, Monthly, 2007-August 2018 (WA counties seasonally adjusted by NERC) 18% Clackamas Clark Columbia Multnomah Skamania Washington Yamhill

16%

14% 12% 10% 8% 6%

Ska Col Clr Yam Clac Mul Wa

4% 2% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10/9/2018

Source: BLS, Quality Info LAUS

14

Historic and Forecast Total Personal Income Growth Annual Percent Change, 2005-2027 10% 8% 6% 4% 2% 0%

-2% -4% -6% 2005 10/9/2018

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027 15

Current and Previous Employment Forecast Comparison Portland MSA Quarterly Seasonally Adjusted Annual Rates and YoY Percent Change

SAAR 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 YoY 2018 2019 2020 2021 10/9/2018

OCT 2018

APR 2018

OCT 2017

3.90% 2.65% 2.21% 2.17% 1.64% 1.66% 1.58%

1.97% 1.83% 1.79% 1.80% 1.43% 1.55% 1.63%

1.79% 1.81% 1.72% 1.74% 1.34% 1.03% 1.06%

2.66% 1.82% 1.21% 0.70%

1.83% 1.63% 1.07% 0.73%

1.93% 1.38% 0.99% 0.86% 16

Employment in Fast-Growth Industries, Portland MSA Index (2010 = 100), 2010-2027 180 170 160 150 140 130 120 110 100 90 80

PBS

HSE

TWU

FG

2010

2012

2014

2016

2018

Professional and Business Services Transportation, warehousing, and utilities 10/9/2018

2020

2022

2024

2026

2028

Health Services and Education Federal Government 17

Employment in Medium-Growth Industries, Portland MSA Index (2010 = 100), 2010-2027 190 CONS

170 150 130

OS

110 90 70 SG

50 2010

2012

Construction Information

10/9/2018

2014

2016

2018

Other Services Financial Activities

2020

2022

2024

Retail Local Government

2026

2028

Wholesale State Government

18

Employment in Slow-Growth Industries, Portland MSA Index (2010 = 100), 2010-2027 150 140

LH

130

NDM

120

DM

110 ML

100 90 80 2010

10/9/2018

2012 2014 2016 2018 Leisure and Hospitality Durable Manufacturing

2020

2022 2024 2026 2028 Nondurable Manufacturing Mining and Logging 19

Portland MSA Housing Permits, Historical and Forecast Total Permits, Quarterly, 2004Q1 – 2027Q4 4,000

1

1

3,500

1

3,000 1

2,500

1

2,000

1

0

1,500

0

1,000 500

Single Family

0

Multifamily 0

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

0

10/9/2018

Source: Census, NERC

20

Case-Shiller Index for Select Areas YoY Percent Change, Monthly, January 2000 – July 2018 25% U.S.

20%

Portland

Seattle

15%

10% 5% 0% -5% -10% -15%

10/9/2018

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

-20%

21

RIP: The Portland-Salem Consumer Price Index is Discontinued

Average Annual Rates of Change from Half Year

Average Annual Rates of Change Year US CPI-U 2015 2016 2017

-0.4% 1.0% 2.1%

PortlandSalem CPI-U 1.2% 2.1% 4.2%

West CPI-U 1.2% 1.9% 2.8%

Year 1st Half 2018

US CPI-U West CPI-U 2.6%

3.3%

Pacific CPI-U* 3.2%

Source: BLS

10/9/2018

22

Forecast SAAR Growth Rates for All Industries, Portland MSA Seasonally Adjusted Annual Rates, 2018Q3-2020Q2 2018Q3

2018Q4

2019Q1

2019Q2

2019Q3

2019Q4

2020Q1

2020Q2

2.2%

2.2%

1.6%

1.7%

1.6%

1.4%

1.1%

1.5%

2.4%

2.3%

1.7%

1.8%

1.7%

1.5%

1.1%

1.0%

Construction

5.4%

3.3%

1.2%

0.9%

0.9%

0.4%

0.2%

0.3%

Mining and Logging

0.5%

0.1%

0.5%

1.2%

0.4%

0.5%

0.1%

0.8%

Manufacturing

1.1%

0.6%

0.2%

0.8%

0.2%

0.4%

0.1%

0.1%

Durable Manufacturing

0.9%

0.6%

0.1%

0.9%

0.1%

0.4%

0.0%

0.0%

Nondurable Manufacturing

1.6%

0.6%

0.6%

0.6%

0.6%

0.6%

0.4%

0.3%

2.6%

3.0%

1.2%

1.2%

1.2%

0.7%

0.6%

0.5%

Transportation, warehousing, and utilities

8.5%

11.8%

1.4%

1.6%

1.6%

1.1%

0.6%

0.0%

Retail

1.2%

1.2%

1.2%

1.2%

1.2%

0.5%

0.6%

0.6%

Wholesale

1.5%

1.0%

1.2%

0.9%

0.8%

0.8%

0.8%

0.8%

Health Services and Education

3.3%

3.6%

3.6%

3.7%

3.7%

3.8%

3.3%

3.0%

Financial Activities

1.2%

1.1%

0.9%

0.7%

0.8%

0.7%

0.5%

0.6%

Information

0.6%

1.0%

0.8%

1.0%

0.9%

0.9%

0.9%

0.8%

Professional and Business Services

3.0%

2.9%

3.1%

2.9%

2.9%

2.4%

1.4%

1.4%

Leisure and Hospitality

0.9%

1.0%

0.8%

0.9%

0.8%

0.3%

0.3%

0.0%

Other Services

1.3%

1.4%

1.0%

0.9%

0.9%

0.9%

0.5%

0.4%

1.0%

1.0%

0.9%

0.9%

0.8%

0.7%

1.4%

5.0%

Federal Government

-1.5%

-0.2%

-0.2%

-0.2%

-0.2%

-0.2%

6.5%

39.8%

State Government

1.1%

0.9%

1.0%

0.9%

0.9%

0.6%

0.5%

0.4%

Local Government

2.2%

2.2%

1.6%

1.7%

1.6%

1.4%

1.1%

1.5%

Total Nonfarm

Private Nonfarm

Trade, transportation, and utilities

Government

10/9/2018

23

Portland MSA County Employment Outlook

10/9/2018

24

County Total Nonfarm Comparisons Indexed to 2005Q1 Clr Wa

140

Clac

130

Mul Yam

120

Col

Ska

110

100

90

2005

2007

2009

Clackamas 10/9/2018

2011 Clark

2013 Columbia

2015

2017

Multnomah

2019 Skamania

2021

2023 Washington

2025

2027

Yamhill 25

Construction Employment in All Counties Indexed to 2005Q1 1

Ska

160 0.8

Clac

140

Mul Clr Wa Col Yam 0.6

120

0.4

100 80

0.2

60

0

2005

2007

Clackamas 10/9/2018

2009 Clark

2011

2013

Columbia

2015

2017

Multnomah

2019

2021

Skamania

2023

2025

Washington

2027 Yamhill 26

Professional and Business Services Employment Indexed to 2005Q1 1

220

Wa

200

0.8

Clac

180

MSA 0.6

Clr

160

Mul

140

0.4

120 0.2

100 80

0

2005

2007

2009

2011

Clackamas 10/9/2018

2013 Clark

2015

2017

Multnomah

2019

2021

2023

Washington

2025

2027

MSA 27

Leisure and Hospitalities Employment Indexed to 2005Q1 170

1

Wa

160

Yam

150

0.8

MSA Clr Ska

140

Mul 0.6

130 120 0.4

110 100

0.2

90 80

0

2005

2007 Clark

10/9/2018

2009

2011

2013

Multnomah

2015

2017

Skamania

2019

2021

Washington

2023

2025

Yamhill

2027 MSA 28

Durables Manufacturing Employment Indexed to 2005Q1 115

1

Clr

110

Wa

105

MSA

0.8

Clac

100

0.6

95 90

Mul

0.4

85 80

0.2

75 70

0

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 Clackamas Clark Multnomah Washington MSA 10/9/2018

29

Retail Employment Indexed to 2005Q1 135

1

Clr

130 125

0.8

Yam MSA

120

Clac 0.6

115

Col

110 0.4

105 100

0.2

95 90

0

2005

2007

2009

2011

Clackamas 10/9/2018

2013

2015

Clark

2017

2019

Columbia

2021 Yamhill

2023

2025

2027

MSA 30

Local Government Indexed to 2005Q1 140

1

130

MSA 0.8

Clr

120 0.6

Yam

110 Col 0.4

100 Ska 0.2

90 80

0

2005

2007

2009

2011 Clark

10/9/2018

2013

2015

Columbia

2017

2019

Skamania

2021 Yamhill

2023

2025

2027

MSA 31

Headwinds and Tailwinds

10/9/2018

32

Short Term and a Few Long Term + and – Risks An Incomplete List: Dimmer Prospects or Rosier Outlook? International  US Domestic  China Growth  Geopolitical Risks (Name your part of the world…)  Tariffs and More Tariffs?  Immigration regulation  US dollar exchange rate

 Fiscal and Monetary Policies, Regulation (Infrastructure Spending, Tax Cuts, Dodd-Frank, Health Care,…)  Energy Prices (oil continues to firm thru 2018)  Election Outcomes  Public Pension Funds  Income Disparity, Cyber Attacks, Climate Change

 Closer to Home

10/9/2018

 Oregon Budget  Minimum Wage  Housing

33

Two Articles: Tariffs, Tariffs, and more Tariffs: A Local Look At a National Issue New Minimum Wages: Potential Impacts on the Portland MSA

•Tariffs:

• Current and potential impacts of new trade tariffs on industries in the Portland MSA.

• Minimum Wage:

• Using new data and information to asses the potential impacts of Oregon’s new minimum wage laws on the Portland MSA.

10/9/2018

34

Northwest Open Data Exchange (NODE) • NERC’s new way of sharing data with the interested community.

• https://opendata.imspdx.org/

• Investors will have access to private NERC forecast data • Non-forecast data will be available to the public

Check your inbox/junk folder for an email to setup your account!

10/9/2018

35

Tariffs, Tariffs, and More Tariffs Hot-Rolled Steel and Aluminum Price Indices Indexed to Jan-18, Monthly, May 2017-August 2018

How might tariffs impact the MSA?

140

• 10% tax on Aluminum and 25% tax on Steel

130

10/9/2018

Aug-18

90 May-18

• Market reaction to the tariffs instead of the tariff itself

100

Feb-18

• Price increases beyond the level of the tariffs

Steel Tax Level

Aluminum Tax Level

Nov-17

• Lumber tariffs of 2017

110

Aug-17

• Comparing to similar tariffs:

120

May-17

• Largely sheeting, tubing, and bars

Hot-rolled Bar Steel Aluminum Sheet and Strip Source: SteelBenchmarker.com; Federal Reserve of St. Louis

36

Tariffs – Local Impacts • Local Companies • Benefits: • Costs:

NorPac Paper Co. Intel Vigor

• Brookings Institute analysis of the number of jobs in the top 40 industries affected by the first $50 billion in tariffs

County name Yamhill County, OR Skamania County, WA Columbia County, OR Clark County, WA Washington County, OR Clackamas County, OR Multnomah County, OR

Employment in affected industries 2016 Share 2,334 7.1% 50 2.4% 194 1.9% 2,018 1.5% 3,903 1.5% 1,309 0.9% 2,374 0.5% Source: Brookings analysis of QCEW and EMSI data

10/9/2018

37

Tariffs

69%

120 100 27%

80

Output 10/9/2018

2015

2011

2007

60

2003

• With luck, we update or improve our trade terms with our trade partners

140

1999

• Workers are 2.3x more productive in terms of Output per Worker

160

1995

• Ellen Zentner, U.S. Economist for Morgan Stanley, will be the keynote speaker for NERC’s 2018 Conference

180

1991

• As much as 2.2 percentage points to “stock up” in preparation for the tariffs

Index (1987 = 100), Quarterly, 1987Q1-2018Q2

1987

• 2018Q2 GDP growth: 4.1%

Manufacturing Employment vs. Output

Employment

Source: Federal Reserve of St. Louis 38

Oregon’s Minimum Wages • How has and how will Oregon’s rising minimum wages impact the Portland MSA? • 2 Key strategies: 1. What have economists said recently 2. What do the early wage, employment, and income numbers say

• Specifically we looked at 2 oft-cited papers that use Seattle data.

1.

2.

10/9/2018

University of Washington Minimum Wage Team Center on Wage and Employment Dynamics at UC Berkley

39

Why Seattle?

• Fast growing economy, affordability issues, same region.

• Massive increase to the minimum wage!

- larger increase likely creates larger impacts • A comparable increase to that of the Portland MSA (urban counties) Minimum wage increase

10/9/2018

Seattle 2014-2016

Portland MSA 2016-2018

$9.47 - $13* (37%)

$9.25 - $12.00 (30%)

40

The Early Numbers • It is MUCH to early to make any certain claims about effects, but we can look for change in wage, employment, and income data. • Examine trends in specific industries: 1.

2.

10/9/2018

Leisure and Hospitality Retail

41

Portland MSA Employment Growth Percent Change, Seasonally Adjusted Annualized Rate, January 2005-June 2018 10%

5%

0%

-5%

Total Nonfarm Retail Leisure and Hospitality

-10%

10/9/2018

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

-15%

42

Moving Forward……

• Web site upgrades (NODE!) • Future feature articles

• ADUs • When does data tell you the Portland MSA is in recession?

• Climate Change: What are the costs to the Portland MSA

• New and renewal subscriptions

• Yes, we know where you live. And, we could use your help to find new subscribers.

• Exploring some possible new subscribers in the financial community. Given new federal regulations concerning CECL (Current Expected Credit Loss) for banks, this impacts their ALLL (Allowance for Loan Lease Losses) and credit loss provision expense. In the lingo, they will have to expand out their Q-Factors to take into account not only current economic conditions but forecasts of those conditions, being able to drill down to the geographic areas where they do business.

10/9/2018

43

Breakfast Forecast Conference: May 30 Feature Speaker: Ellen Zentner, Chief U.S. Economist, Morgan Stanley

Thank you!