Think Out Loud

Latest forecast shows Oregon’s economy is stabilizing

By Rolando Hernandez (OPB)
Nov. 17, 2023 6:08 p.m. Updated: Nov. 17, 2023 10:42 p.m.

Broadcast: Friday, Nov. 17

After facing pandemic-era high inflation rates and a shift in migration, Oregon’s economy is stabilizing, according to a new forecast. The forecast also notes that economic recovery post-pandemic has been inclusive across the board, as people of all backgrounds are seeing lower poverty rates and higher rates of employment. Josh Lehner is an economist with the state. He joins us to share more on the state of Oregon’s current population trends and what the labor market is looking like.

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Note: The following transcript was created by a computer and edited by a volunteer.

Dave Miller: This is Think Out Loud on OPB. I’m Dave Miller. We start today with a broad economic check in. Sky high inflation has cooled, employment is up, the Fed could start to bring down interest rates, a lot of the talk of a recession has faded. The latest Oregon forecast shows that the economy is stabilizing. We also have more data now about who has been leaving Oregon. Josh Lehner is an economist with the state. He’s been writing about all of these issues and he joins us now. It’s good to have you back on the show.

Josh Lehner: Great. Thanks for having me.

Miller: I want to start with people leaving Oregon. A while ago when the first bits of data started coming in that there might be a population drop, I remember demographers saying, well, let’s wait and see, this is just the first data point. But am I right that it’s been confirmed [and] people have been leaving Oregon?

Lehner: That’s right. We got that first top line estimate just about a year ago or at least at the start of the year, and we’ve been thinking about it and trying to figure out what that means for Oregon’s economy and the outlook, but we didn’t know any of the details. It was only just a couple of weeks ago that the Census Bureau released the underlying details of exactly who moved and things like that.

Miller: Before we get into who moved, can you remind us how big a drop we’re talking about?

Lehner: At a statewide level, it’s about four-tenth of a percent down in 2022, so a little less than half a percent and this would be Oregon’s first population loss in a couple of generations.

Miller: So, in a sense the fact that it’s a small drop is less significant than the fact that it’s not an increase. Right?

Lehner: I think that’s right. We’ve been accustomed to for generations and generations and centuries at this point here in the Northwest to see more people packing up and moving to this part of the world than moving away. And so when you see that reverse, the question is why or what happened or something like that. And so this is certainly a historical outlier for us.

Miller: Well, let’s talk about what happened then because that really is connected to the why I suppose, but what stood out to you when you got the more granular data about who has been leaving?

Lehner: I think that two things really stand out about the data. When we talk about migration, we think about it in net numbers - the number of people moving in minus the number of people moving out. And what changed in 2022 based upon the Census estimates is the number of people moving into Oregon has been pretty steady. It’s been pretty stable. It’s not like people stopped moving to Oregon during the pandemic. What changed was we saw a big acceleration, a big increase in the number of Oregonians who packed up and left the state. So that’s what drove the negative migration numbers last year, it would be that change in the pattern.

And then in terms of the other thing that stood out is that those population losses, that net migration out of the state, was negative pretty much across the board, whether you’re talking about different races and ethnicities or age groups or income brackets. And generally speaking, it was predominantly in our metropolitan areas, in the Portland region in particular, but it was broader based than that. It’s not like it was just one or two counties, it was large chunks of the state were also losing population. So again, the shift of the out migration being the number one thing and then how broad based it was, would be the second thing that stood out.

Miller: What’s your theory for why it’s so broad based where it seems just like a random sampling of existing Oregonians ceasing to be Oregonians.

Lehner: Oh, it’s a tough one. And there’s a lot of speculation and, and we don’t know for sure. It’s not like we ask people necessarily why they left. There is a question in a different Census survey that does get at that. And the number one reason why people move is jobs and housing. And if we look at the data of where people move or the patterns of migration during the pandemic, there is a clear housing affordability or broader cost of living pattern within it. It’s not the only reason people move. Moving is a very personal choice. It’s about where you think you or your family have the best opportunities in your life moving forward. And so it’s a very personal thing. And so there’s other issues. Whether it’s social issues or taxes or politics or whatever it is, but underlying any of those other topics is a pattern of migration away from high cost of living areas with bad housing affordability to places with better affordability and lower cost of living. So I think that the primary suspect would be the housing, but I don’t want to minimize any other issues that people are choosing to move for.

Miller: But there is enough information in the Census data to say that population-wide, people who left Oregon were more likely to go to places where houses are cheaper?

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Lehner: Absolutely. And, of course, it’s not hard to find a place like that. Anywhere outside the West Coast generally has better housing affordability than we do. But again, that pattern is certainly there in the data.

Miller: What can you tell us now about the impacts of this out migration? I’m wondering about labor markets or economic activity or taxes that would be tied to that activity or school enrollment, any number of things?

Lehner: I would say, if the only thing that happened was that we saw one year of small population losses and then we return to some sort of positive population growth like we have in our baseline forecast for Oregon, if that’s all that happens, it is kind of like a one year thing, it’s really not a big deal. It’s just a one year blip. It doesn’t alter really the long run trajectory of the state, but that might not be the truth. There might be a changing point, a breaking point, where future growth is lower than anticipated.

So really for the last year, our office has developed what we call a demographic alternative scenario, the zero migration scenario, where it’s like, well, what if we didn’t get migration flows into the state of Oregon like we traditionally have seen, what would that do to the economy? What would that do to state revenues? And things like that. And so in the forecast we released this week, we kind of have a report within a report focusing on what the potentials of that might be moving forward again. Like that’s not our new forecast. We’re not saying that’s the new normal, but it’s more of a like what if that were to happen, what would that do for the state of Oregon?

Miller: It’s a contingency that now you have to speculate about and analyze. So, what’s the top line reading from that? Let’s say that this is not a blip, but this is a version of a new normal? What would that mean?

Lehner: Yeah. So I would say from personal income, consumer spending, state revenue perspective, it’s actually not as severe as we were expecting, right? We thought we’d go in and be kind of apocalyptic and there’s a couple of reasons for that. First of all, we wouldn’t see outright decline, right? The state budget and personal income and consumer spending for local businesses, like getting customers and in revenue and that sort of stuff, they would continue to increase. Because even if our population were to decline a little bit, which in a zero migration world, our population would decline slowly given deaths outnumber birth, in that sort of world, we would still see income and revenue growth because of things like inflation, because of things like average wage increases. So even if the labor force is getting a little bit smaller, given demographic, per worker, we’ll still see 3%, 4%, 5% average wage increases per year. So that would continue. Asset values, home values, stock markets, all that sort of stuff would continue to increase in the future.

So again, the income and spending numbers would grow, it would just grow at a slower rate because we don’t have that underlying foundation, that underlying inertia of a growing population. So I think that’s something to keep in mind. We would not see a cratering of the economy or cratering of public services or anything like that, but those smaller changes each and every year do add up, they compound or accumulate over time. So 10 years from now, 10 years down the road, the state budget would be somewhere in that 7% range smaller than it would have been in our baseline forecast where migration does return.

Miller: I want to turn to the bigger economic picture. There was a lot of talk about a looming recession about a year ago, even less than that. What happened?

Lehner: So we have never really seen in modern history, a period where we had high inflation, rising interest rates, that kind of didn’t end in a recession. This is sort of a historical outlier at least so far where we have seen the economy cool, inflation slow down, the Federal Reserve doesn’t look to have overdone the tightening, raising rates too high, too quickly. They raised them pretty high and pretty quickly, but they didn’t continue. They’ve been on pause. They haven’t raised rates in five months now. And so, so far so good for this initial transition from an inflationary, overheated economy, slowing down to something more sustainable. So I think the reason why the recession fears were there is that we just had never really seen that. And so far it looks to be going as well as you could have hoped for.

Miller: You wrote recently that Oregon’s revenue outlook has stabilized. What does that word mean in this context?

Lehner: In this context, it would mean revenues are not coming in significantly above forecast each and every quarter like they had been really for the last couple of years. So ultimately led to the record setting kicker that all of us Oregonians will be receiving on our tax, our tax returns next spring when we file. Part of that had to do with that inflationary economic boom. Basically all major economic data points - jobs, income, obviously housing prices, GDP, and certainly state tax collection - since the day the shutdowns ended, they’ve all come in higher, faster, stronger than anticipated. And some of the stabilization more recently is a slowdown in the economy, a slowdown in tax collection, but also maybe our forecast catching up to reality and being more in tune with what’s actually happening.

Miller: The Oregon Center for Public Policy, a left leaning think tank, put out a report recently showing that, by far, the income group that saw the greatest gains percentage wise over the last 20 years – this was data going up to 2021 – was the top 0.1% of Oregonians. What have you found looking more recently, in terms of how the bounce back from the pandemic has been felt by people in different income groups?

Lehner: That’s right. And certainly, we’ve seen a big increase in inequality over time. There’s no doubt about that. And 2021 is a particularly strong year for things like capital gains and investment related income. In 2020, we had a record amount of capital gains on Oregon tax returns process like when Oregon filed the returns. And then in 2021, capital gains increased 80% above a record and people were just cashing out, selling businesses. They were trying to get ahead of anticipated federal tax increases. We had a new administration at the federal level and so like there’s a lot of things that were going on. And so that made 2021 an even larger extreme from an income inequality perspective.

Broadly speaking, at least when it comes to the labor market, when it comes to wages and job opportunities and things like that, we’ve seen wage inequality shrink a little bit during the pandemic. The fastest wage increases have been at the lower end of the spectrum. A lot of those lower paying service sector jobs have large increases in wages. Now that’s in percentage terms. Of course, they’re still relatively low paying. It’s hard to make ends meet. We have a lot of Oregonians struggling, but that does point to a little bit of compression in the labor market where slower wage gains for sort of upper wage jobs and faster wage gains at the bottom.

Miller: Josh, thank you very much.

Lehner: Thanks for having me.

Miller: Josh Lehner is an economist with the state of Oregon.

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