• Personal income tax collections this filing season have been slightly ahead of forecast in recent months, resulting in an upward revision to the near-term revenue outlook
• Stronger Corporate tax collections now results in a projected kicker for 2011-13 as the May forecast projects corporate revenues to be 2.3% above the Close of Session
• This projected kicker, while small by historical standards, results in less available resources in 2013-15 BN when it is credited to corporations
• A slightly more optimistic economic outlook also contributes to an upward revision to the 2013-15 BN tax collections
• All told, 11-13 General Fund and Lottery Fund available resources are up $126.3 million relative to the March forecast, however due to increased expenditures the ending balance estimate is up $115.1 million
• 2013-15 BN General Fund revenues are revised higher by about $141.8 million and Lottery Fund resources are raised $14.6 million for a total revenue increase of $156.4 million

This morning our office released the May 2013 quarterly economic and revenue forecast. The full document, files and slides may be found over on our main website. You should also be able to follow along online in Hearing Room A.

Overall the outlook remains fundamentally unchanged, as seen in the first graph below. Our office projects that the economic growth will accelerate somewhat in the coming 2-3 years as three main things are happening. First, the two main drags weighing on recovery so far – housing and government – are lessening, which will boost growth. Second, the sentiment is changing for businesses and consumers alike and is now being reflected in the risks to the outlook for most economic forecasters. Third, balance sheets are in strong positions and continuing to improve, which should businesses and consumers feel more confident about their future prospects, will result in increased sales and economic activity.

The improved sentiment in economic forecast can been seen in this second graph illustrating the Wall Street Journal’s economic forecasting survey results. So far, most economists are sticking to their baseline forecasts and leaving growth rates unchanged, however the risks to the outlook have shifted. As shown in the green bars (measured on the right axis), so far in 2013 economists believe upside risks outweigh downside risks by about 60-40. This same pattern is true of our own Governor’s Council of Economic Advisors. The Council believes the baseline outlook is our best look, however there certainly is more upside risks than in recent years.

This improvement in the economy, particularly the projected pickup in employment growth, is built into the outlook. So far in recovery, Oregon’s private sector employment has increased at approximately a 2% annual rate, however our office expects this to increase to around 2.6% in the coming 2-3 years. Even so, these rates remain below the 3-3.5% rate Oregon has seen in past expansions. To the extent that some of these upside risks come to fruition – lower energy costs resulting in increased manufacturing activity, a stronger housing rebound, an increase in population, migration or the labor force participation rate – would likely increase the growth path, which would also increase the revenue outlook.

In terms of General Fund revenues for 11-13, these have increased $126.3 million, while Lottery resources are up $2.4 million. The increases in Lottery are due to stronger than forecasted sales in recent months. Our office built in weakness in sales in early 2013 following the expiration of the 2% payroll tax cut and sales were weak when compared with a year ago, however still above our baseline forecast. In terms of the General Fund for 11-13, the changes were nearly all in Personal (+$107.8 million) and Corporate (+$16.3 million). Personal tax collections are currently running ahead of forecast. Final payments this tax season are currently tracking just a bit ahead of forecast (and about 25% ahead of a year ago), however refunds are tracking low – which is a positive from a state revenue perspective. Corporate collections are projected to be a bit higher than in the March outlook, however this increase does puncture the 2% kicker threshold. Here is how this increase is characterized in the forecast document:

The rapid growth in corporate tax collections seen at the beginning of the year came to a sudden halt in April, leaving corporate collections very close to the kicker threshold (102% of the Close of Session forecast).  The May outlook assumes that revenues will come in $2.7 million above the threshold, generating a kicker payment of $20.3 million. Although a corporate kicker is incorporated into the baseline outlook, it is far from a sure thing.  The Department of Revenue is working through a processing backlog of refunds due to be recorded before the end of the fiscal year.  Should corporate revenues over the last six weeks of the biennium fail to match their level of last year (as they have in recent weeks), no kicker payment will be required.

The following graph takes a look at the source of the revenue changes since the last Close of Session forecast back in May 2011. The dark blue bars on the left illustrate the composition of the General Fund while the red bars on the right show both the total dollar amount of the forecast change and the percentage increase this represents. Based on our office’s historical errors, this current biennium is somewhat of an anomaly. Personal and Corporate income tax collections are off, on net, about $20.5 million, or -0.2%. All other General Fund revenues are up $237 million or 25%. This is largely a reflection of the rebalance plan put in place after the February 2012 annual session. At that time the General Fund forecast had declined by approximately $300 million and the Legislature moved to back fill some of those projected shortfalls. In this case, our 2 year ahead forecast (May 2011) turned out to be more accurate than our 1 year ahead forecast, which is not usually the case. In addition the other revenues that are considerably above Close of Session are generally due to some administrative or policy changes when discussing the liquor apportionment (bottle surcharge) and state court fees. All told, given the current forecast, the smallest error is on the largest – by far – component of the General Fund.

Finally, the last graph shows the evolution of the 2013-15 revenue outlook over the past 11 quarters. In terms of the revenue outlook, it largely follows the overall economic outlook in terms of upside and downside risk. Again from the document:

Although the baseline revenue forecast has not changed significantly, risks to the forecast are becoming skewed to the upside. Despite a relatively weak long-term outlook, a year or two of strong growth remains possible. In particular, if Oregon’s traditionally strong migration trends and labor force gains reappear, additional jobs and tax revenue can be expected.

 The primary downside risk facing the near-term revenue forecast is the uncertain future of the nationwide economic expansion. Should federal government austerity or economic weakness abroad derail the U.S. economy, the expected growth in Oregon’s tax collections will not materialize.

For much more information on the Oregon economy and state revenues, please refer to our full forecast document, over on our main site. In the coming week or so I will pull some of the information from the document and highlight it here on the blog.

In case you missed it and for those of you not located in Salem, the Statesman Journal ran a nice profile of Mark including a bit on the forecast process on Sunday. It’s a great piece if you want to learn more about the man himself or a bit more on how our office produces the outlook. The article was designed to provide some background information on the state economist, especially given that the forecast that will be released on Thursday at 8:30 am effectively sets the basis for the upcoming biennium.

There have been a number of interesting items out there in the econ blogosphere in the past week which I wanted to pass along but not much time to comment on directly, so I leave you with these.

Over at The Economist, Ryan Avent discusses metropolitan growth in terms of GDP, population, migration, housing and income. Makes for an interesting read.

The next two graphs were making the rounds the other day. I cannot seem to track them down again, so I recreated them based on the household survey data from BLS. This is just another way of showing that the returns to education are high and the recovery in employment has been in the higher skilled positions (something I will discuss in more depth in a forthcoming report).

Finally, something a little more fun, seeing as it is my birthday and all. Recently CNN ranked the best beer towns in the US. Portland came in at #1 and Bend at #7. While that’s great news, I’m left wondering how you can find 6 other cities better than Bend, but I digress. In honor of our great breweries in the state, I pulled the latest employment data for breweries. It turns out we just hit a milestone at the end of 2012 with 1,000 direct brewery jobs within the beverage manufacturing industry.

Now, of course, this comes with a big caveat as this count does not include all the brewpub staff and wholesalers or distributors or those attached to the overall industry. Furthermore, some businesses are classified under food service and drinking places and not just breweries, but nevertheless the industry as seen strong growth and reaching new heights in terms of production, sales and employment. The Oregon Brewers Guild cites an industry employment figure of 5,650. But for the best analysis of the industry employment and geography I turn to the Employment Department’s work from last year. They took the OLCC license data and matched it with employer records to track the number of jobs reported at each business with a license to brew. Employment found about 4,650 jobs in 2011 among all those establishments and an industry that was growing rapidly even during these tough economic times. Lots of good information in their report and I suggest you follow the link if you want a broader scope of the industry in the state.

Busy around here with putting together the upcoming May forecast – to be released Friday, May 16th – so not as much time for blogging lately but hopefully some more in a week or so. One item I’ve been working on but probably won’t be ready for the next forecast is a more thorough look at housing in Oregon. I’ve been trying to create a better housing affordability measure that incorporates more than just the sales price and prevailing interest rate. This will include things like property taxes, homeowners insurance premiums, repair/maintenance, etc. Also trying to do something similar for a price to rent ratio. I think these items, in addition to a broader discussion on housing, are very important to think about. Not only when it comes to making a buy vs rent decision but also in terms of migration and population growth. Oregon’s relatively lower cost of housing, when compared with our neighbors to the south, which is where the vast majority of our net in-migration comes from, is a positive factor in driving migration trends, population growth and the local economy. Oregon has been a big beneficiary in net in-migration, particularly among the younger age groups, in recent decades.

Also, more and more reports and articles have begun to throw around the word “bubble” again regarding housing and price appreciation. Just because prices are rising (even at a fast rate in, say, Phoenix) does not a bubble make. As I tried to highlight previously, one aspect of these recent gains in home values is due to very constrained supply – growing yet low levels of new construction, partially due to lot supply, and not many new listings for sale for existing homes – coupled with an increase in demand. Higher sale prices are the natural outcome to clear supply and demand in such a market. These factors alone do not mean we’re in another housing bubble. Maybe/possibly/hopefully not will we get another housing bubble, but we’re not there yet.

In thinking about the overall housing stock – and therefore potential housing supply for homes sold on the market – one aspect to examine or at least look at is the number of second homes or vacation homes. These homes obviously count in terms of the number of housing units that exist but are not full year-round and are generally considered vacant housing units by the Census Bureau. Should consumer preferences change, these homes can impact both the prices of homes sold and the need for new construction. If as the population ages, more and more people want to have multiple homes (and have the ability to afford them) then it may put upward pressure on building new homes, helping to drive the construction and broader housing-related industry. However if preferences change such that the Baby Boomers do not want multiple houses (either because they settle-in in retirement in one location, be that where they currently live or migrating to be in warmer weather or closer to family, or cannot afford multiple houses), then these changes may have a big (negative) impact on the level of new construction. So, where in Oregon do we see these types of properties? The map below uses the 2010 Census data for “seasonal, recreational, or occasional use” housing units.

Overall in Oregon, there are about 55,500 such properties, or about 3.3% of all housing units. As expected, the percentage of housing units in tourism-related, or vacation-related areas is higher than average. The Northern Coast counties (Lincoln and Tillamook in particular, however Clatsop is above average too) have both the highest absolute number of such units at just over 18,000 and as a percentage of the local housing stock at nearly 26%. This is followed by Central Oregon at nearly 11,500 units or 11.5% of all housing units in the region. The larger population areas – essentially the I-5 corridor – have the lowest of such units as a share of the base given that most units in these areas are for full-time residents who live and work in the cities. Anyway, just some food for thought on this May Day. I hope to have much more on housing later in the month or early in June.

A quick follow-up on yesterday’s post on improving employment in regions of the state outside of Portland. Using the latest QCEW again, the first graph illustrates over-the-year job gains for the state overall, the Portland MSA (5 county region) and then the remainder of the state. As you can see, it’s a story of an improving employment landscape across the rest of the state that has driven the increases in employment growth in the past year.

This colorful graph shows the share of statewide employment growth by region. Portland’s growth today, which itself has been pretty stable and consistent, now accounts for about two-thirds of overall growth, down from about 90% two years ago. Nearly all regions of the state have seen growth in the past year (defined here as 2011q4-2012q4), with Willamette Valley counties adding about 3,000 private sector jobs, Southern Oregon adding around 2,600 and Central Oregon adding 2,100. The North Coast (400), Northeastern Oregon (700) and the Gorge (200) have all also added private sector jobs over the year. The South Coast counties and South Central/Southeastern counties did see small declines of less than 1%.

Given that one of the main trends through the initial few years of the expansion was that Oregon’s growth was concentrated in the Portland MSA, I find all these other regional gains very encouraging.

The 2012q4 QCEW data was just released the other day by the Employment Department and as regular readers know, this data is very useful in terms of gauging future employment revisions. As has been the case in the past couple years, the statewide data will be revised upward in the future; the QCEW data indicate employment gains above and beyond what is currently published in the monthly CES data for the end of 2012. None of this is particularly surprising given the recent history of revisions, however what is somewhat surprising is where the revisions will be geographically in the state.

As discussed previously, the Portland MSA has been the source of growth in the state in recent years while regions outside of Portland have seen no net employment gains. Additionally, the vast majority of the upward revisions to Oregon data have also been in the Portland MSA. This is beginning to change and regions outside of Portland are now showing encouraging signs. It might have taken 4 to 5 years since employment began to decline in some regions, however job growth has returned to some of the state’s hardest hit areas. Both Bend and Medford have added jobs over the year and the latest QCEW data indicate that these employment gains have actually been substantially larger than the currently published CES numbers show.

The published monthly employment data indicate private sector job losses due to the housing collapse and recession of about 19% in Bend and 14% in Medford; the same data show job gains from the bottom of about 3% and 2.8%, respectively. This latest QCEW data show that these gains are really closer to about 5.5% in Bend and 4.8% in Medford. This amounts to about 1,300 more jobs in each city . Even though there remains a long way to go before these local economies become healthy or approach what they once were in terms of job counts, these certainly are encouraging signs.

Part of the improvement does have to do with an improving housing market. New home construction is currently growing quite quickly, albeit from extraordinarily low levels. A lot of recent new construction both locally and nationally has been in the multi-family market, however most of Oregon’s multi-family activity is either in Portland – the largest metro – or the college towns – Corvallis and Eugene. The single family home market is coming back as well, although not quite as strong as multi-family, or at least not yet. In terms of the number of newly issued permits for single family homes, growth is about 26% nationally in the past year, while Oregon has seen a 39% increase, Medford has seen a 41% increase and permits in Bend have more than doubled.

While a housing rebound is good for homeowners – helping to support household balance sheets and consumer spending – and construction workers, the employment gains seen in both Bend and Medford are spread across nearly all industries. The graphs below show job gains by industry in each city over the past year, using the fourth quarter QCEW data. The length of the bar shows the change in the number of jobs in each industry while the percentages indicate how strong the growth is.

While no region in the state is all the way back to pre-recession employment levels, more regions are now adding jobs. It may not be much yet in terms of the number of jobs (the state is just a little bit under halfway back), but it is an improvement and moving in the right direction in terms of jobs and income is always better than the opposite. You can think of it as a necessary but not sufficient condition for a full recovery.

Just a quick update on inflation in Oregon and a interesting new way to illustrate the changes in the different components. (HT to the Federal Reserve Bank of Atlanta for the graph idea)

First a few primers on local inflation measures:

• No statewide CPI data available from BLS, just for the Portland-Salem CMSA
• Available on semiannual and annual basis, not monthly or quarterly
• CPI-U is for all urban consumers – about 88% of the population – and designed to reflect the average consumer’s spending patterns
• CPI-W is for urban wage earners and clerical workers – about 29% of the population – and designed to reflect the average worker’s spending patterns, which are different than the population at large

The semiannual frequency means there are only two data points each year: one for the January-June period and one for the July-December period. In terms of how local inflation tracks national trends, the follow graph illustrates CPI-U, the most commonly cited inflation statistic, since 1985. Overall inflation in the Portland-Salem CMSA closely follows the U.S. average over the past 27 years, although local inflation was a bit higher in the 1990s than the U.S. and a tad lower during the 2000s.

Now, a common refrain that is always out there is that the official inflation measures are too low. Have you seen the prices at the grocery store or at the pump?!?! Well, food and energy prices are more volatile than the majority of the other components in the CPI, but food and energy aren’t the only products or services we buy. The CPI basket of goods weighs the relative importance of different expenditure categories when arriving at the headline inflation figure. For the latest inflation reading in the Portland-Salem CMSA – the second half of 2012 – the graph below illustrates how each of these majority categories have changed over the past year. The height of the bars shows the price change over the past year while the width of the bars shows the relative importance – or weight – that each component has to the overall CPI basket of goods and services.

The weights themselves for Portland-Salem are from the latest U.S. Bureau of Labor Statistics publication I could find (see pg 9 of the PDF) and I think this graph provides a really neat, easy to understand summary of both the changes in prices and how the headline CPI figure is calculated. Again, thanks the Atlanta Fed for coming up with the graph.

I’ll leave to the side, for now, commentary on what is driving each of the changes seen in the graph. For more information on local weights relative to U.S. weights, plus much more on the CPI history and uses, please see this great article that state employment economist, Nick Beleiciks, wrote last year over at Employment.

For those of you more interested in the CPI-W, which is is sometimes used in COLA calculations, the corresponding graph looks like the following for the second half of 2012.

Data for the first half of 2013 will be released around the middle of August 2013.

Finally, there are a number of different measures of inflation, or price changes, available at the national level. There is headline inflation, core inflation, core pce, gdp deflator, trimmed mean inflation, median inflation and the like. Calculated Risk tracks a number of these measures on a regular basis and the latest graph can be seen following the link.

Today is Tax Day in both Oregon and the U.S. so everyone’s personal income tax returns should be submitted electronically, like approximately 80% of taxpayers last year, or postmarked, like the other 20% of us (me included), by today. Given that Oregon is an income tax state (personal income taxes make up 85% of the General Fund in 2011-13), and we are now at the deadline for filing, our office suddenly becomes popular at this time of year as stakeholders take interest in how the revenues are coming in.

Unfortunately, although today is the deadline to file, we won’t know what all those returns hold for a couple of weeks. So far, our forecasts remain consistent with the observations of our revenue advisors and the early returns that have come in, but the majority of taxes to be collected have yet to be processed. The Department of Revenue is working as fast as it can, however the mail room and processing center are flooded with returns. Last year there were about 1.6 million returns to work through, so this year we can expect a similar, yet slightly larger pile.

Returns with taxes due – in particular larger tax bills – generally do not arrive until the deadline and even then, a number of these taxpayers file extensions. However, we do see a lot of returns that receive refunds early in the tax season. Not only do households want their refund checks, these filers also tend to have less complex returns to fill out.

As seen in the first graph below, by the end of March we have sent about 55-60% of the season’s refunds out the door. By mid-April this figure rises to about 70% of refunds eventually processed. So far, refunds are coming in along the lines of what was seen in 2012. Data used in the graph below comes from the monthly financial statements. The dotted portion of the 2013 data is our projection for April based on data for the first half of the month.

Tax payments, on the other hand, are different in that they generally arrive and are processed right around the tax filing deadline in mid-April. The graph below shows cumulative personal income tax payments – what we refer to loosely as “final” payments – over the tax season based on the daily banking reports. This includes everything except for quarterly estimated payments and withholding from paychecks. Actual collections are a little bit larger than these number indicate, since the daily banking reports do not represent a 100% count, but the pattern remains the same. As of mid-April we usually have about 29-30% of these final returns processed, with the bulk still to go. From now until early May, the Department of Revenue will process at least a few hundred million dollars in tax payments and by the end of June that will be over half a billion dollars from where we are today.

In terms of how these figures relate to the forecast, so far so good, but the verdict remains out given how much more revenue there is to be processed. Our outlook for refunds calls for refunds to be a bit larger than last year, however so far they have been the same. This means a boost to state revenue above the forecast, all other things being equal.

Final payments so far are a coming in above 2012 levels, consistent with the strong 18% growth that we are expecting for the Jan-Jun period as a whole. This growth has to do with a growing economy in 2012, but also two very important items that impact larger collections: a sizable gain in the stock market (S&P 500 ~13%) and also a pull-forward of investment income into 2012 in response to the higher federal tax rates in 2013. Dividends, bonuses and capital gains were pulled into late 2012 to avoid the higher federal taxes in 2013 and beyond, thus propping up collections this tax season, but coming at the expense of collections in future years  – you can only cash in a capital gain once. Overall, personal income tax collections are coming in roughly on track with our latest forecast, but it is still about 2 weeks early to know for sure. Our next forecast is scheduled to be released May 16^th, and will incorporate both the actual collections this tax season plus an updated economic outlook.

One important item our office produces that flies somewhat under the radar unless you are in local government or land use issues on a regular basis is the county level population forecast. Kanhaiya, the state demographer, recently finalized the long-term county outlooks, anchored to the new 2010 Census figures and using the PSU Population Research Center estimates for 2011 and 2012. What follows is a quick overview of the population growth through 2025, however the Excel file over on our main website, has population by age, sex, births, deaths and net migration for each county through 2050.

In terms of population growth rates by county, Andre put together another great word cloud to show where the growth is expected to occur. This data is for 2012 to 2025 growth when the state total is expected to grow 16.3%. Out of Oregon’s 36 counties, 3 are expected to lose population (Grant, Sherman, Wheeler) and are colored red, while 20 are projected to grow between 0-15% and colored light green, while the remaining 13 counties are expected to grow more than 15% and colored dark green.

The fastest growing counties in the coming decade are largely expected to be the fastest growing counties in recent decades, namely the ones that are part of the state’s MSAs: Portland, Salem, Bend and Medford. In fact, the 5 Oregon counties in the Portland MSA (Clackamas, Columbia, Multnomah, Washington, Yamhill) account for nearly 47% of the state’s population in 2012, however these counties will account for about 53% of the population growth between now and 2025. Lane (Eugene) and Benton (Corvallis) counties are expected to grow at rates slower than statewide population.

In terms of the composition of population growth and the changing demographics, the following three graphs look at the latest county forecast but aggregated by region of the state. These figures cover a slightly different time frame than the word cloud above and are from 2010 to 2025.

Net migration has been a large driver of population growth in Oregon for the past few decades. In the 1990s and mid-2000s, net migration accounted for nearly 3/4ths of total population growth (meaning the remaining 1/4 was due to natural increase, or births minus deaths.) Moving forward net migration will once again lead growth and account for 71% of overall population growth in the state. The graph below shows the share of each region’s projected population growth that is due to net migration. For the 3 regions that the share is above 100%, this means the regions are actually expected to have a declining rate of natural increase – deaths are forecasted to outnumber births in these regions.

As for the age composition of the population, except for the coastal counties, the actual number of children and teenagers is expected to increase across the state. These rates of growth are slower than total population, so as a share, youth are expected to decline relative to the statewide figures and in each region.

As you are aware, the population in Oregon and the nation is aging, due to the baby boomers as they begin to enter their retirement years. Each region of the state will see in increase in both the number of retirement aged individuals but also as a share of the local population. The graph below shows this increase and is sorted by the 65+ share in 2025, from highest to lowest.

If you are interested in learning more about the state’s demographics and forecasts, please visit our main site where you can find more information.

Just a quick update on unemployment insurance claims in Oregon. As the Oregonian notes, both the number of unemployment claims and the amount of benefits paid out has decreased in the past year. However the latest new weekly claim figures at the national level are higher than expected, but as Calculated Risk and Tim Duy note this could be the start of the sequestration budget cuts or the fact that we have seen improvement in the level of claims for a few months followed by no real improvement for a number of additional months (start and stop improvements.) Regardless, the improvement in the number of new claims has been pretty consistent in recent years and we are now, effectively, back down to pre-recession levels. Another, somewhat confusing, way to put it is that the level of firing in the economy is at expansionary levels. Now if only we could get the rate of hiring to pick up consistently.

First, this graph shows new weekly claims since 1999 in blue and the 4 week moving average in red to help smooth some of the fluctuations. The improvement over recent years, since the large increase during the financial crisis, is evident.

With a time series graph like above, it can be hard to directly compare years. This second graph shows the level of new claims across the 52 weeks in a year. 2008 and 2009 are included to show the elevated levels of claims that really began with the financial crisis in the fall of 2008. 2012 – the green line – for all intents and purposes was back down to the level of claims seen during the past expansion, while so far in 2013 – the red line – we are seeing even a little more improvement.

Now, while the level of new claims has improved quite a bit that doesn’t mean everything is well with the labor market – obviously. It is an important step in the process but certainly not the only. In fact, the rate of benefit exhaustion for individuals on the regular program remains uncomfortably high relative to history. Yes, the level of first payments (green line) is back down, however the number of final payments (blue line) has not followed to the same degree, leaving the exhaustion rate around 42%. That means that 42% of individuals who begin receiving a benefit check, are still receiving them after 26 weeks (the max length of the regular program), presumably because they could not find a job during this time or at least not one they wished to take. This exhaustion rate has decreased from well over 50% a couple years ago, however the exhaustion rate declined into the 25-30% range during the past two expansions in the state, indicating there is quite a bit further to go for a healthier labor market.

The final graph shows the level of benefits paid out in Oregon under both the regular program and all the various extension programs. Payments under the various extension programs have declined by around two-thirds since the depths of the recession, and are expected to continue to decline over time as both the labor market improves and individuals exhaust their benefits, either because they reach the limit or the programs themselves are scaled back. The regular program benefits are, similar to the level of new claims, nearly back down to pre-recession levels as seen in the blue line in the graph below.