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OregonPresented by: Office of Economic Analysis
Date: November 19, 2010
Economic and Revenue ForecastDecember 2010
House & Senate Revenue Committees
2
Economic and Revenue Forecast
OREGON PRELIMINARY ECONOMIC FORECAST
OREGON FINAL ECONOMIC FORECAST
PERSONAL INCOME TAX MODELS
CORPORATE INCOME TAX MODELS
Forecaster Judgement LEGISLATIVE & POLICY CHANGES
FINAL REVENUE ESTIMATE
U.S. Economic History and Forecast (Global Insight, Inc.)
Oregon Economic History
Oregon Corporate Income Tax History
Oregon Personal Income Tax History
Governor’s Council of Economic Advisors
DAS Advisory Committee
OREGON ECONOMIC MODEL Governor’s Council of Economic Advisors “Pre-Meeting”
Council of Revenue Forecast Advisors
Non-income tax revenue projections
33
Ever Changing Picture for the US Economy…
Office of Economic Analysis
“The pace of recovery in output and employment in the U.S. economy looks a little slower now than it did three months ago, according to 43 forecasters surveyed by the Federal Reserve Bank of
Philadelphia. The forecasters also predict weaker recovery in the labor market. ” November 15, 2010
44
-8
-6
-4
-2
0
2
4
6
8
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Baseline (60%) Pessimistic (25%) Optimistic (15%)
(Percent change, annual rate)
Real GDP Growth in Alternative Scenarios
Copyright © 2010 Global Insight, Inc.
July Baseline (15%)(20%)
55
Bottom Line for US Economy• The “recovery-recession” is in its second year. Technical recession
in the U.S. ended last summer, with the unemployment rate toping out at 10.1% in the fourth quarter of 2009. The labor market will remain weak with unemployment averaging 9.7% in 2010.
• Credit markets are slowly returning to pre-Lehman collapse days but risk premiums are still present. Residential and commercial real estate still tight.
• The housing market will continue to remain fragile. Housing starts marginally improved in the past year off their historic lows. But recent months point to a bumpy road this year. Prices will continue to decline throughout 2010.
• Inflation is not a threat today or even next year but the stage is set for carefully executed exit strategies to avoid inflation in the future.
• After an initial surge of economic growth in the fourth quarter 2009 and first quarter 2010, the economy is waning. GDP growth was revised down for the second quarter and will remain below potential through 2011.
Copyright © 2010 Global Insight, Inc. Office of Economic Analysis
6
• 10.5% unemployment rate for October 2010 (Oct US rate is 9.6%) is down from the highest rate of 11.6% in May and June 2009, but essentially unchanged the past twelve months.
• 38th fastest job growth at -0.3% for all states for Sept 2010 over Sept 2009.
• Total nonfarm employment dropped -0.4% year-over-year for the 3rd quarter of 2010. S.A. job gains in five of first ten months of 2010. Total nonfarm up 11,800 since Dec with the private sector up 10,000 (0.78%).
• 2.3% personal income growth for 2nd quarter of 2010 over 2nd quarter of 2009. Annualized 2nd quarter 2010 growth at 2.5%.
• Oregon exports increased 25.1% in the first nine months of 2010 compared to the same period last year and have regained the majority of their losses from late 2008 and early 2009.
Recent Oregon Economy Facts
7
Intel Announcement
• The expenditure of $6 to $8 billion dollars (most of which is likely in Oregon) is approximately 2 percent of the total investment on industrial and other equipment and manufacturing structures expected to be spent in the U.S. in 2010.
• Expectation for jobs– 6,000 to 8,000 construction jobs in OR and AZ over 2+ years– 800 to 1,000 permanent high tech jobs in OR and AZ
• Issues:– How many construction workers are shifted from other jobs?– How many construction workers are hired over 2+ years? (Surely not
5,000 on day one and kept on until the end of the project)– How many high tech jobs are shifted from existing positions?– Direct, indirect, and induced jobs?
8
2009 1982 1949 1954
1957
1981
1958
1961
1975
1952
1953
1970
1960
1967
1971
1948
1950
1955
1951
1959
1965
1972
1977
1978
1980
1991
1966
1973
1976
1979
1988
1989
1983
1999
2001
2002
2003
2008
1974
1985
1986
1992
1998
2000
1956
1962
1963
1964
1968
1969
2004
2005
2006
2007
1984
1987
1990
1993
1994
1995
1996
1997
-7.5% to -6%
-6% to -4.5%
-4.5% to -3%
-3% to -1.5%
-1.5% to 0%
0% to 1.5%
1.5% to 3%
3% to 4.5%
4.5% to 6%
6% to 7.5%
7.5% to 9%
Oregon Annual Employment Growth 1947-2010*
Average: 2.23%Median: 2.86%
2010
*2010 estimate based on December forecast
9
Leading Indicators3 of 11 Indicators are Positive
Oregon Index of Leading Indicators(Six-Month Annualized Percent Change, through September 2010)
-30%
-20%
-10%
0%
10%
20%
30%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-10.0%
-6.7%
-3.3%
0.0%
3.3%
6.7%
10.0%
Leading Index (Left Axis) Diffusion Index <50 Nonfarm Employment (Right Axis)
10
Initial Claims(through October 2010)
Initial Unemployment Claims per 1,000 Labor Force (SA)
0
1
2
3
4
5
6
7
8
Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
Oregon
United States
11
Forecast Changes
Oregon Total Nonfarm Employment (000s)
1,575
1,625
1,675
1,725
1,775
1,825
1,875
1,925
20
06
Q1
20
06
Q3
20
07
Q1
20
07
Q3
20
08
Q1
20
08
Q3
20
09
Q1
20
09
Q3
20
10
Q1
20
10
Q3
20
11
Q1
20
11
Q3
20
12
Q1
20
12
Q3
20
13
Q1
20
13
Q3
20
14
Q1
20
14
Q3
20
15
Q1
20
15
Q3
20
16
Q1
20
16
Q3
20
17
Q1
20
17
Q3
Mar-08 Sep-08Dec-08 Mar-09May-09 Sep-09Dec-09 Mar-10Jun-10 Sep-10Dec-10
12
Total Non-farm Employment(Annual Percent Change)
Total Nonfarm Employment (Annual Percentage Change)
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Per
cen
t C
han
ge
Oregon U.S.
13
COMPARISON OF LAST THREE FORECASTSJun 2010 Sep 2010 Dec 2010
PERSONAL INCOME GROWTH
-2
0
2
4
6
8
10
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Perc
ent
EMPLOYMENT GROWTH
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Perc
ent
Forecast Comparisons
14
Risks to the Forecast…
▲Upside▲Financial markets return more quickly to normal▲Quicker, stronger release of pent-up demand▲More robust global growth
▼Downside▼Housing downturn continues▼Aftershocks from the financial crisis▼China bubble? Euro Zone Financials?
►Other Considerations►Impact of Measures 66 and 67►Health care reform
1515
Bottom Line for the Oregon Economy
• The “technical” recession in Oregon ended late last summer or fall. The “jobless” recovery has taken hold.
• Job losses will continue into the third quarter of 2010, with only mild job growth through 2011.
• Housing prices will still decline throughout 2010 but looking more like a bottom has been reached in housing permits (even with the July drop following the expiration of the tax credit).
• Housing will not lead during the recovery. First sectors likely to come back: profession and business services, health care services, computer and electronic products, retail.
16
General Fund Revenue Forecast
• Forecast tracking slightly behind September forecast– Generally, a “mixed bag” with weak estimated
payments in FY11 Q1
• 2009-11 up $61.9 million relative to September forecast– Reflects withholding guidance changes effective Jan 1,
2011
• 2011-13 down $272.7 million
17
Recent PIT Revenue Performance
• Withholding
– Strengthening since the spring, solid Y/Y gains
• Total PIT up year-over-year the past two quarters
– Improvements Y/Y in withholding, estimated, refunds
• Economic improvement, M66 contributing as well
18
Personal Income Tax Forecast
• Up $97.7 million in 2009-11
– Minor weakness in near term however withholding guidance and subsequent table changes drive the forecast increase
• Decreased by larger amounts for out-years of forecast, reflecting view of weaker growth through forecast period, plus refund adjustment due to withholding changes
19
PIT Growth
Personal Income Tax Collections(Quarterly, Year-over-year percent change)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
20
Corporate Income Tax/Other GF Revenue Forecast
• Corporate income taxes decreased $18.7 million in 2009-11 BN
– Roughly $7 million above kicker threshold (current kicker estimate at $23.6M)
• Other changes (up $39.9 million):
– Estate & Insurance taxes, Interest Earnings lower– Tobacco taxes higher– $57M in one-time transfers (Amnesty $31M)
21
Corporate Growth
Corporate Income Tax Collections(Quarterly, Year-over-year percent change)
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
22
2009-11 GF Revenue
Personal Income Tax $11,545.7 $10,345.3 $10,443.0 $97.7 -$1,102.7
Corporate Income Tax $831.6 $873.9 $855.2 -$18.7 $23.6
Other Revenues $1,198.4 $1,088.1 $1,128.0 $39.9 -$70.4
Total GF Resources $13,575.7 $12,307.2 $12,426.2 $119.0 -$1,149.5
Less: Anticipated Administrative Actions $43.7 $15.7 $15.7 $0.0 -$28.0
Plus: Legislative Actions $0.0 $180.0 $123.0 -$57.0 $123.0
Proj. Expenditures $13,298.1 $12,849.0 $12,471.5 -$377.5 -$826.6
Ending Balance $233.8 -$557.5 $61.9 $619.4 -$171.9
General Fund Resources
2009-11 Biennium
General Fund(Millions)
COSForecast
Sep 2010 Forecast
Dec 2010 Forecast
Change from September
Change fromCOS 2009
23
Budgetary Reserve Outlook
(Millions)2007-09
Biennium2009-11
Biennium2011-13
Biennium
Rainy Day FundBeginning Balance $0.0 $112.5 $10.6Net Deposits3 $94.3 -$103.4 $61.9Interest $18.3 $1.5 $3.6Ending Balance1 $112.5 $10.6 $76.1
Education Stability FundBeginning Balance $178.9 $0.1 $102.1Net Deposits -$178.9 $102.0 $193.8Interest2 $17.2 $1.5 $10.5Triggered Withdrawals -$17.1 -$1.5 -$10.5Ending Balance $0.1 $102.1 $296.0
Total Reserves $112.6 $112.7 $372.1
Oregon's Budgetary Reserves
24
Revenue Issues/Risks
• Forecast Complications with New Tax Measures
– Tracking difficult, especially in near-term
– Increased volatility
• Impact of Federal Changes on taxpayer behavior
25
Lottery Revenue Forecast
• Baseline near-term forecast held steady
– Additional administrative savings of $9 million relative to September.
• Out-years decreased slightly
– Lower expectations for consumer spending
26
Lottery Revenue Forecast
Sep 2010 Dec 2010
(Millions) Forecast Forecast Amount Percent
Beginning Balance $1.4 $1.4 - 0.0%Earnings $1,061.6 $1,060.3 (1.2) -0.1%Administrative Savings $20.4 $29.3 9.0 Other Resources1
$0.8 $0.9 0.1 15.6%
Total Resources $1,084.1 $1,091.9 7.8 0.7%
Allocations 1,076.8 1,070.5 (6.3) -0.6%
Ending Balance $7.3 $21.4 14.2 195.4%
Lottery Resources(Millions of Dollars)
Change from Sep
2009-11Biennium
2727
For More Information
Office of Economic Analysis155 Cottage Street NE, U20Salem, OR 97301-3966(503) 378-3405
Email: [email protected]
Website: http://oregon.gov/das/oea
Blog: http://oregoneconomicanalysis.wordpress.com/
Twitter: http://twitter.com/OR_EconAnalysis