November 21, 2012
November 21, 2012
By Josh Lehner
Oregon Office of Economic Analysis Blog.
This morning our office is releasing the December 2012 Economic and Revenue forecast. All forecast materials, including slides and excel tables, may be found over on our main site. Since our last forecast back in August, revenues and the underlying economy have largely performed inline with expectations. Combined Personal Income Tax and Corporate Income Tax collections were +0.4% above forecast in the most recent quarter, or $5.7 million. Revisions to these main taxes were upward by $31.5 million (+0.25%) for the remainder of the biennium based on a slightly improved economic outlook.. The combination of forecast revisions for all other taxes and fees in addition to offsets and transfers were effectively unchanged, on net, for 2011-13. Lottery Revenues were increased $0.1 million, resulting in a combined available resource change of $30.5 million.
A more complete picture of the underlying components for both the current and the next biennium can be seen in the table below. While the gross, structural revenue forecast for 2013-15 has been increased $62.2 million (+0.40%), after accounting for the larger offsets and transfers (-$38.6 million), net revenues are up $23.6 million (+0.15%). Taking into account the larger 2011-13 ending balance that is carried forward, results in total available resources for next biennium to be $54.9 million larger than the previous forecast.
In terms of the economic outlook, it is largely unchanged as well however a bit more optimistic over the medium term (1-4 years out.) The slow and steady growth the state has seen in the past 2-3 years is expected to continue through the middle of 2013, before picking up somewhat the following few years. This half speed recovery seen to date is not likely to continue forever with either a stronger expansion or even a recession coming along in the near future. The case against another recession in the near term is that economic imbalances have not been built up as the economy continues to grow at these low rates and employment has not regained much of its losses. Therefore a pickup in growth is the more likely outcome, especially as the two main economic drags in recent years lessen (housing and government.) Historically the U.S. has not fallen into recession due to international weakness alone or when housing is on the upswing. Both of these items are currently occurring. Now, just because there is no historical precedent does not rule out the possibility. The ongoing recession in Europe and the slowdown in China’s growth are weighing heavily on our manufacturers up and down the supply chain, weakening our underlying growth domestically. Given that the baseline scenario calls for these issues to persist, at least in the near term, and the U.S. and Oregon economies to continue to muddle through, expectations are for stronger growth by late 2013 and certainly in 2014 and 2015.
To put these growth rates in better historical perspective the graph below illustrates these rates compared to the previous three expansions in Oregon. The dark blue bars are the average annual growth rate for the private sector (calculated from employment trough to employment peak) while the green bars are the two strongest years of growth (8 quarters) that occurred sometime during the expansion. Right now in the economic outlook, peak growth rates are reached during the upcoming 2013-15 biennium. As stated this assumes that the two main drags lessen as the housing market continues reviving and the public sector pullback is finished, more or less, by next year. A relatively strong rebound in housing is one of the main drivers in the outlook, as is a flat to slightly increasing public sector.
For the full forecast document, please visit our main website to access the files.
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