Oregon economists see clouds ahead

Associated Oregon Industries
Oregon’s largest business advocate

Revenue Forecast Reflects Growing Economy with Clouds on Horizon

National and state economic reports produced a mixed-bag of news in the past two weeks. On the positive side, the U.S. Census Bureau reported that household incomes increased 5.2% in 2015, the largest gain since the bureau began tracking income in 1996. Meanwhile, Oregon’s monthly jobs report showed that the state added 4,600 jobs in August, the 50th consecutive month of job gains.

On the negative side, Business Roundtable’s survey of top executives showed declining economic optimism fell in the third quarter amid reduced expectations for sales and hiring. In Oregon, the unemployment rate climbed to 5.4% despite the job gains, up from 5.2% in July.

Coincidentally, these economic reports came just days before the Oregon Office of Economic Analysis issued its quarterly revenue forecast and issued projections that reflected an economy that’s in good shape now but has a few clouds on the horizon. Mostly because of concerns about the national economy, state economists slightly dialed back revenue projections for the current biennium and the 2017-19 biennium. However, tax collections remain high enough to trigger Oregon’s unique tax kicker law and produce rebates for taxpayers at the end of the 2015-17 biennium, the economists said.

The national economic factors that the forecasters said bear watching include, weak manufacturing and industrial production and a slowdown in business investment. Also, despite the healthy 2015 increase in household income, personal income growth has begun to slow, which has led some states to miss revenue forecasts.

In Oregon, the biggest question about future economic performance comes from Measure 97. The proposed $3-billion-per-year tax on companies with gross sales above $25 million, would increase tax revenues but at an economic cost of lost jobs and higher prices. Economists Mark McMullen and Josh Lehner did not fact Measure 97 into projections. However, the tax increase certainly would have a negative effect on business investment, in part because it creates an extra tax burden for C corporations when they grow past $25 million in annual sales.

The November vote on Measure 97 and the weakening national economy make the fourth quarter of the year even more important than usual. McMullen and Lehner noted that the December revenue forecast is the one the governor will use to prepare a budget proposal. But at this point, there are a lot of questions about what that forecast will say.

Read more about the third quarter revenue forecast on the Office of Economic Analysis website.


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