U.S. and Washington State Economic Outlook · 2019. 12. 19. · Economic Outlook November 21, 2019...

WASHINGTON STATEECONOMIC AND REVENUE FORECAST COUNCIL

U.S. and Washington State Economic Outlook

Presented toWashington Trucking Association

Steve LerchExecutive Director

November 21, 2019Tacoma, Washington

Economic OutlookNovember 21, 2019

Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Summary

• Both the U.S. and WA economies are performing well but are expected to slow

• Inflation remains tame

• U.S. manufacturing activity has slowed, although the resolution of the GM strike should be helpful

• The 737 MAX is assumed to return to service in early 2020 with an increase in both deliveries and production

• State revenue collections have been strong but are expected to slow to more sustainable levels



Forecast risks

Upside• Consumer and business confidence have dipped

but remain at high levels

• U.S., WA labor markets have slowed compared to 2018 but remain strong

Downside• International trade policy uncertainty

• Geopolitical risks: North Korea, China, Russia, Iran, Venezuela, Brexit

• Maturing economic expansion



Despite some volatility this year, consumer confidence remains at high levels

0

25

50

75

100

125

150

2005 2006 2007 2009 2010 2012 2013 2014 2016 2017 2019

Index Mich: 1966Q1 = 100, SAConf Board: 1985 =100, SA

U. Michigan Conf Board

Sources: University of Michigan, Conference Board; data through Oct. 2019



Small business optimism has declined but remains historically high

70

75

80

85

90

95

100

105

110

-40

-30

-20

-10

0

10

20

30

40

2006 2008 2010 2012 2014 2016 2018

Op

tim

ism

In

dex

, 1

98

6=

10

0

3 m

onth

sal

es g

row

th e

xpec

tati

on,

per

cen

t

NFIB Small Business Optimism Index

Sales Expectations Optimism Index

Source: National Federation of Independent Business; data through October 2019



A survey covering a broader mix of firms finds business expectations have been declining since late 2018

70

80

90

100

110

120

130

2015 2015 2016 2016 2017 2017 2018 2018 2019 2019

Atlanta Federal Reserve Business Expectations IndexThe index measures one year ahead expectations that firms have about their own employment, investment and sales.

Source: Atlanta Federal Reserve Bank, data through October 2019



U.S., WA job growth below 2018 averages but remain healthy

0

1

2

3

4

5

6

7

8

9

10

0

50

100

150

200

250

300

350

400

450

500

2011 2012 2013 2014 2015 2016 2017 2018 2019YTD

Thou

san

ds

Thou

san

ds

Average monthly employment change

U.S. (left) WA (right)

Source: Bureau of Labor Statistics, Employment Security Dept.; data through October 2019



Unemployment rates remain low

3

5

7

9

11

13

15

17

19

2005 2007 2009 2011 2013 2015 2017 2019

Per

cen

t

Unemployment rate Alternative measure

Sources: U.S. Bureau of Labor Statistics; data through October 2019

The alternative unemployment measure includes discouraged workers and those working part time for economic reasons.



Hourly earnings are increasing but growth has slowed

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Per

cen

tYear over year growth, U.S. avg. hourly earnings

Source: Bureau of Labor Statistics, data through October 2019



Employment-population ratio is rising but remains below late 90s peak

50

52

54

56

58

60

62

64

66

68

1976 1982 1988 1994 2000 2006 2012 2018

Per

cen

tEmployed persons as % of age 16+ population: U.S. & WA

U.S. WA

Source: U.S. Bureau of Labor Statistics, annual data through 2018



The number of workers in WA receiving layoff notices this year is the highest since 2009

0

2000

4000

6000

8000

10000

12000

14000

16000

2004 2006 2008 2010 2012 2014 2016 2018

WA workers receiving mass layoff noticesFirms with 100+ employees planning layoffs of 50 or more workers are required to notify workers 60 days before closure.

Source: Employment Security Dept., data through 2019



Timing of next recession: National Association of Business Economists survey

0%

10%

20%

30%

40%

50%

2019 2020 H1 2020 H2 2021 H1 2021 H2 orlater

Per

cen

t of

res

pon

den

ts

Source: National Association of Business Economists, Oct. 2019 Outlook Survey



NY Federal Reserve model indicates recession probabilities have dropped slightly in last month

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1960 1966 1972 1978 1985 1991 1997 2003 2010 2016

12 month ahead recession probability

Oct. 2020 probability = 29%

Source: Federal Reserve Bank of New York; daily data through Oct. 31 2019

The model predicts recession probabilities 12 months in the future based on the difference in yields between 10 year and 3 month Treasury bonds.



There is a heightened risk of a downturn in construction in WA

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Per

cen

tConstruction Share of Employment

Washington United StatesSource: ERFC September forecast; data through Q3 2019Note: Vertical black line indicates last actual in September

Since 1975, WA construction employment has exceeded 6% of total employment only three times.

Forecast



During the last construction downturn, construction revenue dropped from 12% to 8% of GF-S

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1,000

1,500

2,000

2,500

3,000

2006 2008 2010 2012 2014 2016 2018

$ m

illio

ns

Construction revenue by FY

Construction revenue % GF-S

Source: Dept. of Revenue, ERFC; data through FY 2019



Manufacturing has slowed nationally but continues to expand in WA

30

35

40

45

50

55

60

65

70

75

80

2000 2001 2003 2005 2007 2009 2011 2012 2014 2016 2018

Institute for Supply Mgmt. Manufacturing Index: U.S., WA

U.S. WA

Source: ISM, data through Oct. 2019

Values above 50 indicate expansion, below 50 indicate contraction.



Growth in truck tonnage has moderated since mid-2018

-15%

-10%

-5%

0%

5%

10%

15%

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Year over year growth (SA), Truck Tonnage Index

Source: U.S. Dept. of Transportation, American Trucking Association data through Sept. 2019



Railroad traffic has declined this year

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year over year growth (SA), rail traffic

Carloads Intermodal

Source: Association of American Railroads, data through Oct. 2019



Relative to GDP, Federal debt is expected to reach levels last seen just after WW II

0

10

20

30

40

50

60

70

80

90

100

1980 1986 1992 1998 2004 2010 2016 2022 2028

Per

cen

tFederal debt as % GDP

Source: Congressional Budget Office, Update to Budget and Economic Outlook Aug. 2019, historic data through 2018

Forecast



So far this year, WA exports are down by 23% compared to last year

-40%

-30%

-20%

-10%

0%

10%

20%

2014 2015 2016 2017 2018 2019 YTD

WA exports by industry, year over year growth

Transportation Equip Ag Products All other

Source: WISERTrade, data through September 2019



GDP growth is expected to slow

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Annual GDP growth

Source: IHS Markit, ERFC November 2019 forecast; data through 2018



Oil prices are expected to gradually decline to $52 per barrel

20

30

40

50

60

70

80

90

100

110

120

2007 2009 2011 2013 2015 2017 2019 2021 2023

Dol

lars

Per

Bar

rel

Source: Energy Information Administration, IHS Markit, ERFC; data through Q3 2019Note: Vertical black line indicates last actual

Forecast



U.S. employment is expected to grow 1.6% this year, 1.1% next year and average 0.5% growth in 2021 - 2023

125

130

135

140

145

150

155

160

2007 2009 2011 2013 2015 2017 2019 2021 2023

Mill

ion

sU.S. Nonfarm Payroll Employment

Source: IHS Markit, ERFC; data through Q3 2019Note: Vertical black line indicates last actual

Forecast



Washington personal income is expected to average 4.5% growth for 2019 - 2023

0

100

200

300

400

500

600

700

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Bill

ion

s of

US

DWashington personal income

Source: ERFC November 2019 forecast; historical data through 2018

Personal income is the sum of wages and salaries; income from interest, dividends and rent; transfer payments such as Social Security and unemployment insurance.



WA employment is expected to grow 1.9% this year, 1.5% in 2020 then slow to under 1% for 2021 - 2023

2,600

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

3,500

3,600

3,700

3,800

2007 2009 2011 2013 2015 2017 2019 2021 2023

Thou

san

dsWashington Nonfarm Payroll Employment

Source: ERFC November 2019 forecast; historical data through Q3 2019

Forecast



Washington housing permits will average 42,500 units per year for 2020 - 2023

20

25

30

35

40

45

50

2013 2015 2017 2019 2021 2023

Thou

san

ds

Washington Housing Permits

Source: ERFC November 2019 forecast; historical data through 2018



General Fund-State plus cannabis revenues for 2017-19 biennium

Sales Tax, 21,339

B&O, 8,587

Prop. Tax, 5,143

REET, 2,183

Cannabis, 752

Cigarettes, 703

Spirits, total, 562

Other, 5,377 $ MILLIONS

Source: ERFC September 2019 forecast



Revenue Act collections remain strong after second quarter jump

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

2002 2004 2006 2008 2010 2012 2014 2016 2018

$millions SA

Revenue Act Collections 3-Month Moving Average

Source: DOR and ERFC; monthly data through September 2019 activity

* Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act

Adjusted collections for second quarter activity grew at 8.1% year over year (6.3% excluding extra-strong growth in remittances).

Adjusted collections for third quarter activity grew at 6.6% year over year.



Cannabis revenue growth is expected to moderate

0

5

10

15

20

25

30

35

40

2015 2016 2017 2018 2019 2020

Mill

ion

sRetail Cannabis Collections

Forecast History

Source: ERFC November 2019 forecast; historical data through October 2019



Conclusion

• The U.S. and Washington economies are expected to continue growing but at a slower pace over the next several years

• As has been the case for some time, Washington’s economy is continuing to outperform the nation

• State revenue collections have been strong but are expected to slow as economic growth moderates

• Threats to economic expansion include concerns about international trade and fiscal policy, geopolitical risks and a maturing expansion



Questions

Economic & Revenue Forecast CouncilPO BOX 40912Olympia WA 98504-0912

www.erfc.wa.gov360-534-1560

U.S. and Washington State Economic Outlook · 2019. 12. 19. · Economic Outlook November 21, 2019...

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