Washington Economic Outlook...Jun 08, 2016 · Economic Outlook U.S. June 8, 2016 Slide 24...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Washington Economic Outlook

Presented to

Workforce Training and Education Coordinating Board

Steve Lerch Chief Economist & Executive Director

June 8, 2016

Des Moines, Washington

Economic Outlook June 8, 2016

Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Summary

• The preliminary economic forecast expects slightly lower U.S. GDP and WA personal income but slightly higher WA employment than in February

• Oil prices are higher than in February

• The forecast assumes the Federal Reserve will increase interest rates this month and in September

• Risks to the baseline remain slow global and U.S. economic growth, the impact of a stronger dollar on exports, and weaker manufacturing activity



Economic news continues to suggest risks to forecast

Upside:

– Stronger than expected job growth

– Rising wage growth

– Stronger housing starts and home sales (new and existing)

Downside:

– Slowing global economy

– Slower U.S. GDP growth

– Negative impact of stronger dollar on exports

– Weaker nonresidential construction



U.S., WA unemployment rates trending down

2

3

4

5

6

7

8

9

10

11

2000 2001 2003 2005 2006 2008 2010 2011 2013 2015

Percen

t

U.S. WA

Source: Bureau of Labor Statistics; U.S. data through May 2016; WA data through Apr. 2016



Number of long-term unemployed workers remains above pre-recession levels

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1990 1994 1998 2002 2006 2010 2014

Th

ou

san

ds

Workers Unemployed 27+ Weeks Long-term unemployed as share of all unemployed: Aug. 2011: 45% May 2016: 25%

Source: Bureau of Labor Statistics; U.S. data through May 2016



Involuntary part-time employment remains above pre-recession levels

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2005 2007 2009 2011 2013 2015

Involuntary PT workers as % of total employment

Source: U.S. Bureau of Labor Statistics; U.S. data through May 2016



0

1

2

3

4

5

6

7

8

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016 YTD

Th

ou

san

ds

Th

ou

san

ds

Average monthly employment change

U.S. (left) WA (right)

So far in 2016, employment change in WA a bit stronger than last year

Source: Bureau of Labor Statistics, ERFC; WA data through Apr. 2016, U.S. data through May 2016



Fraction of statewide employment change, Seattle vs. rest of state

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2012 2013 2014 2015 2016

Years ending in March

Seattle metro Rest of state

Source: Bureau of Labor Statistics



Employment growth varied widely across state metro areas

0%

1%

2%

3%

4%

5%

6%

2015 employment growth by metro area

Source: WA State Employment Security Department



Washington Employment Trends

0 10 20 30 40 50 60

All Other

Aerospace Manufacturing

Financial Activities

Information

Wholesale Trade

State, Local Govt Educ

Manuf ex Aerospace

Health Care

Prof, Scientific, Tech Services

Admin & Support Services

Construction

Leisure & Hospitality

Retail Trade

Employment Change since Trough (thousands) Washington has gained 394,000 nonfarm jobs since February 2010

Source: U.S. Dept. of Labor, BLS; ESD; ERFC; data through Apr. 2016



Weekly wages are growing but at a fairly moderate pace

-3

-1

1

3

5

7

9

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percen

t

Year-over-year growth in average weekly wages

WA U.S.

Source: U.S. Bureau of Labor Statistics, quarterly data through 2015 Q3



WA in-migration continues to climb

60

80

100

120

140

160

180

200

1983 1987 1990 1994 1998 2001 2005 2009 2012

Th

ou

san

ds,

SA

AR

Surrendered out of state driver licenses

Source: WA Dept. of Licensing, ERFC; data through Apr. 2016



Both U.S. and WA housing permits trending up since 2011

0

10

20

30

40

50

60

70

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1990 1993 1996 1999 2002 2005 2008 2011 2014

Th

ou

san

ds

Housing permits, (SAAR)

U.S. (left scale) WA (right scale)

Source: U.S. Census Bureau, data through 2016 Q1



WA nonresidential square footage remains at historic lows

0

10

20

30

40

50

60

1980 1985 1990 1995 2000 2005 2010 2015

Mil

lio

ns

Nonresidential Square Footage, 6MMA

Source: Dodge, ERFC; data through April 2016

Nonresidential square footage is down 33% Y-O-Y



U.S. economic growth weakened in the last three quarters

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1

Percen

t U.S. Real GDP Growth

History Average, 1990-2015Q4

Source: U.S. Dept. of Commerce, BEA, data through 2016 Q1



Global GDP forecasts have been consistently revised down

2.5

3

3.5

4

4.5

5

5.5

2010 2013 2016 2019

IMF real annual global GDP growth forecast (%)

Source: International Monetary Fund, World Economic Outlook; historic data through 2015

Oct. 2011 forecast

Apr. 2016 forecast

Actual growth



The dollar has increased in value relative to currencies of U.S. trading partners

80

85

90

95

100

105

2010 2011 2012 2013 2014 2015 2016

Real Trade-weighted Dollar

Source: Federal Reserve Bank of St. Louis; data through April 2016



WA exports in 2015 declined for the first time since 2009

-25

-20

-15

-10

-5

0

5

10

15

20

25

China Canada Japan All other

Y-O

-Y p

ercen

t ch

an

ge

Year-over-year growth in export value

2013 2014 2015

Source: WISERTrade; data through December 2015



Manufacturing: slower nationally and in Washington

25

30

35

40

45

50

55

60

65

70

75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

In

dex,

50

+ =

gro

wth

Institute of Supply Management Index

Washington United States

Source: ISM; U.S. data through May 2016, WA data through Apr. 2016



Forecasted real GDP growth is slightly lower compared to the February forecast

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2013 2014 2015 2016 2017 2018 2019 2020 2021

Percen

t Real U.S. GDP Growth Rates

June preliminary February

Source: ERFC June 2016 preliminary forecast; historical data through 2015



Oil prices are higher than in the February forecast

25

45

65

85

105

125

2007 2009 2011 2013 2015 2017 2019 2021

Do

llars P

er B

arrel

Average Price of Crude Oil

June Preliminary February

Source: DOE, ERFC June 2016 Preliminary forecast; historical data through 2016Q1



Washington personal income is slightly lower compared to the February forecast

200

250

300

350

400

450

500

550

2013 2014 2015 2016 2017 2018 2019 2020 2021

Billio

ns o

f D

ollars Washington Personal Income


Source: ERFC June 2016 forecast; historical data through 2015



State personal income will continue to grow slightly faster than the U.S.

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

2007 2009 2011 2013 2015 2017 2019 2021

In

dex 2

00

7 Q

1 =

1.0

Real Personal Income, U.S. and WA

U.S. Washington

Source: ERFC June 2016 Preliminary forecast; historical data through 2015Q4

Forecast



Washington housing permits forecast is higher for 2016–2019 compared to February

20

25

30

35

40

45

50

2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

san

ds

Washington Housing Permits


Source: ERFC June 2016 Preliminary forecast; historical data through 2015



Washington employment will continue to grow slightly faster than the U.S.

0.90

0.95

1.00

1.05

1.10

1.15

1.20

2007 2009 2011 2013 2015 2017 2019 2021

In

dex 2

00

7 Q

1 =

1.0

0

Nonfarm Employment, U.S. and WA

U.S. Washington

Forecast

Source: ERFC June 2016 Preliminary forecast; historical data through 2016Q1



U.S. Economic Expansions since 1945

120

12

58

150

0 25 50 75 100 125 150 175

Economic Expansions, months

This Forecast Average 1980 1990

Sources: NBER, ERFC June 2016 preliminary forecast



Initial slow recovery points to extended expansion

0

20

40

60

80

100

120

Months of Recovery After Reaching Previous Peak in

Employment

Actual Forecast

Sources: NBER, BLS, ERFC June preliminary 2016 forecast; historic data through April 2016



Forecast conclusions

• The U.S. economic forecast is slightly weaker than in February but we continue to expect moderate growth

• Washington is continuing to outperform the nation by a small margin; we expect this be the case through the forecast period

• Threats to economic expansion include slower international economic growth, the impact of a stronger dollar on exports, and a slowdown in manufacturing

• The next monthly revenue collection report will be available on June 13th and the revenue forecast will be presented on June 15th



Data sources for employment by industry and geography

• Current Employment Statistics – U.S. Bureau of Labor Statistics/Employment Security Dept

– Monthly nonfarm employment data by industry and metropolitan area

– Smaller metro areas may lack industry detail

• Business Employment Dynamics – U.S. Bureau of Labor Statistics

– Gross job gains and losses by industry

– Gross job gains for new vs. expanding firms

– Gross job losses for closing vs. contracting firms

– Statewide data only



Net new jobs created in 2015 by metro area

0 10,000 20,000 30,000 40,000 50,000

Walla Walla

Mt. Vernon

Longview

Bellingham

Bremerton

Wenatchee

Yakima

Olympia

TriCities

Spokane

Tacoma

Nonmetro

Seattle

54% of net new jobs in WA in 2015 were in the Seattle metro area

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics



2015 net new Construction, Mining and Logging jobs by metro area

-300 1,700 3,700 5,700 7,700

Nonmetro

Longview

Walla Walla

Bremerton

Mt. Vernon

Wenatchee

Yakima

TriCities

Olympia

Bellingham

Spokane

Tacoma

Seattle




2015 net new Manufacturing jobs by metro area

-200 0 200 400 600

Nonmetro

Tacoma

Longview

Mt. Vernon

Walla Walla

Bremerton

Olympia

Bellingham

Spokane

TriCities

Wenatchee

Yakima

Seattle




2015 net new Information jobs by metro area

-200 800 1,800 2,800

Rest of state

Walla Walla

TriCities

Olympia

Tacoma

Spokane

Seattle




2015 net new Professional & Business Service jobs by metro area

-400 4,600 9,600

Rest of state

Walla Walla

Bremerton

Yakima

Bellingham

TriCities

Olympia

Spokane

Tacoma

Seattle




2015 net new Education & Health Service jobs by metro area

-300 200 700 1,200 1,700 2,200 2,700

Rest of state

Walla Walla

Yakima

Tacoma

Wenatchee

Olympia

TriCities

Longview

Spokane

Seattle




2015 net new Leisure & Hospitality jobs by metro area

0 1,000 2,000 3,000 4,000 5,000 6,000

Nonmetro

Longview

Bellingham

Walla Walla

Mt. Vernon

TriCities

Olympia

Bremerton

Spokane

Wenatchee

Yakima

Tacoma

Seattle




2015 net new Government jobs by metro area

-300 700 1,700 2,700 3,700 4,700 5,700

Nonmetro

Walla Walla

Mt. Vernon

Longview

Wenatchee

TriCities

Yakima

Tacoma

Olympia

Spokane

Bellingham

Bremerton

Seattle




Share of WA private sector gross job gains by industry

0%

5%

10%

15%

20%

25%

Average, 2005-2015Q3 2015Q3

Source: U.S. Bureau of Labor Statistics, Business Employment Dynamics, data through 2015Q3



Share of WA private sector gross job gains created by new firms

0%

5%

10%

15%

20%

25%

30%

Average, 2005-2015Q3 2015Q3


Since 2005, 84% of new jobs in WA were created by existing firms



Share of WA private sector gross job losses by industry

0%

5%

10%

15%

20%

25%

30%

Average,2005-2015Q3 2015Q3




David Autor and others: Labor market polarization

• Labor market polarization – growth of low education, low wage jobs and high education, high wage jobs; decline in medium education, medium wage jobs

• Non-routine tasks least likely to be successfully computerized

– “Manual” tasks requiring situational adaptability, visual recognition, in-person interactions

• Food preparation and serving

• Janitorial, cleaning, grounds maintenance

• Home health aides

– “Abstract” tasks requiring analytical capability, communications skills, expert mastery

• Professional, technical, managerial occupations



David Autor and others: Labor market polarization

• Medium education, medium wage jobs involving routine, codifiable tasks most amenable to computerization – Bookkeeping

– Clerical and secretarial occupations

– Repetitive production tasks

• Technology can substitute directly for labor performing routine tasks or can encourage substitution of cheaper foreign labor for domestic labor performing routine tasks

• Technology can also complement certain tasks, raising the productivity and wages of workers with those skills

Source: David H. Autor, “Polyani’s Paradox and the Shape of Employment Growth,” FRB of Kansas City 2014 Economic Policy Symposium, Jackson Hole WY



Percentage Changes in Employment by Occupation, 1979 - 2012

Source: Autor, David; Polanyi’s Paradox and the Shape of Employment Growth, September 2014



Questions

Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912

www.erfc.wa.gov 360-534-1560

Washington Economic Outlook...Jun 08, 2016 · Economic Outlook U.S. June 8, 2016 Slide 24...

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