Washington State Economic and Revenue Outlook · 1/28/2016 · Economic news continues to suggest...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Washington State Economic and Revenue Outlook

Presented to

Financial Management Advisory Council

Steve Lerch Executive Director

January 28, 2016

Olympia, Washington

FMAC

January 28, 2016

Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Forecast Oversight

ERFC

Council hires Executive Director for three year term

Director hires staff

Total staff of five

Economic and Revenue

Forecast Council

Office of the

Forecast Council Governor's Council

of

Economic Advisors

Forecast

Work Group

FMAC

January 28, 2016


Summary

• The economic forecast has remained stable, with moderate economic growth in the U.S. and Washington

• We continue to expect slightly stronger employment and income growth in Washington compared to the national economy

• Risks to the baseline include slowing economic growth in the U.S. and globally, the impact of a stronger dollar on exports, weaker manufacturing activity, and a volatile stock market

FMAC

January 28, 2016


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 manufacturing activity

FMAC

January 28, 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 YTD

Th

ou

san

ds

Th

ou

san

ds

Average monthly employment change

U.S. (left) WA (right)

Job creation is slightly weaker in both the U.S. and WA so far this year

Source: Bureau of Labor Statistics, ERFC; data through Dec. 2015

November job gains: U.S.: 252,000 WA: 7,000 December job gains: U.S.: 292,000 WA: NA

FMAC

January 28, 2016


Year to date employment growth, selected industries

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Govt

Information

Construction

Manufacturing

Health care

Retail trade

Prof/bus services

WA U.S.

Source: BLS, ERFC; data through November 2015

FMAC

January 28, 2016


Average U.S. wage growth has turned positive

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year-over-year Growth in U.S. Real Hourly Wages

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

FMAC

January 28, 2016


Job openings trending up nationally, slowing in Washington

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2006 2008 2010 2012 2014

In

dex ,Jan

. 2

00

6 =

1.0

Online Help Wanted Ads (SA)

U.S. WA

Source: Conference Board; data through November 2015

FMAC

January 28, 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: Apr. 2010: 45% Dec. 2015: 26%

Source: Bureau of Labor Statistics; data through December 2015

FMAC

January 28, 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; data through Nov. 2015

FMAC

January 28, 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 2015 Q3

FMAC

January 28, 2016


U.S. economic growth weakened in the third quarter

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

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

Percen

t U.S. GDP Growth

History Average, 1990-2015Q3

Source: U.S. Dept. of Commerce, BEA, data through 2015Q3

Forecast GDP growth: 2.7% in 4th Q, 2.6% in 2016

FMAC

January 28, 2016


WA exports to major trading partners

have slowed

-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 YTD

Source: WISERTrade; data through October 2015

FMAC

January 28, 2016


Manufacturing: slowing nationally, improving in Washington

25

30

35

40

45

50

55

60

65

70

75

2007 2008 2009 2010 2011 2012 2013 2014 2015

In

dex,

50

+ =

gro

wth

Institute of Supply Management Index

Washington United States

Source: ISM; data through December 2015

FMAC

January 28, 2016


New vehicle sales continue to grow

5

8

11

14

17

20

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014 2015

Mil

lio

ns

New Vehicle Sales (US) & Registrations (WA), SAAR

WA (left) U.S. (right)

Th

ou

san

ds

Source: Dept. of Licensing, ERFC, MotorIntelligence.com; data through November 2015

FMAC

January 28, 2016


U.S. Economic Expansions since 1945

120

12

58

126

0 20 40 60 80 100 120 140

Economic Expansions, months

This Forecast Average 1980 1990

Sources: NBER, ERFC November 2015 forecast

FMAC

January 28, 2016


After moving in different directions recently, Conference Board & UMich indexes both rise in December

0

25

50

75

100

125

2005 2007 2009 2011 2013 2015

Index

Mich: 1966Q1 = 100, SA Conf Board: 1985 =100, SA

U Mich Conf Board

Sources: University of Michigan, Conference Board; data through December 2015

FMAC

January 28, 2016


Small business optimism and sales expectations weakened in 2015

70

75

80

85

90

95

100

105

110

-40

-30

-20

-10

0

10

20

30

40

2006 2008 2010 2012 2014

Op

tim

ism

In

dex,

19

86

=1

00

3 m

on

th s

ale

s g

ro

wth

exp

ecta

tion

,

percen

t

NFIB Small Business Optimism Index

Sales Expectations Optimism Index

Source: National Federation of Independent Business; data through December 2015

FMAC

January 28, 2016


Forecasted real GDP growth is expected to decline slightly after this year

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2013 2014 2015 2016 2017 2018 2019

Percen

t Real U.S. GDP Growth Rates

Source: ERFC November 2015 forecast; historical data through 2014

FMAC

January 28, 2016


Oil prices are expected to rise gradually starting next year

30

40

50

60

70

80

90

100

110

120

2007 2009 2011 2013 2015 2017 2019

Do

llars P

er B

arrel

Average Price of Crude Oil

Source: DOE, ERFC November 2015 forecast; historical data through 2015Q3

Forecast

FMAC

January 28, 2016


Washington annual personal income growth is expected to average 5.2% for 2016-19

200

250

300

350

400

450

500

2012 2013 2014 2015 2016 2017 2018 2019

Billio

ns o

f D

ollars

Washington Personal Income

Source: ERFC November 2015 forecast; historical data through 2014

FMAC

January 28, 2016


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

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2006 2008 2010 2012 2014 2016 2018

Dif

feren

ce in

Y-O

-Y G

ro

wth

Difference in Real Personal Income Growth

WA growth - U.S. growth

Source: ERFC November 2015 Preliminary forecast; historical data through 2015Q2

Forecast

FMAC

January 28, 2016


Washington employment forecast is for average annual growth of 1.5%

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

2007 2009 2011 2013 2015 2017 2019

Th

ou

san

ds

Washington nonfarm payroll employment

Source: Global Insight, ERFC November 2015 forecast; historical data through 2015Q3

Forecast

FMAC

January 28, 2016


Seattle area employment continues to grow faster than the rest of the state

94

96

98

100

102

104

106

108

110

112

114

2007 2008 2009 2010 2011 2012 2013 2014 2015

In

dex,

Jan

20

07

= 1

00

Total Nonfarm Employment

Seattle Metro Rest of State

Source: Employment Security Department, ERFC; data through November 2015

FMAC

January 28, 2016


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

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2006 2008 2010 2012 2014 2016 2018

Dif

feren

ce in

Y-O

-Y G

ro

wth

Difference in Nonfarm Employment Growth

WA growth - U.S. growth

Forecast

Source: ERFC November 2015 Preliminary forecast; historical data through 2015Q3

FMAC

January 28, 2016


Washington housing permits forecast is for moderate growth after 2016

20

25

30

35

40

45

50

2012 2013 2014 2015 2016 2017 2018 2019

Th

ou

san

ds

Washington Housing Permits

Source: ERFC November 2015 forecast; historical data through 2015Q3

FMAC

January 28, 2016


Q3 Revenue Act collections growth slowed after a strong Q2

Source: DOR and ERFC; monthly data through estimated October 2015 activity

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

600

700

800

900

1,000

1,100

1,200

2002 2004 2006 2008 2010 2012 2014

$millions SA

Revenue Act Collections 3-Month Moving Average

Adjusted Y-O-Y revenue growth for third quarter activity slowed to 5.8% after 7.1% growth in the second quarter. Adjusted Y-O-Y growth was 5.3% for September activity and 6.3% for October activity.

FMAC

January 28, 2016


Large commercial property sales have had major impact on REET collections

-

5

10

15

20

25

1990 1993 1996 1999 2002 2005 2008 2011 2014

$ B

illio

ns

Taxable real estate sales, SA

WA total Excl. Comm'l. Sales >$10M

Source: ERFC, data through 2015 Q3

Residential taxable activity has been growing rapidly for the last three quarters but future growth is expected to slow due to a lack of inventory. Large commercial property sales are also expected to slow.

FMAC

January 28, 2016


Oregon legalization may have affected Clark County but statewide sales continued to grow

0

50

100

150

200

250

300

350

400

450

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15

Th

ou

san

ds

Mil

lio

ns

Grams of Usable Cannabis

Washington (left) Clark County (right)

Source: WA LCB; data through December 2015

Prior to legal retail sales in Oregon, Clark County accounted for 12.8% of total sales by quantity. In December, Clark County accounted for 7.8% of total sales by quantity.

FMAC

January 28, 2016


Cannabis excise tax and license fee estimates

$Millions

November Forecast

2013-15 2015-17 2017-19

GF-S share of excise tax and license fees $15 $133 $230

Non-GF $52 $300 $475

Total $67 $433 $705

Total change from September forecast: •2015-17 +$11 M •2017-19 +$2 M

Source: ERFC, LCB, BOTEC Analysis

* Detail may not add to total due to rounding

FMAC

January 28, 2016


GF-S forecast revisions to the 2015-17 biennium

34,000

35,000

36,000

37,000

38,000

Nov-12 Jun-13 Nov-13 Jun-14 Nov-14 Jun-15 Nov-15 Forecast

35,518

37,204

163 49

58 93

44

31 233

143

241

129

270

139 99

505

$Millions

Source: ERFC September 2012 – November 2015 forecasts Gray area indicates total noneconomic change

FMAC

January 28, 2016


10

12

14

16

18

20

22

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

$billions

Forecast

8.0% 1.2%

General Fund-State* forecast by fiscal year

(9.6%)

(4.1 %)

7.9%

*General Fund-State & Related Funds for FY 07-09, General Fund-State new definition for FY 10-17 Source: ERFC forecast, November 2015

1.5%

6.1%

General Fund-State Revenue

3.8%

5.5%

5.8%

3.5%

5.0%

4.2%

FMAC

January 28, 2016


Conclusion

• The economic forecast expects slightly weaker growth in personal income and employment than in September

• We expect the moderate pace of the economic recovery to continue in both the U.S. and Washington economies

• GF-S revenues are expected to grow 10.5% between the 2013-15 and 2015-17 biennia and 9.0% between the 2015-17 and 2017-19 biennia

• The level of uncertainty in the baseline remains elevated, with downside risks outweighing upside risks

FMAC

January 28, 2016


Questions

Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560

Washington State Economic and Revenue Outlook · 1/28/2016 · Economic news continues to suggest...

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