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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 Outlook June 8, 2016
Slide 2 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 3 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 4 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 5 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 6 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 7 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 8 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 9 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 10 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 11 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 12 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 13 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 14 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 15 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 16 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 17 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 18 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 19 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 20 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 21 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
June preliminary February
Source: ERFC June 2016 forecast; historical data through 2015
Economic Outlook June 8, 2016
Slide 22 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 23 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
June preliminary February
Source: ERFC June 2016 Preliminary forecast; historical data through 2015
Economic Outlook June 8, 2016
Slide 24 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 25 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 26 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 27 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 28 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 29 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 30 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 31 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 32 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
2015 net new Information jobs by metro area
-200 800 1,800 2,800
Rest of state
Walla Walla
TriCities
Olympia
Tacoma
Spokane
Seattle
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 33 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 34 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 35 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 36 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Source: U.S. Bureau of Labor Statistics, Current Employment Statistics
Economic Outlook June 8, 2016
Slide 37 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 38 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Share of WA private sector gross job gains created by new firms
0%
5%
10%
15%
20%
25%
30%
Average, 2005-2015Q3 2015Q3
Source: U.S. Bureau of Labor Statistics, Business Employment Dynamics, data through 2015Q3
Since 2005, 84% of new jobs in WA were created by existing firms
Economic Outlook June 8, 2016
Slide 39 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Share of WA private sector gross job losses by industry
0%
5%
10%
15%
20%
25%
30%
Average,2005-2015Q3 2015Q3
Source: U.S. Bureau of Labor Statistics, Business Employment Dynamics, data through 2015Q3
Economic Outlook June 8, 2016
Slide 40 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 41 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic Outlook June 8, 2016
Slide 42 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Percentage Changes in Employment by Occupation, 1979 - 2012
Source: Autor, David; Polanyi’s Paradox and the Shape of Employment Growth, September 2014
Economic Outlook June 8, 2016
Slide 43 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Questions
Economic & Revenue Forecast Council 1025 E. Union Avenue, Suite 544 Olympia WA 98504-0912
www.erfc.wa.gov 360-534-1560
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