OregonMarch 2014 Economic & Revenue

OutlookMark McMullen & Josh Lehner

Office of Economic AnalysisFebruary 12, 2014

OregonEconomic Outlook

Economic Outlook Changes

3

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan2.45

2.50

2.55

2.60

2.65

2.70

2.75

2.80

2.85Blue Chip Consensus: 2014 Real GDP Growth

2013 2014

Businesses Profitable and Reaching Capacity

4

Motor Vehicle & Parts (3361-3)Fabricated Metal (332)

Machinery (333)Aerospace (3364-9)

Oil & Gas Extraction (211)Plastics & Rubber (326)

Primary Metal (331)Electrical Equip (335)

Food (311-2)Chemical (325)

Petroleum & Coal (324)Computer & Electronic (334)

Furniture (337)Paper (322)

Mining ex Oil & Gas (212)Printing (323)

Wood Products (321)Apparel (315-6)Textiles (313-4)

Nonmetallic Mineral (327)

-15 -10 -5 0 5 10 15

Capacity Constrained IndustriesCurrent Capacity Utilization Rate Rela-tive to Historic Rates When Capacity

Begins to Increase

-10% -5% 0% 5% 10% 15% 20%-15%

-10%

-5%

0%

5%

10%

15%

Oil & Gas

Other Mining

Food

Textiles

ApparelWood Products

Paper

Printing

Petrol/Coal

Chemical

Plastic/Rub

Nonmetallic Min

Primary Metal

Fab Metal

Machinery

Comp & Elec

Elec Equip

Motor Vehicle

Aerospace

Furniture

Constrained Industries Adding to Capacity

Capacity Change from 2011q4 to 2013q4

2013

q4 U

tiliza

tion

Rate

Rel

ative

to H

istor

ic Le

vels

whe

n Ca

pacit

y be

gins

to

Rise

How Worried Should We Be?

5

1 9 17 25 33 41 49 57 65 73 81 89 97105

1130

5

10

15

20

25

0

2

4

6

8

10

12

14

Oregon's Unemployment Rate(s)

U-6 (rhs) U-3 (lhs)

19701973

19761979

19821985

19881991

19941997

20002003

20062009

201254%

56%

58%

60%

62%

64%

66%

68%

70%

Labor Force Participation Rate16 years and older

U.S. Oregon

Labor Supply Response Expected

6

Jan-78 Jan-85 Jan-92 Jan-99 Jan-06 Jan-13-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Oregon's Labor Market6 MMA, Year-over-Year Growth

Labor Force Total Nonfarm Jan-78 Jan-85 Jan-92 Jan-99 Jan-06 Jan-13-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Labor Force Growth on the Way?Oregon Job Growth Minus Labor Force Growth

Job Growth in Oregon

7

2011 2012 2013 2014 2015 2016-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Oregon EmploymentYear-over-Year Job Gains

Private PublicGrowth Rate (rhs)

Forecast -->Columbia Gorge

Portland MSA

Northeast Oregon

Oregon

North Coast

Willamette Valley

Southeast Oregon

Southern

Central Oregon

South Coast

-20% -15% -10% -5% 0% 5%

Employment by Region Over the Great Recession

Dec '13 Relative to Peak Recession Losses

Bend and Medford slow some, but the party has reached Salem

8

Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10-10%

-5%

0%

5%

10%

15%Salem Private Sector Employment Growth

Private Current Rate

May-07 May-09 May-11 May-13-20%

-15%

-10%

-5%

0%

Private Sector EmploymentSeasonally Adjusted, 3 Month Moving

Average

Oregon

Medford

Bend

Housing Outlook

Short Run Stall Long Run Outlook

9

Jan-10 Jan-11 Jan-12 Jan-13-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2%

3%

4%

5%

6%

Interest Rates Slow Housing's Rebound

Mortgage Rate -->30 Yr Fixed

<-- Housing Metros Permit Growth Differential

20052006

20072008

20092010

20112012

20132014

20152016

0.0

0.5

1.0

1.5

2.0

2.5

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Housing Starts Forecast

U.S. (millions, rhs) Oregon (lhs)

Outlook Remains Stable

10

2000Q1

2000Q4

2001Q3

2002Q2

2003Q1

2003Q4

2004Q3

2005Q2

2006Q1

2006Q4

2007Q3

2008Q2

2009Q1

2009Q4

2010Q3

2011Q2

2012Q1

2012Q4

2013Q3

2014Q2

2015Q1

2015Q41,550,000

1,600,000

1,650,000

1,700,000

1,750,000

1,800,000

Oregon Total Nonfarm Employment

Mar '12Sep '12Dec '13Mar '14

OregonRevenue Outlook

Forecast Evolution: Improved Economic Outlook Offset by Weak Recent Tax Collections

12

Dec '10

Mar '11

May 11

Sep '11

Dec '11

Mar '12

Jun '12

Sep '12

Dec '12

Mar 13

May 13

Sep '13

Dec '13

Mar '14

Jun '14

Sep '14

$15,800,000,000.0

$16,000,000,000.0

$16,200,000,000.0

$16,400,000,000.0

$16,600,000,000.0

$16,800,000,000.0

$17,000,000,000.0

$17,200,000,000.0

$17,400,000,000.0

$17,600,000,000.0

General and Lottery Fund Revenues2013-15 BN

Forecast Close of Session & Special Session

Jul Aug Sep Oct Nov Dec Jan 2013

Feb Mar Apr May June July Aug Sept Oct Nov Dec Jan 2014

0%

2%

4%

6%

8%

10%

12%

14%

16%

Recent Personal Income Tax Collections% change over year ago, 3 month moving sum

13

PIT Collections Stall Heading into the Peak Tax Filing Season

* PreliminaryNote: Jan 2014 would be even weaker if not for IRS processing delay

14

Corporate Taxes: How Far Will They Fall?

Jul Aug Sep Oct Nov Dec Jan 2013

Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan 2014

-40%

-20%

0%

20%

40%

60%

80%

Corporate Excise Tax Collections% change over year ago, 3 month moving sum

Preliminary

Performance of Revenue Instruments Has Varied

15

Sec of State Fees

State Court Fees

Other Tobacco

Liquor

GF Total

Personal Income

DCBS Excess Security

Corporate

Traditional Lottery

Insurance

Video Lottery

Estate

Cigarette

Criminal Fine Account

Interest

-100% -50% 0% 50% 100% 150%

Oregon Revenue and the Great Recession

FY 14 Relative to Peak Recession Losses

OregonPersonal Income Tax Issues

Final Matched Returns for 2012

Cap Gains

Dividends

Tax to Pay

Sched E

Oregon taxable income

Pensions

Social Security

IRAs

Business

Unemployment

Wages

Interest

-40% -20% 0% 20% 40% 60% 80%

Affected by M66All Other

Hangover Expected on 2013 Tax Returns

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 220

1

2

3

4

5

6

7

8

9

10

0

5,000

10,000

15,000

20,000

25,000

Wilshire 5000 Stock Index

Realized Capital Gains ($ billions, left)

Nov Forecast

Tax Year

Dec-Jan Estimated Payments

Nonwage Income*

Q2 Final PIT Payments

2008 -28.4% -35.1% -45.4%2009 -15.2% -21.4% -2.8%2010 11.5% 11.0% 17.9%2011 5.6% 0.6% 3.3%2012 28.8% 35.6% 25.1%2013 0.1% -5.7% 8.4%

Are Low Estimated Income Tax Payments a Sign of Things to Come?

• Nonwage income includes interest, dividends, business (Sched C), capital gains, and S Corp/Rental (Sched E)• 2013 estimated PIT payments through January 29

OregonMarch 2014 Revenue Forecast Details

21

March 2014 General Fund Forecast Summary

Positive Factor

Negative Factor

Personal Income Taxes

(More Jobs)

Corporate Income

Taxes

HB3601/M67 Rainy Day

Transfer Estimate

(FY2017+)

Estate Taxes

Cigarette Taxes

Court Fees

Video Lottery

(Millions)2013 COS Forecast

December 2013 Forecast

March 2014 Forecast

Change from Prior Forecast

Change from COS Forecast

Structural RevenuesPersonal Income Tax $13,558.2 $13,716.1 $13,771.6 $55.5 $213.4

Corporate Income Tax $1,056.6 $1,030.5 $1,005.9 -$24.6 -$50.7

All Other Revenues $1,027.9 $1,016.3 $1,004.4 -$11.9 -$23.5

Gross GF Revenues $15,642.6 $15,762.8 $15,781.9 $19.0 $139.3

Offsets and Transfers -$120.8 -$67.5 -$67.3 $0.2 $53.5

Administrative Actions1 -$18.2 -$13.6 -$12.7 $0.9 $5.6

Legislative Actions -$136.9 -$136.9 -$136.9 $0.0 $0.0

Net Available Resources $15,910.1 $16,006.9 $16,027.0 $20.1 $116.9

Confidence Intervals67% Confidence +/- 6.6% $1,034.995% Confidence +/- 13.1% $2,069.9

1 Reflects cost of cashflow management actions, ex clusiv e of internal borrow ing.

2013-15 General Fund Forecast Summary

$14.75B to $16.82B$13.71B to $17.85B

Table R.1

2222

Forecast ChangesDifference from September forecast, $ millions

14.8

28.6

-27.1

-6.8

9.3

-$40

-$20

$0

$20

$40

$60

$80

2013-15 2015-17 2017-19 2019-21 2021-23

Personal Corporate Lottery

Other Total

23

10-Year Forecast

Table R.2

General Fund Revenue Forecast Summary (Millions of Dollars, Current Law)

Forecast Forecast Forecast Forecast Forecast Forecast

2011-13 % 2013-15 % 2015-17 % 2017-19 % 2019-21 % 2021-23 %

Revenue Source Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg Biennium Chg

Personal Income Taxes 12,118.2 15.8% 13,771.6 13.6% 15,464.4 12.3% 16,931.4 9.5% 18,681.3 10.3% 20,561.1 10.1%

Corporate Income Taxes 883.9 6.8% 1,005.9 13.8% 1,049.3 4.3% 1,026.9 -2.1% 1,066.8 3.9% 1,154.8 8.2%

All Others 1,164.9 -5.0% 1,004.4 -13.8% 983.1 -2.1% 1,045.7 6.4% 1,123.4 7.4% 1,189.2 5.9%

Gross General Fund 14,167.0 13.1% 15,781.9 11.4% 17,496.8 10.9% 19,004.0 8.6% 20,871.5 9.8% 22,905.1 9.7%

Offsets and Transfers (12.0) (67.3) (85.1) (79.1) (41.1) (43.1)

Net Revenue 14,155.0 13.0% 15,714.6 11.0% 17,411.7 10.8% 18,924.9 8.7% 20,830.4 10.1% 22,862.0 9.8%

Other tax es include General Fund portions of the Eastern Oregon Sev erance Tax , Western Oregon Sev erance Tax and Amusement Dev ice Tax .

Commercial Fish Licenses & Fees and Pari-mutual Receipts are included in Other Rev enues

2424

Biennial Revenue Growth

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%PIT TOTAL

25

For More Information

Standard Contact:

155 Cottage Street NE

Salem, OR 97301

(503) 378-3405

oea.info@state.or.us

www.oregon.gov/das/oea

Social Media:

www.OregonEconomicAnalysis.com

@OR_EconAnalysis