U.S. and Washington Economic Forecast Update · 2016. 3. 4. · U.S. and Washington Economic...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

U.S. and Washington Economic Forecast Update

Presented to

NAPMW Seattle Puget Sound Annual LPO Seminar

Steve Lerch Executive Director

March 4, 2016

Bellevue, Washington

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 1

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Summary

• Our economic forecast expects continued growth in the U.S. and Washington economies but at a slightly slower pace than in November and with lower inflation

• Oil prices have declined dramatically; moderate growth is expected over the forecast period

• The forecast assumes the Federal Reserve will increase interest rates twice this year

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

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 2


Economic news continues to suggest risks to forecast

Upside:

– Declining unemployment rates

– Rising wage growth

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

– Lower oil prices

Downside:

– Slower U.S. GDP growth

– Slowing global economy

– Negative impact of stronger dollar on exports

– Stock market volatility

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 3


U.S., WA unemployment rates trending down

2

3

4

5

6

7

8

9

10

11

2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015

Percen

t

U.S. WA

Source: Bureau of Labor Statistics; U.S. data through Jan. 2016; WA data through Dec. 2015

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 4


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% Jan. 2016: 27%

Source: Bureau of Labor Statistics; data through January 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 5


0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 Jan-16

Th

ou

san

ds

Th

ou

san

ds

Average monthly employment change

U.S. (left) WA (right)

Job creation slightly weaker in 2015 than 2014; U.S. weak, WA strong in January 2016

Source: Bureau of Labor Statistics, ERFC; data through Jan. 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 6


Average U.S. wage growth has turned positive but slowed in January

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

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 Jan. 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 7


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 Q4

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 8


Seattle home prices have been rising faster than prices nationally

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2012 2013 2014 2015

Year-over-year house price change, SA

Seattle U.S.

Source: S&P/Case-Shiller; data through Dec. 2015

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 9


Nonresidential construction activity appears to be slowing

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2000 2001 2003 2005 2006 2008 2010 2011 2013 2015

Th

ou

san

ds

Square feet under contract, WA nonresidential projects (SAAR)

Source: Dodge Data & Analytics; data through Jan. 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 10


U.S. economic growth weakened in the third and fourth quarters

-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. Real GDP Growth

History Average, 1990-2015Q4

Source: U.S. Dept. of Commerce, BEA, data through 2015Q4

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 11


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

Jan. 2016 forecast

Actual growth

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 12


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

Trade-weighted Dollar

Source: Federal Reserve; data through January 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 13


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

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 14


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 2016

In

dex,

50

+ =

gro

wth

Institute of Supply Management Index

Washington United States

Source: ISM; WA data through Jan. 2016; U.S. data through Feb. 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 15


New vehicle sales continue to trend up; WA had record new car registrations in January

8

10

12

14

16

18

20

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014 2015 2016

Mil

lio

ns

Th

ou

san

ds

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

WA (left) U.S. (right)

Source: Dept. of Licensing, ERFC, MotorIntelligence.com; data through January 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 16


The stock market is generally more volatile than the U.S. economy

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1969 1973 1978 1982 1987 1991 1996 2000 2005 2009 2014

Change in U.S. stock market value, quarterly

Source: OECD Main Economic Indicators, through 2015Q1; DJ Total US Market 2015Q2 – Q4

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 17


Conference Board, U. of Michigan indexes both down in February

0

25

50

75

100

125

2005 2007 2009 2011 2013 2015

Index

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

U. of Michigan Conf Board

Sources: University of Michigan, Conference Board; data through February 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 18


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 2016

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 January 2016

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 19


Forecasted real GDP growth is lower in 2015, 2016 & 2017 compared to the November 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

November February

Source: ERFC February 2016 forecast; historical data through 2015

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 20


Oil prices have fallen since the November forecast

20

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

February November

Source: DOE, ERFC February 2016 forecast; historical data through 2015Q4

Forecast

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 21


Washington personal income is lower in 2016 – 2019 compared to the November 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

November February


U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 22


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 February 2016 forecast; historical data through 2015Q3

Forecast

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 23


Washington employment forecast revised down slightly in 2017 - 2019

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

3,500

2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

san

ds

Washington Nonfarm Payroll Employment

February November


U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 24


Seattle area employment continues to outpace 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 December 2015

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 25


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

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 26


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 February 2016 forecast; historical data through 2015Q4

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 27


Washington housing permits forecast is slightly lower than in November

20

25

30

35

40

45

50

2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

san

ds

Washington Housing Permits

February November


U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 28


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 February 2016 Preliminary forecast

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 29


Wall Street Journal survey shows low but rising probability of recession

0%

20%

40%

60%

80%

100%

Probability of recession in next 12 months

Source: Wall Street Journal Economic Forecasting Survey

Feb. 2012 WSJ survey places probability at 21%

27%

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 30


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, ERFC February 2016 forecast

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 31


Retail sales taxes account for over 47% of collections

47%

20%

12%

4%

17%

FY 2015 collections

Retail sales

B&O

State property tax

Real estate excise tax

All other

Source: Dept. of Revenue, ERFC

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 32


Revenue Act collections close to previous trend after spike in August collections

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

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

650

750

850

950

1,050

1,150

2002 2004 2006 2008 2010 2012 2014

$millions SA

Revenue Act Collections 3-Month Moving Average

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 33


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 Q4

Residential taxable activity and smaller commercial sales grew rapidly for the first 3 quarters of 2015 but declined in the 4th quarter. Large commercial property sales are expected to decrease from the elevated levels of the past few years.

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 34


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 Jan-16

Th

ou

san

ds

Mil

lio

ns

Grams of Usable Cannabis

Washington (left) Clark County (right)

Source: WA LCB; data through January 2016

Prior to legal retail sales in Oregon, Clark County accounted for 12% of total sales by quantity. In January, Clark County accounted for 7% of total sales by quantity.

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 35


Medical & recreational cannabis sales merge as of July 2016

0

10

20

30

40

50

60

70

80

90

100

2014 2015 2016 2016 2017 2018 2019 2019

$ M

illio

ns

Cannabis excise tax collections

Source: ERFC February 2016 forecast; actual data through 2015 Q4

Currently, only recreational sales subject to 37% tax; starting in July, medical sales will also be taxed at 37%

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 36


Conclusion

• The economic forecast is weaker than in November but we continue to expect moderate growth

• Oil prices and inflation are lower than expected in November

• Washington is still likely to outperform the nation, but by a small margin

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

U.S. and Washington

Economic Forecast

Update

March 4, 2016

Slide 37


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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