U.S. and Washington State Economic Outlook€¦ · Economic Outlook September 12, 2018 Slide 5...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

U.S. and Washington State Economic Outlook

Presented toYakima and Central Washington Economic Symposium

Lance CareySenior Economist

July 20, 2018Yakima, Washington

Economic OutlookSeptember 12, 2018

Slide 1 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Forecast Summary

• The national economy continues to expand at a moderate pace.

• Job gains have remained solid even as the economy is at full employment.

• Consumer and business confidence are at cyclical highs.

• The housing market continues to improve.

• Washington State revenue collections are strong.

• Risks to the baseline include concerns about international trade, geopolitical risks and a maturing economic expansion.



Forecast risks

Upside

• Elevated consumer, business confidence could translate into stronger growth

• Stronger global economic growth

Downside

• International trade and fiscal policy uncertainty

• Geopolitical risks: North Korea, Russia, Iran, Venezuela, Europe

• Higher oil and gasoline prices

• Maturing economic expansion



The unemployment rate is near a 50-year low

2

4

6

8

10

12

1958 1964 1970 1976 1982 1988 1994 2000 2006 2012 2018

Percen

tU.S. Unemployment Rate

Unemployment Rate NAIRU

Source: Bureau of Labor Statistics, data through June 2018



Small business optimism is near an all-time high

80

85

90

95

100

105

110

2006 2008 2010 2012 2014 2016 2018

Op

tim

ism

In

dex,

19

86

=1

00

NFIB Small Business Optimism Index

Source: National Federation of Independent Business; data through May 2018

ok



Job growth remains strong

0

50

100

150

200

250

300

350

Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18

Th

ou

san

ds

Net New Jobs

Source: Bureau of Labor Statistics, data through June 2012

The economy needs to add roughly 100K jobs each month just to keep up with growth in the labor force



There are now more job openings than the number of people unemployed

0

2

4

6

8

10

12

14

16

2001 2003 2005 2007 2009 2011 2013 2015 2017

Million

sU.S. Job Openings and Unemployed

Job Openings Unemployed

Source: Bureau of Labor Statistics, data through May 2018



0

1

2

3

4

5

6

7

8

9

0

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016 2017 2018

YTD

Th

ou

san

ds

Th

ou

san

ds

Average monthly employment change

U.S. (left) WA (right)

U.S., WA labor markets look strong

Source: Bureau of Labor Statistics, ERFC; data through May 2018



Washington vs U.S. employment growth: May 2017 to May 2018

Total

Construction

Information

Retail Trade

Educ/Health

Services

Leisure/Hospitality

Prof/Business

Services

Manufacturing

-2%

-1%

0%

1%

2%

3%

4%

5%

U.S. WA

Source: U.S. Bureau of Labor Statistics, Employment Security Dept., ERFC; data through May 2018



Washington electronic shopping employment is exploding

0

10

20

30

40

50

60

2001 2003 2005 2007 2009 2011 2013 2015 2017

Th

ou

san

ds

Washington Electronic Shopping and Mail Order Employment

Source: Employment Security Department; data through June 2018



Adjusted for inflation, hourly wage growth remains muted

-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 2013 2014 2015 2016 2017

Year-over-year growth in U.S. real average hourly wages

Source: U.S. Bureau of Labor Statistics, monthly data through May 2018



Exports are growing again

-20

-10

0

10

20

30

40

2011 2012 2013 2014 2015 2016 2017 2018

Exports, Year-over-Year Growth

Wasington United States

Source: WISERTrade, data through 2017 Q2



Exports to major trading partners are still increasing

0

5

10

15

20

China Mexico Canada Europe All Other

YO

Y p

ercen

t ch

an

ge

Year-over-year growth in export value, major trading partners

2018Q1 2018Q2 YTD

Source: WISERTrade; data through May 2018



Seattle area home prices are skyrocketing

25

75

125

175

225

275

1990 1994 1998 2002 2006 2010 2014 2018

In

dex 2

00

0 =

10

0Case Shiller Home Price Index, SA

Year–over-year percent Change

Seattle National

Apr 2018

U.S. is up 6.4%

Seattle is up 13.0%

Source: S&P/Case-Shiller; data through April 2018



AK

Washington ranks 4th in year-over-year home price growth

<2.0%

2.0 to 5.0%

5.0 to 7.0%

7.0 to 10.0%

Source: Zillow, Data: ZHVI Summary, June 2018

>10.0%



This recovery is forecasted to be the longest on record

0

20

40

60

80

100

120

140

160

180

1945 1948 1953 1957 1960 1969 1973 1980 1981 1990 2001 2007

Mon

ths

Months of Economic Expansion

Actual Forecast

Source: NBER, ERFC



Probability of recession by year, May 2018 WSJ Survey of Economists

0%

10%

20%

30%

40%

50%

60%

70%

2019 2020 2021 2022 after 2022

Macroeconomic Advisors recession probabilities:

1 year = 20%5 years = 80%

Source: Wall Street Journal



When long-term interest rates are below short-term rates, it is often a signal of coming recession

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Treasury bond yield difference: 10 year minus 2 year

Source: Federal Reserve Bank of St; Louis, monthly data through May 2018

When long-term rates are below short-term rates, this is referred to as an inverted yield curve



GDP growth is expected to pick up in the next few years

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1990 1994 1998 2002 2006 2010 2014 2018 2022

GDP Growth

Source: BEA, ERFC June 2018 Forecast; historical data through 2017



Employment is expected to climb throughout the forecast

90

95

100

105

110

115

120

125

130

135

140

2000 2003 2006 2009 2012 2015 2018 2021

In

dex,

20

00

Q1

= 1

00

Total Nonfarm Employment

United States Washington

Source: U.S. BLS, ERFC June 2018 forecast; historical data through Q1 2018

forecast



Oil prices are slightly higher compared to the February forecast

25

35

45

55

65

75

85

95

105

115

125

2007 2009 2011 2013 2015 2017 2019 2021 2023

Do

llars P

er B

arrel

Average Price of Crude Oil

June February

Source: U.S. DOE, ERFC June 2018 forecast; historical data through Q1 2018

forecast



Washington’s housing recovery is essentially complete

0

20

40

60

80

100

120

140

160

180

200

2000 2003 2006 2009 2012 2015 2018 2021

In

dex,

20

00

Q1

= 1

00

Housing

United States Washington

Source: U.S. BLS, ERFC June 2018 forecast; historical data through Q1 2018

forecast



10

12

14

16

18

20

22

24

26

28

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

$billions

Forecast

8.2%

Near General Fund-State* forecast by fiscal year

6.0%

*Near General Fund-State equals General Fund-State plus Education Legacy Trust and Washington Opportunities Pathway AccountsSource: ERFC forecast, June 2018

4.3%5.5%

Near General Fund-State Revenue

7.5%

6.3%

9.8%

5.0%

3.9%

4.8%3.5%

3.4%

1.7%



Cannabis tax collections are expected to slow

0

50

100

150

200

250

300

350

400

450

500

FY2015 FY2017 FY2019 FY2021 FY2023

Million

sTotal Cannabis Taxes

79%

20%

8%3%2%

4%4%

149%

Source: LCB, ERFC June 2018 Forecast; historical data through May 2018



GF-S forecast revisions to the 2017-19 biennium

38,000

39,000

40,000

41,000

42,000

43,000

44,000

Feb-14 Nov-14 Sep-15 Jun-16 Mar-17 Nov-17 Forecast

315164

415154

321 52 30

442

134125

137

303 87

279

304

647

493

1,304

$Millions

Source: ERFC February 2014 – June 2018 forecastsGray area indicates total noneconomic change



Conclusion

• As has been the case for some time, Washington’s economy is continuing to outperform the nation

• Threats to economic expansion include slow labor productivity, geopolitical risks and uncertainty regarding international trade policy

• Home prices and residential rents continue to increase in many but not all parts of Washington

• Vacancy rates for central Puget Sound Class A office space have dropped from nearly 16% in 2012 to 11.3% in 2017 Q2

• Vacancy rates remain low for central Puget Sound area industrial property



Questions

Economic & Revenue Forecast CouncilPO Box 40912Olympia WA 98504-0912

www.erfc.wa.gov360-534-1560

U.S. and Washington State Economic Outlook€¦ · Economic Outlook September 12, 2018 Slide 5...

Documents

Transcript of U.S. and Washington State Economic Outlook€¦ · Economic Outlook September 12, 2018 Slide 5...