u.s. and washington state economic outlook€¦ · economic outlook september 12, 2018 slide 5...
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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.
Economic OutlookSeptember 12, 2018
Slide 2 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 3 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 4 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 5 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 6 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 7 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 8 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 9 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 10 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 11 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 12 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 13 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 14 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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%
Economic OutlookSeptember 12, 2018
Slide 15 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 16 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 17 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 18 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 19 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 20 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 21 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 22 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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%
Economic OutlookSeptember 12, 2018
Slide 23 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 24 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 25 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
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
Economic OutlookSeptember 12, 2018
Slide 26 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL
Questions
Economic & Revenue Forecast CouncilPO Box 40912Olympia WA 98504-0912
www.erfc.wa.gov360-534-1560