September 2018
While economic growth continues and nearly all leading indicators flash green, the shape of the business cycle
may be coming into focus. Specifically, economists are becoming more comfortable talking about plausible
recession scenarios given the expected path of federal policy. To be clear, the flow of economic data remains
healthy, and the risks to the near-term outlook are balanced, if not tilted toward the upside.
However, potential danger lurks around the corner with many forecasters pointing at the confluence of events
beginning in 2020. At this time, federal fiscal policy will be a drag on economic growth and monetary policy is
expected to have transitioned from accommodative, to neutral, and potentially even restrictive. Should this fully
come to pass, a recession is likely to follow. However, this outcome is not a foregone conclusion. Rather, for
really the first time this cycle, it is a reasonable, and clear scenario for how this expansion ends. Even so,
between now and then, economic growth is expected to be at or above potential.
Here in Oregon, the economy follows the U.S. business cycle overall, albeit with more volatility. The good news
is job gains are enough to match population growth and absorb the workers coming back into the labor market.
Wages are rising faster than in the typical state, as are household incomes. That said, growth is slower today
than a few years ago. The regional economy continues to transition down to more sustainable rates. Ongoing
improvements in these deeper measures of economic well-being are also expected to continue.
Oregon’s economic expansion has largely played out as expected in recent months, yet state revenue collections
continue to outpace the forecast. Much of the strong revenue growth can be traced to temporary factors,
including the response of Oregonians to federal tax law changes and a spike in estate tax collections. Together
with the fleeting nature of recent tax collections, Oregon’s unique kicker law is acting to mute the budgetary
impact of unexpected revenues. While more revenue is now expected to be collected during the current
biennium, less will be available during the 2019-21 budget period.
Read full article: https://www.oregon.gov/das/OEA/Documents/forecast0918.pdf
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