Washington State Economic and Revenue Forecast. 2015 Employment Shares by Industry WA U.S. Source:...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Washington State Economic and Revenue Forecast

Presented to

PUBM 5700 Economic Analysis Seattle University

Steve Lerch Chief Economist & Executive Director

March 10, 2016

Seattle, Washington

March 10, 2016 Washington State Economic and Revenue Forecast Council

Forecast Oversight

ERFC

Council hires Executive Director for three year term

Director hires staff

Total staff of five

Economic and Revenue

Forecast Council

Office of the

Forecast Council Governor's Council

of

Economic Advisors

Forecast

Work Group


ERFC Forecast Process

National Economic Forecast

Preliminary Washington State Economic Forecast

Review by Work Group

Review by Governor’s Council of Economic Advisors &

Economic and Revenue Forecast Council

Final National and Washington Economic Forecast

Review by Forecast Council

Final Washington General Fund Revenue Forecast

ERFC and Revenue-Generating Agencies Create Revenue Forecasts

The national economic forecast is provided by Global Insight


U.S. Macro Model Overview

Model captures full simultaneity of U.S. economy

Output, employment, incomes, prices, interest rates, international trade, industrial detail, etc.


ERFC’s US economic model

ERFC U.S.

Forecast

Blue chip consensus

GDP

Global Insight model

Brent & WTI

futures prices


ERFC’s Washington economic model

U.S. Economic Forecast

Other Exogenous

Employment Wage Rates Nonwage

Income

Wage & Salary

Disbursements

Population & Housing

Personal Income


Revenue Act model overview

QBR data on taxable

activity (5 month lag)

DOR data on credits, refunds, remittances (1

month lag)

State and National Economic

Models

Quarterly forecast of

activity

Bimonthly forecast of

credits, refunds remittances

Bimonthly forecast of

receipts (1st through

10th, 11th through EOM)

B&O, RST, Use and Public Utility are broken into 40 components (some small sources like semiconduct-ors and nuclear waste disposal are forecasted exogenously)


Washington Economic Overview

2014 State GDP (current dollars): $422.9 billion

• 5.1% growth over 2013; 10th fastest in U.S.

• 2.5% of 2014 U.S. GDP

Dec. 2015 State Nonfarm Employment: 3.2 million

• 2.8% growth over Dec. 2014; 6th fastest in U.S.

• 2.2% of U.S. nonfarm employment

2015 State population: 7.2 million; 13th largest state

• 1.5% growth over 2014 (U.S. = 0.8%)

• 2.2% of U.S. population

Sources: U.S. Bureau of Labor Statistics, U.S. Census Bureau


Distribution of state population by county, 2015

Source: Office of Financial Management, April 1, 2015

< 1%

1% - 3%

3.1 -7

7.1 – 12

> 12


Seasonally adjusted unemployment rates by metro area, December 2015

Tri-Cities 6.6%

Spokane

6.3%

Yakima

7.9%

Tacoma

6.1%

Seattle

4.6%

Olympia

5.8%

Longview

7.3%

Bremerton-Silverdale 5.5%

Bellingham

5.8%

Mt. Vernon-Anacortes

6.6%

Wenatchee 5.6%

Statewide rate: 5.5%

Source: WA State Employment Security Dept.


Major Industries by Employment

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Dec. 2015 Employment Shares by Industry

WA U.S.

Source: U.S. Dept. of Labor, BLS


Major Industries by Earnings

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2015 Q3 Nonfarm Earnings Shares by Industry

WA U.S.

Source: U.S. Dept of Commerce, BEA; ERFC


Washington Employment Trends

0 10 20 30 40 50 60

All Other

Aerospace Manufacturing

Information

Wholesale Trade

Financial Activities

State, Local Govt Educ

Manuf ex Aerospace

Health Care

Admin & Support Services

Prof, Scientific, Tech Services

Construction

Leisure & Hospitality

Retail Trade

Employment Change since Trough (thousands) Washington has gained 378,000 nonfarm jobs since February 2010

Source: U.S. Dept. of Labor, BLS; ESD; ERFC; data through Jan. 2016


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., 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


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% Feb. 2016: 28%

Source: Bureau of Labor Statistics; data through February 2016


0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016

YTD

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; WA strong in January 2016

Source: Bureau of Labor Statistics, ERFC; U.S. data through Feb. 2016; WA data through Jan. 2016


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


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


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


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. 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


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


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 February 2016


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


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; data through Feb. 2016


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


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


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



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


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



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


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


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. 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


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%


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


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


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.


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.

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