Quarterly Economic & Revenue Outlook

August 29, 2012

Oregon
Mark McMullen & Josh Lehner Office of Economic Analysis Bill Conerly Conerly Consulting

Oregon
U.S. Economy

Handoff: Housing & Manufacturing

Economic Drivers
Recession 30% Residential Investment (Y/Y, Left) ISM Manufacturing (Right) 70

65 20% 60 10% 55

0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

50

45 -10% 40 -20% 35

-30%

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Universal Pessimism:
Recent economic forecasts, % change
2012 Growth Forecasts
3.0% 2.5% 2.0% 1.5% 1.0% FOMC Global Insight Philly Fed U.S. Real GDP Blue Chip WSJ Survey OEA Western Blue Chip

3 Months Ago

Today

Oregon Employment

2013 Growth Forecasts

3.0% 2.5% 2.0% 1.5% 1.0% FOMC Global Insight Philly Fed U.S. Real GDP Blue Chip WSJ Survey

3 Months Ago

Today

OEA

Western Blue Chip

Oregon Employment

The State of Oregon in an Uncertain Economy

Dr. Bill Conerly for Senate Finance & Revenue Committee House Interim Revenue Committee August 29, 2012

GDP Cyclicality
Data through 2012q2

20-quarter rolling standard deviation

7 6 5 4 3 2 1 0 1950 1960 1970 1980 1990 2000 2010

GDP Growth Forecasts

4 3 2 % change 1 0 -1 -2 -3 -4 2007 2008 2009 2010 2011 2012 2013 2014 2015 New Old

GDP Growth Forecasts

4 3 2 % change 1 0 -1 -2 -3

Recession Risks Europe China Fiscal Cliff Uncertainty

Old New

-4 2007 2008 2009 2010 2011 2012 2013 2014 2015

Managing in an Uncertain Economy

Sales: shorten information time lags Finance: more working capital, less leverage Employees: more contractors, fewer permanent Capital projects: modular, flexible (product & batch size)

Oregon
Oregon Economy

Recent Oregon Economy Facts

8.7% unemployment rate for Jul 2012 (Jun US rate is 8.3%) is down from 9.6% a year ago in Jul 2011 and down 2.9% from recession highs. 26th fastest job growth at 1.0% for all states for Jul 2012 over Jul 2011. Total nonfarm employment increased 0.7% year-over-year for the 2nd quarter of 2012. Total nonfarm up 44,200 since Feb 2010 with the private sector up 50,500. 3.0% personal income growth for 1st quarter of 2012 over 1st quarter of 2011. Annualized 1st quarter 2012 growth at 3.4%. Oregon exports through June 2012 are down 5.1% from a year ago.
Computer and Electronic Products: -11% Agricultural Products: -21% All Other: +5%

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The International Slowdown is Here

Oregon Export Growth, Top 50 Countries
2010 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% China & Malaysia Eurozone Total Japan & S. Korea Other Asia All Other North America Other Europe 2011 2012 June YTD

29%

8%

15%

15%

8%

19%

4%

Housing No Longer A Drag

Housing and Related Industries
3,000 Recession Monthly Gain 12 Month Moving Average

2,000

1,000

-1,000

-2,000

-3,000

-4,000 Jan-91

Jan-94

Jan-97

Jan-00

Jan-03

Jan-06

Jan-09

Jan-12

Public Sector Cuts

Employment Change (Feb '08 - Jul '12)
15% 12% 9% 6% 3% 0% -3% -6% -9% -12% Feb-08

+4,237

Private Sector State Gov Non-Educ

+416 +331

State Education Local Gov Non-Educ Local Education

-6,497 -99,900

Feb-09

Feb-10

Feb-11

Feb-12

Oregon
Revenue Outlook

PIT Collections Remain Healthy

Recent Personal Income Tax Collec:ons % change over year ago, 3 month moving sum
35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 2010 2011 2012
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Corporate Collections: Has the Bleeding Stopped?

Corporate Income Tax Collec:ons % change over year ago, 3 month moving sum
60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40%
Jan Feb Mar Apr May Jun 2011 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2012 Jul
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Outlook Stable for BN2011-13

Forecast Evolution, Dec 2010 to Sept 2012
Combined General Fund and Lottery Fund Revenues (2011-13 BN)
$15.3

Billions

$15.2

Close of Session and Feb 2012 Rebalance Forecast

$15.1

$15.0

$14.9

$14.8

$14.7

$14.6

$14.5

Dec 2010 Forecast

Mar 2011 Forecast

May 2011 Forecast

Sept 2011 Forecast

Dec 2011 Forecast

Mar 2012 Forecast

Jun 2012 Forecast

Sept 2012 Forecast

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Forecast Changes
Difference from June forecast, $ millions
$200 $100 $0 -$100 -$200 -$300 -$400 -$500 -$600 -$700 2011-13 2013-15 2015-17 2017-19 2019-21
19

Personal
71

Corporate

Lottery

Other

Total

-319 -399 -471 -578

Personal Income Tax Forecast

$ billions, 4 quarter moving sum
9.5 8.5 7.5 6.5 5.5 4.5 3.5 2.5 1996
2011-13 2015-17 2017-19 2020-21 +$36.7 2013-15 -$310.1 -$418.2 -$479.2 (million) -$219.5

Personal Income Tax Collections (September 2012 Forecast) PIT Collections Excluding Kicker PIT Collections (June 2012 Forecast)

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020
20

Corporate Income Tax Forecast

$ millions, 4 quarter moving sum
650 600 550 500 450 400 350 300 250 200 150 1996 1998 2000 2002 2004 2006 2008 2010
2011-13 2013-15 2015-17 2017-19 2019-21 +$28.1 -$27.2 -$19.4 -$29.2 -$55.7 (million)

Corporate Income Tax Collections (September 2012 Forecast) Corporate Income Tax Collections (June 2012 Forecast)

2012

2014

2016

2018

2020
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September Forecast Summary

Table R.1
2011-13 General Fund Forecast Summary
(Millions) Structural Revenues Personal Income Tax Corporate Income Tax All Other Revenues Gross GF Revenues Administrative Actions1 Legislative Actions Net Available Resources Confidence Intervals 67% Confidence 95% Confidence 2011 COS Forecast $12,193.6 $894.2 $944.2 $14,032.0 -$23.1 $0.0 $14,008.9 +/- 4.0% +/- 7.9% June 2012 Forecast September 2012 Forecast $11,919.9 $814.5 $1,098.5 $13,832.9 -$14.1 $0.0 $13,818.9 $11,956.6 $842.6 $1,121.8 $13,921.0 -$4.4 $0.0 $13,916.6 $552.0 $1,104.0 Change from Prior Forecast $36.7 $28.1 $23.2 $88.0 $9.7 $0.0 $97.7 $13.37B to $14.47B $12.82B to $15.02B -$236.9 -$51.7 $177.6 -$111.0 $18.7 $0.0 -$92.3 Change from COS Forecast

1 Reflects cost of cashflow management actions, exclusive of internal borrowing.

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10-Year Forecast
General Fund Revenue Forecast Summary (Millions of Dollars, Current Law)
Forecast 2009-11 Revenue Source Personal Income Taxes Corporate Income Taxes All Others Total General Fund Kicker Distributions Total Revenue Biennium 10,467.2 827.6 1,226.6 12,521.4 12,521.4 % Chg Forecast 2011-13 Biennium % Chg Forecast 2013-15 Biennium % Chg Forecast 2015-17 % Forecast 2017-19 % Forecast 2019-21 %

Biennium Chg Biennium Chg Biennium Chg 10.6% 2.4% 8.0% 10.0%

3.7% 11,956.6 20.9% 29.8% 842.6 1,121.8

14.2% 13,416.9 1.8% -8.5% 1,070.8

12.2% 15,069.0 12.3% 16,638.4 10.4% 18,405.7 27.1% 1,083.7 1,025.8 1.2% 6.1% 1,056.6 -2.5% 1,096.6 6.9% 1,081.7 1,184.4

967.2 -13.8%

6.8% 13,921.0 -2.2% 13,921.0

11.2% 15,454.8 11.2% 15,454.8

11.0% 17,178.5 11.2% 18,791.6 -

9.4% 20,671.8 9.4% 20,671.8

11.0% 17,178.5 11.2% 18,791.6

10.0%

Other tax es include General Fund portions of the Eastern Oregon Sev erance Tax , Western Oregon Sev erance Tax and Amusement Dev ice Tax . Commercial Fish Licenses & Fees and Pari-mutual Receipts are included in Other Rev enues

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Biennial Revenue Growth

24% 20% 16% 12% 8% 4% 0% -4% -8% -12%

PIT

TOTAL

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For More Information

Standard Contact: 155 Cottage Street NE Salem, OR 97301 (503) 378-3405 oea.info@state.or.us www.oregon.gov/das/oea Social Media: oregoneconomicanalysis.wordpress.com @OR_EconAnalysis

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