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Oregon Outlook
Spring 2008
Transition
 Oregon’s economy, like much of the Pacific Northwest, has decelerated to a slower economic growth pace in recent months. In contrast to the nation, however, neither the broad region nor the Oregon economy is likely to experience recession in 2008.
The regional economy has clearly slowed, with neighbors California and Nevada dealing with painful corrections from excessive home building and home price appreciation during the 2003 to 2006 period. Washington currently ranks among the nation’s Top 10 as measured by the growth pace of employment, while Idaho job gains have slowed sharply.
Employment growth during 2008 in Oregon is likely to rival 2007 as the softest in five years. Weakness in the state’s new home construction market should continue throughout the year before some improvement is likely in 2009. Manufacturing sector weakness could also persist into next year.
Job Detail
Recent Oregon employment data notes the slowing that continues to unfold. The Oregon economy added an estimated 10,400 net new jobs during the most recent 12-month period, a 0.6% growth rate. Such modest growth pales versus Oregon’s solid job growth pace during the 2004 to 2006 period. The subdued job creation rate currently ranks in the middle of the 50 states.
Oregon’s goods-production sector has suffered, with an estimated loss of 13,600 jobs (down 4.3%) collectively in natural resources & mining, construction, and manufacturing during the most recent 12-month period.
Service-providing employment has performed better, with a net rise of 24,000 jobs (up 1.7%) during the past year, led by gains in education & health services; government; leisure & hospitality; trade, transportation & utilities; and professional & business services.
A modest rise in the state’s unemployment rate has also occurred in recent months as job gains have slowed. An average jobless rate of 5.5% during 2008’s first quarter compares to the 5.2% average jobless rate during calendar year 2007. Greater labor availability should help Oregon employers of all sizes to more easily fill open positions, a challenging task last year.
Freeze Up
Thousands of Oregon consumers and companies are being whipsawed by domestic and global credit markets that have gyrated wildly during the past 18 months. Lenders aplenty were available in recent years to finance just about anything, with many lenders around the nation focused on subprime mortgage loans. Such loans were then packaged with others, sliced and diced into a myriad of loan pools and investment products, and ultimately bought by investors around the globe in search of higher investment yields.
Such credit excesses have now given way to tens of billions of dollars of loan and investment losses, high levels of lender paranoia, and domestic and global credit markets which have routinely frozen up in recent months. Many traditional lending and investment markets beyond the subprime sector have struggled with frightening levels of paralysis at times.
One result of such market anxiety has been higher levels of mortgage interest rates than would traditionally be available. The old “rule of thumb” was to take the investment return (or yield) on 10-year U.S. Treasury notes and add 1.50%-1.60% to get an indication as to the level of 30-year fixed-rate mortgages (known as conforming loans) destined for purchase by various government entities such as Fannie Mae and Freddie Mac.
Recent 3.30%-3.60% yields for the 10-year Treasury note would typically equate to 30-year fixed-rate mortgages around 5.00%. Unfortunately, credit market anxiety now finds such mortgage rates in a 5.70%-6.30% range. In addition, many lenders have imposed more stringent requirements for borrowers to qualify for loans, including larger down payments.
The “jumbo” mortgage market has also experienced sharply higher mortgage rates when compared to conforming loans. Such loans are critically important since a significant share of Oregon’s current excess of new and existing homes for sale is in homes priced above $400,000.
Oregon View
A weak Oregon home construction sector, declining manufacturing employment, and global credit market anxiety have contributed to less vibrant Oregon economic growth during the past 6-12 months. Such weakness will likely persist over the balance of the year, before the economy picks up speed in 2009.
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