Washington State Forecast Presented to ESD Economic Symposium Bret - - PowerPoint PPT Presentation

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Washington State Forecast Presented to ESD Economic Symposium Bret - - PowerPoint PPT Presentation

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Washington State Forecast Presented to ESD Economic Symposium Bret Bertolin Senior Economist April 1, 2019 Seattle, Washington WASHINGTON STATE WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL ECONOMIC AND REVENUE FORECAST COUNCIL

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WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Washington State Forecast

Presented to ESD Economic Symposium

Bret Bertolin Senior Economist April 1, 2019 Seattle, Washington

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Washington State Forecast April 1, 2019 Slide 1

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Summary

  • U.S., WA forecasts similar to the November forecast
  • Baseline forecast has slowing growth but no recession
  • Wage growth and inflation remain moderate
  • Downside risks to the baseline include uncertainty

regarding trade and fiscal policy, geopolitical concerns and a maturing economic expansion

  • Potential impact of 737 MAX grounding adds a new

downside risk

  • The Near General Fund-State forecast is increased by $307

million for the 2017-19 biennium and by $554 million for 2019-21 biennium

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Washington State Forecast April 1, 2019 Slide 2

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Selected forecast risks

Labor markets

  • Unemployment rate, initial UI claims low
  • Job growth has been strong until February

737 MAX

  • Currently, impact on WA employment and

personal income unclear International trade policy

  • China – U.S. trade deal no longer seems imminent
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Washington State Forecast April 1, 2019 Slide 3

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Consumer confidence dipped in late 2018 but has partially recovered, remains strong

25 50 75 100 125 150 2005 2007 2009 2011 2013 2015 2017 2019 Index Mich: 1966Q1 = 100, SA Conf Board: 1985 =100, SA

  • U. Michigan

Conf Board

Sources: University of Michigan, Conference Board; data through February 2019

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Washington State Forecast April 1, 2019 Slide 4

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Small business optimism has weakened recently but remains strong

70 75 80 85 90 95 100 105 110

  • 40
  • 30
  • 20
  • 10

10 20 30 40 2006 2008 2010 2012 2014 2016 2018 Optimism Index, 1986=100 3 month sales growth expectation, percent NFIB Small Business Optimism Index Sales Expectations Optimism Index

Source: National Federation of Independent Business; data through Jan. 2019

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Washington State Forecast April 1, 2019 Slide 5

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Job openings continue to grow at a strong pace

  • 50
  • 40
  • 30
  • 20
  • 10

10 20 30 40 2002 2004 2006 2008 2010 2012 2014 2016 2018

Percent Change U.S. Job Openings, Year over Year Growth (SA)

Source: U.S. Bureau of Labor Statistics, data through Dec. 2018

An average of 5.7 million jobs were open in 2018

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Washington State Forecast April 1, 2019 Slide 6

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

WA, U.S. unemployment rates are below pre-recession levels

3 4 5 6 7 8 9 10 11 2007 2008 2009 2011 2012 2013 2015 2016 2017 2019 Percent WA, U.S. unemployment rates SA

WA U.S.

Source: Bureau of Labor Statistics, ERFC; Data through Feb. 2019

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Washington State Forecast April 1, 2019 Slide 7

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Washington personal income growth has outpaced the U.S. for the last seven years

  • 600%
  • 400%
  • 200%

0% 200% 400% 600% 800% 1000% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

U.S. and WA personal income growth

U.S. WA

Source: U.S. Bureau of Economic Analysis, data through 2018

WA personal income growth is expected to average 4.8% per year for 2019 - 2023

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Washington State Forecast April 1, 2019 Slide 8

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

1 2 3 4 5 6 7 8 9 10 50 100 150 200 250 300 350 400 450 500 2011 2012 2013 2014 2015 2016 2017 2018 Thousands Thousands Average monthly employment change U.S. (left) WA (right)

WA, U.S. job growth remain strong

Source: Bureau of Labor Statistics, ERFC; data through 2018

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Washington State Forecast April 1, 2019 Slide 9

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Washington vs U.S. employment growth: Feb. 2018 to Feb. 2019

Total Information Constr. Educ/Health Services Manufacturing Leisure/ Hospitality Prof/Business Services Retail Trade

0% 1% 2% 3% 4% 5% 6% 7% U.S. WA

Source: U.S. Bureau of Labor Statistics, Employment Security Dept., ERFC; data through Feb. 2019

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Washington State Forecast April 1, 2019 Slide 10

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Nominal wage growth has averaged 3.3% in last 12 months regardless of educational level

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Percent Year over year growth, 12 mon. moving avg.

High school or less AA degree Bachelors degree or higher

Source: Federal Reserve Bank of Atlanta, data through Jan. 2019

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Washington State Forecast April 1, 2019 Slide 11

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Exports to China are declining

  • 35
  • 25
  • 15
  • 5

5 15 25 35 45 55 65 75 85 China Canada Japan South Korea All Other

YOY percent change

Year-over-year growth in export value, major trading partners 2018Q2 2018Q3 2018Q4

Source: WISERTrade; data through 2018 Q4

After four quarters of year over year growth, WA exports declined in 2018 Q4

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Washington State Forecast April 1, 2019 Slide 12

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

After four consecutive quarters of growth, WA exports declined in the fourth quarter of 2018

  • 80%
  • 40%

0% 40% 80% 120% 160% 200% 2005 2007 2009 2011 2013 2015 2017 WA exports, year over year growth Transp Equip Agriculture All other Total Export Growth 2017Q4: 0.6% 2018Q1: 3.9% 2018Q2: 3.7% 2018Q3: 2.6% 2018Q4:

  • 2.7%

Source: WISERTrade; data through 2018 Q4

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Washington State Forecast April 1, 2019 Slide 13

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Home price growth is slowing

  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Percent Case-Shiller home price index, year over year % change, SA Seattle U.S. Starting in July 2018, the Case- Shiller index for Seattle has decreased for six consecutive months.

Source: Case-Shiller, data through December 2018

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Washington State Forecast April 1, 2019 Slide 14

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Relative to population, WA residential construction activity is stronger than the U.S.

1 2 3 4 5 6 7 8 9 10 2000 2003 2006 2009 2012 2015 2018 Residential building permits per 1,000 population US WA

Source: U.S. Census Bureau, ERFC; data through 2018 Q4

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U.S. retail sales growth has slowed recently

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year over year growth, %

Retail & food services sales

Source: U.S. Census Bureau data through January 2019

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Washington State Forecast April 1, 2019 Slide 16

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Business investment trended down in last five months of 2018

45,000 50,000 55,000 60,000 65,000 70,000 75,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

$ millions New orders: nondefense capital goods excluding aircraft (SA)

Source: U.S. Census Bureau; data through Dec. 2018

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Washington State Forecast April 1, 2019 Slide 17

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Leading economic indexes for WA, U.S. dipped recently but do not suggest a recession in near term

  • 4.00
  • 3.00
  • 2.00
  • 1.00

0.00 1.00 2.00 3.00 4.00 2000 2003 2006 2009 2012 2015 2018 WA U.S.

Source: Federal Reserve Bank of Philadelphia, data through Nov. 2018

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  • 1

1 2 3 4 5 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

Percent 10 yr. Treasury rate – 3 mo. Treasury rate

An inverted yield curve (short-term interest rates > long-term rates) is a consistent recession predictor

Source: Federal Reserve Bank of St. Louis, data through March 2019

As of March 28, 2019 10 year Treasury bond yields were 0.04% below three month Treasury bill yields

3/28/2019

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WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Timing of next recession: National

  • Assoc. of Business Economists survey

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2019 2020 2021 After 2021 No opinion

Percent of respondents

Source: National Association of Business Economists, Economic Policy Survey, Feb. 2019

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Wall Street Journal economists’ survey shows recession probability rising but below 25%

10 12 14 16 18 20 22 24 26 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

Probability of recession in next 12 months

Source: Wall Street Journal economists’ survey, data through Mar. 2019

GCEA members: Average probability of recession in next 12 months = 36%

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Recessions are always (almost) preceded by UR<NAIRU

2 4 6 8 10 12

Jan-49 Jan-57 Jan-65 Jan-73 Jan-81 Jan-89 Jan-97 Jan-05 Jan-13

Percent

Natural Rate of Unemployment (SA) Civilian Unemployment rate

Source: Federal Reserve Economic Data

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Washington State Forecast April 1, 2019 Slide 22

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Unconditional probability of recession in X years

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Washington State Forecast April 1, 2019 Slide 23

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Probability density function (PDF) for a recession in Xth year

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Cumulative density function (CDF) for a recession in Xth year

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The increase in Washington Unemployment is Usually Similar to the U.S.

2 4 6 8 10 12 14

Jan-76 Jan-84 Jan-92 Jan-00 Jan-08 Jan-16

Percent

U.S. Washington

Source: BLS; Data through Q4 2018

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Washington State Forecast April 1, 2019 Slide 26

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

2019-21 Biennium alternative General Fund-State forecasts

2019-21 Biennium Difference From the baseline# March 2019 Baseline (50%) $49,609 March 2019 Alternative Forecasts Optimistic (15%) $51,784 $2,176 Pessimistic (35%) $47,052 ($2,557) Probability Weighted Average $49,040 ($569) GCEA* $49,855 $246

$Millions (cash basis)

*Based on the Governor’s Council of Economic Advisors’ economic assumptions #May not add to total due to rounding

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Washington State Forecast April 1, 2019 Slide 27

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

U.S. real GDP growth has slowed

0.5 1 1.5 2 2.5 3 3.5 4 4.5 2015 2016 2017 2018 Percent

Source: U.S. Bureau of Economic Analysis. Data through Q4 2018

Due to the partial Federal government shutdown, 2018 Q4 data, which was released Feb. 28th, was not available for this forecast.

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Washington State Forecast April 1, 2019 Slide 28

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Many forecasters expect U.S. economic growth is to slow further

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 2018 2019 2020 2021 Actual ERFC IHS-Markit Federal Reserve Economy.com

Sources: U.S. Bureau of Economic Analysis, ERFC Mar. 2019 preliminary forecast, IHS-Markit, Federal Reserve Board, Economy.com

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Washington State Forecast April 1, 2019 Slide 29

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

GDP is slightly lower than in November

15,000 16,000 17,000 18,000 19,000 20,000 21,000 2007 2009 2011 2013 2015 2017 2019 2021 2023

Billions of 2012 Dollars

March November

Source: IHS Markit, ERFC; data through Q4 2018 Note: Vertical black line indicates last actual

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WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Oil prices are slightly lower than in the November forecast

20 30 40 50 60 70 80 90 100 110 120 2007 2009 2011 2013 2015 2017 2019 2021 2023

Dollars Per Barrel

March November

Source: Energy Information Administration, IHS Markit, ERFC; data through Q4 2018 Note: Vertical black line indicates last actual

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The Federal Reserve is not expected to raise interest rates as high as anticipated in November

1 2 3 4 5 6 2007 2009 2011 2013 2015 2017 2019 2021 2023 Percent Federal Funds Interest Rate March November

Source: ERFC March 2019 Preliminary forecast; historical data through Q4 2018

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Washington State Forecast April 1, 2019 Slide 32

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

U.S. nonfarm payroll employment is slightly higher than in November

125 130 135 140 145 150 155 160 2007 2009 2011 2013 2015 2017 2019 2021 2023

Millions

U.S. Nonfarm Payroll Employment March November

Source: IHS Markit, ERFC; data through Q4 2018 Note: Vertical black line indicates last actual

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Washington State Forecast April 1, 2019 Slide 33

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Washington personal income is slightly higher than in November

200 300 400 500 600 2007 2009 2011 2013 2015 2017 2019 2021 2023 Billions of Dollars Washington personal income March November

Source: ERFC March 2019 forecast; historical data through Q4 2018

Forecast

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Washington State Forecast April 1, 2019 Slide 34

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Washington employment forecast is slightly lower than in November

2,600 2,700 2,800 2,900 3,000 3,100 3,200 3,300 3,400 3,500 3,600 3,700 3,800 2007 2009 2011 2013 2015 2017 2019 2021 2023 Thousands Washington Nonfarm Payroll Employment March November

Source: ERFC March 2019 forecast; historical data through Q4 2018

Forecast

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Online retail employment forecast consistent with press comments about future hiring plans

10 20 30 40 50 60 70 80 2007 2009 2011 2013 2015 2017 2019 2021 2023 Thousands WA electronic shopping employment

Source: ERFC March 2019 Preliminary forecast; historical data through Q4 2018

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WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Permits forecast for 2019 – 2023: average unchanged, timing slightly different compared to November

10 20 30 40 50 60 70 2007 2009 2011 2013 2015 2017 2019 2021 2023 Thousands Washington Housing Units Authorized by Building Permits March November

Source: ERFC March 2019 forecast; historical data through Q4 2018

Forecast

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Washington State Forecast April 1, 2019 Slide 37

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Conclusion

  • Economic forecasts are only slightly changed from

November

  • Washington’s economy is continuing to outperform

the nation but not as dramatically as in past

  • Threats to economic expansion include concerns

about international trade and fiscal policy, geopolitical risks and a maturing expansion

  • GF-S revenues are expected to grow 15.3% between

the 2015-17 and 2017-19 biennia and 12.3% between the 2017-19 and 2019-21 biennia

  • The level of uncertainty in the baseline remains

elevated, with downside risks outweighing upside risks

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Washington State Forecast April 1, 2019 Slide 38

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Questions

Economic & Revenue Forecast Council PO BOX 40912 Olympia WA 98504-0912 www.erfc.wa.gov 360-534-1560