PORTLAND, Ore. (KOIN) – Economists predict a recession could be on the horizon, according to the latest revenue forecast released by the Oregon Office of Economic Analysis on Wednesday.
The third quarter forecast predicts the combination of slower economic growth, high inflation and rising interest rates could mean trouble for the state and the country as a whole.
“Personal income and consumer spending are rising quickly, but struggling to outpace the fastest inflation the U.S. has experienced since the early 1980s,” state economist Josh Lehner wrote in the revenue forecast executive summary.
Lehner said inflation remains the key issue. His office predicts it is likely to remain above the Federal Reserve’s target, even as headline inflation slows in the months ahead.
While the Federal Reserve has been raising interest rates to try to slow the pace of inflation, these increases are often felt one to two years after the adjustment and Lehner said it’s hard to get the policy just right.
The Oregon Office of Economic Revenue said the risk of recession is “uncomfortably high.”
“The outlook is essentially a coin flip between the soft landing and a recession. For now, our office is keeping the baseline, or most probable outlook as the soft landing and continued economic expansion,” Lehner wrote.
Employment, income and spending have all continued to grow in recent months, but at a slower pace than previous forecasts predicted. Economists said this slower growth is necessary to help inflation subside.
If inflation does not slow as expected and the Federal Reserve raises interest rates again, the Oregon Office of Economic Analysis predicts a mild recession will begin in late 2023.
Currently, Oregon’s personal and corporate tax collections remain strong, causing economists to revise the forecast for the 2021-2023 biennium upward.
If spending and wages slow to tame inflation, that could result in less state revenue growth across a broad range of taxes.
The forecast said recent gains in reported taxable income have been driven by taxpayer behavior and underlying economic growth.
“Late 2021 was a great time to cash in assets, with equity prices and business valuations high, and potential federal tax increases on the horizon. Income reported on tax returns last year grew at more than double the rate of economic measures of income,” Lehner wrote.
He said the bottom line is that the unexpected revenue growth seen so far in 2022 has left the state with unprecedented balances in the biennium, followed by a record kicker in 2023-2025.
The projected personal kicker is $3.5 billion, which will be credited to taxpayers when they file their returns in spring 2024. The projected corporate kicker is $1.1 billion, which will be retained for educational spending.
The full revenue forecast for Oregon’s third quarter of 2022 is available online. The report includes presentation slides that were shared with the state legislature.
Oregon Gov. Kate Brown issued a statement Wednesday in response to the revenue forecast.
In it she said, “Thanks to the fiscally responsible decisions the State of Oregon has made over the last several years, we are well positioned with significant reserves to weather any economic challenges that lie ahead. Now, we must continue to make investments to benefit Oregon’s working families, so that all Oregonians can feel the benefits of our strong economic recovery.”
She said the Oregon Legislature can budget for the next biennium to help Oregonians with the rising costs of living expenses. She also credited the Biden-Harris administration for creating more jobs by passing the Inflation Reduction Act and the Bipartisan Infrastructure Law.