PORTLAND, Ore. (KOIN) – The economy has been booming, but with inflation on the rise, it could be heading toward a bust, and a state economist is warning Oregon often feels the effects of these “busts” greater than other states. 

Josh Lehner, economist with the state of Oregon, published a blog post the day after the Federal Reserve raised interest rates 0.75 percentage points to help slow the recent surge in inflation. 

The post, titled “Boom/Bust Alternative Scenario,” describes the boom and bust cycle and discusses the potential recession the U.S. could be heading toward as inflation causes prices to rise across the country.  

“We’re in this economic boom today, right? Jobs and income, employment, production, all these things we really care about are growing really quickly,” Lehner said. “And historically, these inflationary booms don’t traditionally end well.” 

Inflation has pushed overall prices up about 8.6% in the past year, leaving many people concerned about affording their expenses and wondering what policymakers can do about it. While the Federal Reserve hopes the adjusted interest rate will help slow inflation down, some fear their action came too late and a recession could be unavoidable. 

Economists, including Lehner, said the odds of a recession occurring are “uncomfortably high.” 

With inflation so hot right now, the efforts to slow it back down to the target rate of 2% will likely result in some economic weakness or a recession, Lehner said. 

As far as how severe the recession could be, Lehner said there’s no way to tell ahead of time. However, there are indications it could be mild or moderate.

“There’s very little leverage in the economy. Household debt is very tame. We have strong employment, strong income, low levels of debt,” Lehner said. “So that would mean if there was a recession, there’s not a lot of structural issues we’d need to work through. It would kind of just be a short-term, more mild type.” 

Even if the recession does turn out to be mild, Oregon might still feel the impact of it more so than other states. Lehner said Oregon grows faster during expansions, but falls harder during recessions and that’s due to a couple factors. 

First, he said Oregon’s population growth is often impacted during a recession. He said in a recession, it’s common for people to hunker down and not move. The second factor is Oregon’s economic structure. It’s a state that relies heavily on the manufacturing, construction and natural resources sectors. These industries are typically all heavily impacted during a pandemic and could result in job loss. 

“With rising interest rates cooling some of that demand for physical goods, that would impact our manufacturing or goods-producing industries in Oregon,” Lehner explained. 

This graph shows Oregon employment alternative scenarios in a boom/bust situation. In this boom/bust scenario, Oregon suffers a moderate recession. The state loses 100,000 jobs and the unemployment rate rises to nearly 9 percent. Nominal personal income does not necessarily decline significantly, but rather stalls out for a year and a half or two years. Image courtesy Oregon Office of Economic Analysis

He said economists are already seeing changes in the way people are spending their money. During the pandemic, people were spending a lot on physical goods and had many items delivered to their doors. This put a strain on supply chains and now, many people can’t get physical goods as quickly as they’d like and spending on these items has slowed. 

At the same time, as the pandemic eases, more people have transitioned back to spending money on things like travel and eating at restaurants. Lehner said this will help to rebalance the economy and will slow inflation. 

KOIN 6 News asked Lehner if there’s anything people can do to prepare for a recession. He said really, the best thing people can do is to not drastically change their spending habits. He said if everyone cuts back on spending all at once to build a cushion in savings, that could induce a recession. 

“If we all think something bad’s gonna happen, we can kind of manifest it ourselves,” he said. 

Lehner said people should not panic and emphasized again that employment, income and production are all doing well right now, which should hopefully lessen the “bust”. 

He said if a recession does occur, economists do not believe it will be massive like what happened in 2008. Instead, he expects it will more closely resemble the 1990 or 2001 recessions. 

“The risks are uncomfortably high; they are real, and we’re going to continue to track the data,” he said. “So far, it’s more about concerns of the future than anything problematic we’re actually seeing in the data.” 

Lehner and the Oregon Office of Economic Analysis have been updating their “Recession Watch” online with the latest information. The post includes more details about previous recessions and what economic factors have contributed to the current situation in the U.S.