PORTLAND, Ore. (KOIN) – Inflationary booms do not end well and a recession now appears more likely than not, the Oregon Office of Economic Analysis said Wednesday when it released the quarterly economic and revenue forecast.
State economist Josh Lehner wrote that his office’s experts and national forecasters expect a mild recession to begin within the next year. His office predicts a mild recession will impact Oregon in summer 2023 and could result in 24,000 job losses and that the unemployment rate could climb as high as 5.4% in early 2024.
During this recession, economists predict income and spending will be slow, but will remain positive.
“Such a cycle would be one of the shallowest, and shortest recessions on record, similar to 1990,” Lehner said.
The Oregon Office of Economic Analysis said the nature of the looming recession is more technical than fundamental and is driven by declines in housing and business investment due to high-interest rates.
It predicts larger losses in the construction, finance, manufacturing, transportation and warehousing industries. Smaller losses are predicted for health care and the leisure and hospitality industries.
“This change in the baseline forecast is not due to any fundamental deterioration in the economy in recent months, but rather a shift in assessing the risks. In particular with inflation remaining well above the Federal Reserve’s target, expectations are that interest rates will need to be higher and held there longer than previously thought,” Lehner wrote in a post about the revenue forecast.
He said there are three reasons why economists predict a milder recession. First, businesses, financial markets and households all indicate that they expect the current high inflation to slow in the years ahead.
Second, Lehner said the labor market has been tight due to a strong economy and it’s been difficult to find workers. Firms do not want to let go of the workers they have and will likely try to hold onto them as long as they can.
Third, households are in strong financial positions and consumer spending is expected to hold up well in the pending recession due to the higher level of savings, Lehner said.
Economists do predict that Oregon General Fund revenues are “due for a hangover” in the 2023-2025 biennium. They expect a record kicker will be paid out and that revenues in the next biennium will be about $3 billion lower than the current biennium.
“That said, it is surprising that the recession call did not make this expected decline noticeably worse,” Lehner said.
The projected personal kicker is $3.7 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 K-12 educational spending.
The Oregon Office of Economic Analysis also predicted what will happen with inflation heading into 2023. According to their forecast, inflation will remain at about the same level in the first quarter of 2023 before dropping significantly for the rest of the year.
Economists said that when the Federal Reserve raises interest rates, it slows the economy, but with a one to two-year lag.
Oregon Gov. Kate Brown issued a statement in response to the latest economic and revenue forecast.
“Our latest revenue forecast shows that, thanks to the continued fiscally responsible decisions state government has made over the last several years, we remain well positioned with significant reserves to prepare for any economic challenges that may lie ahead.
“This is welcome news at a time when the forecast also anticipates a slight economic downturn. Because we have made prudent financial decisions, the state has the ability, if needed, to invest in resources to help Oregonians who may feel its impacts,” she said.
With this forecast, she said lawmakers should be prepared to respond to upcoming economic challenges.