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Oregon economy expected to stay on stable course

Economy — The resurgence of the dollar should survive the downturn in China's economy, economists say in economic and revenue forecast

China’s problems will affect Oregon’s economy, but state economists say they will have less effect than the strengthening dollar.

Oregon, and particularly its manufacturing sector, is more dependent than other states on exports — and China is Oregon’s largest trading partner.

Senior Economist Josh Lehner told lawmakers that the status of the dollar is key, especially with other Asian nations such as Malaysia — also among Oregon’s top five trading partners — and Vietnam.

“It is making our products more expensive in the global market and making products made abroad less expensive to American buyers,” Lehner said last week in the state’s latest quarterly economic and revenue forecast. “We’re going to see more imports and less exports, and that could take the wind out of our manufacturing sector.”

Lehner said in the past 18 months, the dollar has gained 20 percent relative to other currencies.

Still, Lehner says Oregon manufacturing is at a strong annual growth rate, of 4 percent, comparable to what it was in the 1990s and the mid-2000s.

“It really has not slowed down as of yet,” he said.

But both he and State Economist Mark McMullen said China’s problems — a slowing economy and a fledgling and fluctuating stock market — will have some effect on Oregon’s economy.

Lehner said China has had three economic bubbles during the past decade in local government spending, housing and now stock trading, during which middle-class investors have lost a lot.

“Typically these bubbles do not end well,” Lehner said. “So the concern is that we will have some sort of hard landing in China, not just a relative slowdown, but a more drastic event that will send a big shock wave through the global economy.”

Although China’s gross domestic product is projected to grow an average 6 percent annually for the rest of the decade — as compared with about 2.5 to 3 percent in the United States this year — Lehner said that rate is far less than what it has been for about two decades.

Chinese officials had planned to shift their national economic focus from internal investment to increased consumer consumption, which would benefit electronic and other products exported from Oregon.

But because of China’s economic slowdown, McMullen said, “in terms of our longer-term demand for our products, it looks like it’s at threat.”

Although McMullen says Oregon’s economic forecast is stable, along with projections of tax collections, there are other factors to consider:

— Wages: Oregon’s average wage is the highest it has been since the late 1970s. “Relative to other states, it is rising,” McMullen said. But by per-capita personal income, Oregon remains below the national average. Oregon most recently exceeded the national per-capita average in the late 1970s, although it edged closer to that average in the mid-1990s.

While there are signs of real growth, the economists say they are more evident in occupations in high demand paying higher wages. For sectors paying less, such as food and hospitality, they say wages are just keeping pace with inflation — and Oregon’s minimum wage is linked to the Consumer Price Index.

— Labor force participation: While Oregon’s figure has increased in the past year, the current estimate of 60 percent is down from 68 percent in 1990. Lehner says not all of that decline can be explained by retirements of the post-World War II baby-boomer generation — a larger share of Oregon’s population than elsewhere — or the severity of the most recent economic downturn.

“When more people that you expect have given up looking for work, it is not a good sign,” Lehner said. “We are waiting for this indicator to show some continued improvement to prove that the economy is fully healthy.”

— Rural areas: Led by Portland, Oregon’s urban areas have regained all of the jobs lost during the economic downturn, but rural areas — while starting to gain again in the past two to three years — have not yet fully recovered. McMullen says urban and rural areas lost jobs equally at 8 percent during Oregon’s downturn.

“When you add up all of the regions, they all are starting to turn around and a lot of the forward indicators are looking good,” he says. “But rural Oregon still faces a lot of challenges.”

To see the latest quarterly economic and revenue forecast released by the Oregon Office of Economic Analysis, visit http://1.usa.gov/1NO0kMO.