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
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 Washington State Forecast April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 1
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 Washington State Forecast April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 2
Consumer confidence dipped in late 2018 but has partially recovered, remains strong Index Mich: 1966Q1 = 100, SA Conf Board: 1985 =100, SA 150 125 100 75 50 25 0 2005 2007 2009 2011 2013 2015 2017 2019 U. Michigan Conf Board Washington State Forecast Sources: University of Michigan, Conference Board; data through February 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 3
Small business optimism has weakened recently but remains strong NFIB Small Business Optimism Index 40 110 3 month sales growth expectation, Optimism Index, 1986=100 30 105 20 100 10 95 percent 0 90 -10 85 -20 80 -30 75 -40 70 2006 2008 2010 2012 2014 2016 2018 Sales Expectations Optimism Index Washington State Forecast Source: National Federation of Independent Business; data through Jan. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 4
Job openings continue to grow at a strong pace U.S. Job Openings, Year over Year Growth (SA) An average of 40 5.7 million jobs were open in 30 2018 20 Percent Change 10 0 -10 -20 -30 -40 -50 2002 2004 2006 2008 2010 2012 2014 2016 2018 Washington State Forecast Source: U.S. Bureau of Labor Statistics, data through Dec. 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 5
WA, U.S. unemployment rates are below pre-recession levels WA, U.S. unemployment rates SA 11 10 9 8 Percent 7 6 5 4 3 2007 2008 2009 2011 2012 2013 2015 2016 2017 2019 WA U.S. Washington State Forecast Source: Bureau of Labor Statistics, ERFC; Data through Feb. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 6
Washington personal income growth has outpaced the U.S. for the last seven years U.S. and WA personal income growth WA personal 1000% income growth is 800% expected to average 600% 4.8% per year for 400% 2019 - 2023 200% 0% -200% -400% -600% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 U.S. WA Washington State Forecast Source: U.S. Bureau of Economic Analysis, data through 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 7
WA, U.S. job growth remain strong Average monthly employment change 500 10 450 9 400 8 350 7 Thousands Thousands 300 6 250 5 200 4 150 3 100 2 50 1 0 0 2011 2012 2013 2014 2015 2016 2017 2018 U.S. (left) WA (right) Washington State Forecast Source: Bureau of Labor Statistics, ERFC; data through 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 8
Washington vs U.S. employment growth: Feb. 2018 to Feb. 2019 7% Information 6% 5% Educ/Health 4% Services Constr. Manufacturing Prof/Business 3% Services Total 2% 1% 0% Retail Trade Leisure/ U.S. WA Hospitality Washington State Forecast Source: U.S. Bureau of Labor Statistics, Employment Security Dept., ERFC; data through Feb. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 9
Nominal wage growth has averaged 3.3% in last 12 months regardless of educational level Year over year growth, 12 mon. moving avg. 7.0 6.0 5.0 Percent 4.0 3.0 2.0 1.0 0.0 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 High school or less AA degree Bachelors degree or higher Washington State Forecast Source: Federal Reserve Bank of Atlanta, data through Jan. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 10
Exports to China are declining Year-over-year growth in export value, major trading partners After four 85 quarters of year over 75 year growth, 65 WA exports YOY percent change 55 declined in 2018 Q4 45 35 25 15 5 -5 -15 -25 -35 China Canada Japan South Korea All Other 2018Q2 2018Q3 2018Q4 Washington State Forecast Source: WISERTrade; data through 2018 Q4 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 11
After four consecutive quarters of growth, WA exports declined in the fourth quarter of 2018 WA exports, year over year growth Total Export 200% Growth 160% 2017Q4: 0.6% 2018Q1: 3.9% 120% 2018Q2: 3.7% 2018Q3: 2.6% 80% 2018Q4: -2.7% 40% 0% -40% -80% 2005 2007 2009 2011 2013 2015 2017 Transp Equip Agriculture All other Washington State Forecast Source: WISERTrade; data through 2018 Q4 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 12
Home price growth is slowing Case-Shiller home price index, year over year % change, SA Starting in July 2018, 25% the Case- 20% Shiller index for Seattle 15% has decreased 10% for six Percent consecutive 5% months. 0% -5% -10% -15% -20% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Seattle U.S. Washington State Forecast Source: Case-Shiller, data through December 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 13
Relative to population, WA residential construction activity is stronger than the U.S. Residential building permits per 1,000 population 10 9 8 7 6 5 4 3 2 1 0 2000 2003 2006 2009 2012 2015 2018 US WA Washington State Forecast Source: U.S. Census Bureau, ERFC; data through 2018 Q4 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 14
U.S. retail sales growth has slowed recently Year over year growth, % 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Retail & food services sales Washington State Forecast Source: U.S. Census Bureau data through January 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 15
Business investment trended down in last five months of 2018 New orders: nondefense capital goods excluding aircraft (SA) 75,000 70,000 65,000 $ millions 60,000 55,000 50,000 45,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Washington State Forecast Source: U.S. Census Bureau; data through Dec. 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 16
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. Washington State Forecast Source: Federal Reserve Bank of Philadelphia, data through Nov. 2018 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 17
An inverted yield curve (short-term interest rates > long-term rates) is a consistent recession predictor 10 yr. Treasury rate – 3 mo. Treasury rate As of March 5 28, 2019 10 year Treasury bond yields 4 were 0.04% below three month 3 Treasury bill yields Percent 2 1 0 3/28/2019 -1 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Washington State Forecast Source: Federal Reserve Bank of St. Louis, data through March 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 18
Timing of next recession: National Assoc. of Business Economists survey 45% 40% Percent of respondents 35% 30% 25% 20% 15% 10% 5% 0% 2019 2020 2021 After 2021 No opinion Washington State Forecast Source: National Association of Business Economists, Economic Policy Survey, Feb. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 19
Wall Street Journal economists’ survey shows recession probability rising but below 25% Probability of recession in next 12 months GCEA 26 members: 24 Average probability of 22 recession in next 12 months = 20 36% 18 16 14 12 10 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Washington State Forecast Source: Wall Street Journal economists’ survey, data through Mar. 2019 April 1, 2019 WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL Slide 20
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