1. Oregon Presented by: Office of Economic Analysis Date: November 19, 2010 Economic and Revenue Forecast December 2010 House & Senate Revenue Committees

2. 2 Economic and Revenue Forecast

3. 33 Ever Changing Picture for the US Economy… Office of Economic Analysis “The pace of recovery in output and employment in the U.S. economy looks a little slower now than it did three months ago, according to 43 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters also predict weaker recovery in the labor market. ” November 15, 2010

4. 44 (Percent change, annual rate) Real GDP Growth in Alternative Scenarios Copyright © 2010 Global Insight, Inc. July Baseline (15%)(20%)

5. 55 Bottom Line for US Economy The “recovery-recession” is in its second year. Technical recession in the U.S. ended last summer, with the unemployment rate toping out at 10.1% in the fourth quarter of 2009. The labor market will remain weak with unemployment averaging 9.7% in 2010. Credit markets are slowly returning to pre-Lehman collapse days but risk premiums are still present. Residential and commercial real estate still tight. The housing market will continue to remain fragile. Housing starts marginally improved in the past year off their historic lows. But recent months point to a bumpy road this year. Prices will continue to decline throughout 2010. Inflation is not a threat today or even next year but the stage is set for carefully executed exit strategies to avoid inflation in the future. After an initial surge of economic growth in the fourth quarter 2009 and first quarter 2010, the economy is waning. GDP growth was revised down for the second quarter and will remain below potential through 2011. Copyright © 2010 Global Insight, Inc. Office of Economic Analysis

6. 6 10.5% unemployment rate for October 2010 (Oct US rate is 9.6%) is down from the highest rate of 11.6% in May and June 2009, but essentially unchanged the past twelve months. 38 th fastest job growth at -0.3% for all states for Sept 2010 over Sept 2009. Total nonfarm employment dropped -0.4% year-over-year for the 3 rd quarter of 2010. S.A. job gains in five of first ten months of 2010. Total nonfarm up 11,800 since Dec with the private sector up 10,000 (0.78%). 2.3% personal income growth for 2 nd quarter of 2010 over 2 nd quarter of 2009. Annualized 2 nd quarter 2010 growth at 2.5%. Oregon exports increased 25.1% in the first nine months of 2010 compared to the same period last year and have regained the majority of their losses from late 2008 and early 2009. Recent Oregon Economy Facts

7. 7 Intel Announcement The expenditure of $6 to $8 billion dollars (most of which is likely in Oregon) is approximately 2 percent of the total investment on industrial and other equipment and manufacturing structures expected to be spent in the U.S. in 2010. Expectation for jobs –6,000 to 8,000 construction jobs in OR and AZ over 2+ years –800 to 1,000 permanent high tech jobs in OR and AZ Issues: –How many construction workers are shifted from other jobs? –How many construction workers are hired over 2+ years? (Surely not 5,000 on day one and kept on until the end of the project) –How many high tech jobs are shifted from existing positions? –Direct, indirect, and induced jobs?

8. 8 2009198219491954 1957 1981 1958 1961 1975 1952 1953 1970 1960 1967 1971 1948 1950 1955 1951 1959 1965 1972 1977 1978 1980 1991 1966 1973 1976 1979 1988 1989 1983 1999 2001 2002 2003 2008 1974 1985 1986 1992 1998 2000 1956 1962 1963 1964 1968 1969 2004 2005 2006 2007 1984 1987 1990 1993 1994 1995 1996 1997 -7.5% to -6% -6% to -4.5% -4.5% to -3% -3% to -1.5% -1.5% to 0% 0% to 1.5% 1.5% to 3% 3% to 4.5% 4.5% to 6% 6% to 7.5% 7.5% to 9% Oregon Annual Employment Growth 1947-2010* Average: 2.23% Median: 2.86% 2010 *2010 estimate based on December forecast

9. 9 Leading Indicators 3 of 11 Indicators are Positive

10. 10 Initial Claims (through October 2010)

11. 11 Forecast Changes

12. 12 Total Non-farm Employment (Annual Percent Change)

13. 13 Forecast Comparisons

14. 14 Risks to the Forecast… ▲Upside ▲Financial markets return more quickly to normal ▲Quicker, stronger release of pent-up demand ▲More robust global growth ▼Downside ▼Housing downturn continues ▼Aftershocks from the financial crisis ▼China bubble? Euro Zone Financials? ►Other Considerations ►Impact of Measures 66 and 67 ►Health care reform

15. 15 Bottom Line for the Oregon Economy The “technical” recession in Oregon ended late last summer or fall. The “jobless” recovery has taken hold. Job losses will continue into the third quarter of 2010, with only mild job growth through 2011. Housing prices will still decline throughout 2010 but looking more like a bottom has been reached in housing permits (even with the July drop following the expiration of the tax credit). Housing will not lead during the recovery. First sectors likely to come back: profession and business services, health care services, computer and electronic products, retail.

16. 16 General Fund Revenue Forecast Forecast tracking slightly behind September forecast –Generally, a “mixed bag” with weak estimated payments in FY11 Q1 2009-11 up $61.9 million relative to September forecast –Reflects withholding guidance changes effective Jan 1, 2011 2011-13 down $272.7 million

17. 17 Recent PIT Revenue Performance Withholding –Strengthening since the spring, solid Y/Y gains Total PIT up year-over-year the past two quarters –Improvements Y/Y in withholding, estimated, refunds Economic improvement, M66 contributing as well

18. 18 Personal Income Tax Forecast Up $97.7 million in 2009-11 –Minor weakness in near term however withholding guidance and subsequent table changes drive the forecast increase Decreased by larger amounts for out-years of forecast, reflecting view of weaker growth through forecast period, plus refund adjustment due to withholding changes

19. 19 PIT Growth

20. 20 Corporate Income Tax/Other GF Revenue Forecast Corporate income taxes decreased $18.7 million in 2009-11 BN –Roughly $7 million above kicker threshold (current kicker estimate at $23.6M) Other changes (up $39.9 million): –Estate & Insurance taxes, Interest Earnings lower –Tobacco taxes higher –$57M in one-time transfers (Amnesty $31M)

21. 21 Corporate Growth

22. 22 2009-11 GF Revenue

23. 23 Budgetary Reserve Outlook

24. 24 Revenue Issues/Risks Forecast Complications with New Tax Measures –Tracking difficult, especially in near-term –Increased volatility Impact of Federal Changes on taxpayer behavior

25. 25 Lottery Revenue Forecast Baseline near-term forecast held steady –Additional administrative savings of $9 million relative to September. Out-years decreased slightly –Lower expectations for consumer spending

26. 26 Lottery Revenue Forecast

27. 27 For More Information Office of Economic Analysis 155 Cottage Street NE, U20 Salem, OR 97301-3966 (503) 378-3405 Email: oea.info@state.or.usoea.info@state.or.us Website: http://oregon.gov/das/oeahttp://oregon.gov/das/oea Blog: http://oregoneconomicanalysis.wordpress.com/http://oregoneconomicanalysis.wordpress.com/ Twitter: http://twitter.com/OR_EconAnalysishttp://twitter.com/OR_EconAnalysis