economic and revenue update - washington...apr 12, 2017 · economic and revenue update presented...

WASHINGTON STATE

ECONOMIC AND REVENUE FORECAST COUNCIL

Economic and Revenue Update

Presented toWashington State CCIM Chapter

Steve LerchExecutive Director

April 12, 2017Bellevue, Washington

Economic & Revenue Update

April 12, 2017

Slide 1

WASHINGTON STATE ECONOMIC AND REVENUE FORECAST COUNCIL

Forecast Process in Washington State

ERFC

Council hires Executive Director for three year term

Director hires staff

Total staff of five

Economic and Revenue

Forecast Council

Office of the

Forecast CouncilGovernor's Council

of

Economic Advisors

Forecast

Work Group


April 12, 2017

Slide 2


Summary

• Our forecast continues to call for moderate U.S. economic growth

• We anticipate two additional interest rate hikes by the Federal Reserve this year

• The WA economy continues to outperform the U.S. economy

• Seattle area inflation remains above the national average due to housing costs

• Risks to the baseline include slow global and U.S. economic growth, weak labor productivity growth and uncertainty regarding fiscal and trade policy


April 12, 2017

Slide 3


Economic news continues to suggest risks to forecast

- Employment continues to expand

- Consumer spending growing at

moderate pace

- Small business optimism improving

- Manufacturing, business investment

showing improvement

- Slower 2016 economic growth in

developed countries

- Negative impact of stronger dollar on

exports

- Declining labor force participation

- Slow growth in labor productivity


April 12, 2017

Slide 4


0

1

2

3

4

5

6

7

8

9

0

50

100

150

200

250

300

350

400

2010 2011 2012 2013 2014 2015 2016 2017

YTD

Th

ou

san

ds

Th

ou

san

ds

Average monthly employment change

U.S. (left) WA (right)

WA job creation very strong in 2016; for U.S., slightly weaker than 2015

Source: Bureau of Labor Statistics, ERFC; data through Feb. 2017


April 12, 2017

Slide 5


Inflation-adjusted U.S. wage growth remains slow

-8

-6

-4

-2

0

2

4

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% c

han

ge

Year-over-year Growth in U.S. Real Hourly Wages and Total Weekly Hours

Total weekly hours Real hourly wages

Source: U.S. Bureau of Labor Statistics; data through Feb. 2017


April 12, 2017

Slide 6


February U.S. retail and food service sales were 5.7% above February 2016

250,000

300,000

350,000

400,000

450,000

500,000

2005 2006 2007 2009 2010 2011 2013 2014 2015 2017

$ m

illion

s

Monthly U.S. sales, SA

Retail & food services Excluding Autos

Source: U.S. Census Bureau, data through February 2017


April 12, 2017

Slide 7


Small business optimism and sales expectations jumped in December, remains elevated

70

75

80

85

90

95

100

105

110

-40

-30

-20

-10

0

10

20

30

40

2006 2008 2010 2012 2014 2016

Op

tim

ism

In

dex,

19

86

=1

00

3 m

on

th s

ale

s g

ro

wth

exp

ecta

tion

,

percen

t

NFIB Small Business Optimism Index

Sales Expectations Optimism Index

Source: National Federation of Independent Business; data through February 2017


April 12, 2017

Slide 8


Consumer confidence is at or above pre-recession levels

0

25

50

75

100

125

2005 2007 2009 2011 2013 2015 2017

Index

Mich: 1966Q1 = 100, SAConf Board: 1985 =100, SA

U. Michigan Conf Board

Sources: University of Michigan, Conference Board; data through Mar. 2017


April 12, 2017

Slide 9


Manufacturing: slowing in

Washington, improving nationally

25

30

35

40

45

50

55

60

65

70

75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

In

dex,

50

+ =

gro

wth

Institute of Supply Management Index

Washington United States

Source: ISM; U.S. data through Mar. 2017; WA data through Feb. 2017


April 12, 2017

Slide 10


Developed country economies slowed in 2016

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2002 2004 2006 2008 2010 2012 2014 2016Percen

t ch

an

ge

Annual real GDP growth

Developed economies World

Source: Organization for Economic Cooperation and Development; data through 2016


April 12, 2017

Slide 11


The dollar has increased in value relative to currencies of U.S. trading partners

80

90

100

110

120

130

140

2010 2011 2012 2013 2014 2015 2016 2017

Trade-weighted Dollar, 1997 = 100

Source: Federal Reserve; data through March 2017


April 12, 2017

Slide 12


WA exports have declined for two consecutive years

-25

-20

-15

-10

-5

0

5

10

15

20

25

China Canada Japan All other

Y-O

-Y p

ercen

t ch

an

ge

Year-over-year growth in export value

2013 2014 2015 2016

Source: WISERTrade; data through December 2016


April 12, 2017

Slide 13


Components of change in labor force participation rate, 2007Q4 to 2016Q4

-4% -3% -2% -1% 0% 1% 2%

Total

Aging population

In school

Health problems

Want job, not looking

Later retirement

Source: U.S. Bureau of Labor Statistics, Federal Reserve Bank of Atlanta

Labor force participation rate = % of population age 16+ working or looking for a job


April 12, 2017

Slide 14


Labor productivity growth has remained low since 2011

-3

-2

-1

0

1

2

3

4

5

6

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Labor productivity, nonfarm business, year over year % change

Source: U.S. Bureau of Labor Statistics, data through 2016 Q4


April 12, 2017

Slide 15


Washington vs U.S. employment growth: Feb. 2016 to Feb. 2017

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

U.S. WA

Source: Employment Security Dept., ERFC; data through February 2017


April 12, 2017

Slide 16


Personal income has been growing faster in WA than for U.S. as a whole

1

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2005 2006 2007 2008 2010 2011 2012 2013 2015 2016

20

05

Q1

= 1

.0

Growth in WA, U.S. personal income since 2005Q1

WA U.S.

Source: U.S. Bureau of Economic Analysis, data through 2016 Q3


April 12, 2017

Slide 17


Employment growth varied widely across state metro areas

0%

1%

1%

2%

2%

3%

3%

4%

4%

2016 employment growth by metro area

Source: WA State Employment Security Department


April 12, 2017

Slide 18


U.S., WA housing permits trending up; U.S. remains below historical averages

0

10

20

30

40

50

60

70

80

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2002 2004 2006 2008 2010 2012 2014 2016

Th

ou

san

ds,

WA

(S

AA

R)

Th

ou

san

ds,

U.S

. (S

AA

R)

U.S. WA

Source: U.S. Census Bureau, data through February 2017


April 12, 2017

Slide 19


WA population growing faster than U.S. due to in-migration

0.95

1

1.05

1.1

1.15

1.2

2007 2009 2011 2013 2015 2017 2019 2021

In

dex,

20

07

= 1

.0

WA, U.S. population growth since 2007

WA U.S.

Source: ERFC March 2017 forecast

Forecast


April 12, 2017

Slide 20


Seattle home prices have been rising much faster than prices nationally

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016

Year-over-year house price change, SA

Seattle U.S.

Source: S&P/Case-Shiller; data through Jan. 2017


April 12, 2017

Slide 21


Construction accounts for a larger share of employment in WA than the U.S.

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

2000 2002 2004 2006 2008 2010 2012 2014 2016

Construction share of nonfarm employment

U.S. WA

Sources: U.S. Bureau of Labor Statistics, Employment Security Dept., ERFC; data through Feb. 2017


April 12, 2017

Slide 22


WA apartment construction activity has moderated after an unusually strong 2016 Q4

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Square

feet,

thousands (

SAAR)

Tota

l valu

e,

$ m

illions (

SAAR)

Construction contracts - apt. buildings , 3 MMA, SAAR

Total value Square feet

Source: Dodge, ERFC; data through Feb. 2017


April 12, 2017

Slide 23


WA commercial construction activity heading up during last half of 2016, slowed in February

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Sq

uare f

eet,

th

ou

san

ds (

SA

AR

)

$ m

illio

ns (

SA

AR

)Construction contracts – nonresidential commercial,

3 MMA, SAAR

Value Sq. feet

Source: Dodge, ERFC; data through Feb. 2017

Includes office, retail, hotels, restaurants, warehouses


April 12, 2017

Slide 24


GDP growth is expected to improve from last year’s 1.6% growth rate

-4

-3

-2

-1

0

1

2

3

2007 2009 2011 2013 2015 2017 2019 2021

Percen

tReal U.S. GDP Growth Rates

History March Forecast

Source: U.S. Bureau of Economic Analysis, ERFC March 2017 forecast; historical data through 2016


April 12, 2017

Slide 25


Oil prices are slightly lower in 2018-2021 compared to November

20

30

40

50

60

70

80

90

100

110

120

2007 2009 2011 2013 2015 2017 2019

Do

llars P

er B

arrel

Average Price of Crude Oil

March November

Source: DOE, ERFC March 2017 forecast; historical data through 2016Q4

Forecast


April 12, 2017

Slide 26


Two more Federal Reserve interest rate increases assumed for this year

3

3.5

4

4.5

5

5.5

6

6.5

2007 2009 2011 2013 2015 2017 2019 2021

30 year fixed mortgage rates

March November

Forecast

Source: ERFC March 2017 forecast, historical data through 2016


April 12, 2017

Slide 27


Washington personal income is slightly higher compared to the November forecast

200

250

300

350

400

450

500

550

2013 2014 2015 2016 2017 2018 2019 2020 2021

Billio

ns o

f D

ollars

Washington Personal Income

March November

Source: ERFC March 2017 forecast; historical data through 2015


April 12, 2017

Slide 28


Washington employment forecast is slightly higher than in November

2,600

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

3,500

3,600

2007 2009 2011 2013 2015 2017 2019 2021

ThousandsWashington Nonfarm Payroll Employment

March November


The WA nonfarm employment forecast is 26,000 jobs higher by 2021 compared to November


April 12, 2017

Slide 29


Washington Employment Trends

0 10 20 30 40 50 60 70 80

All Other

Aerospace Manufacturing

Local Govt. ex Education

Other Services

Financial Activities

Wholesale Trade

Transp. & Warehousing

Information

Manuf ex Aerospace

State, Local Govt Education

Admin & Support Services

Health Care

Prof, Scientific, Tech Services

Construction

Leisure & Hospitality

Retail Trade

Employment Change since Trough (thousands)

Washington has gained 477,000 nonfarm jobs since February 2010

Source: U.S. Dept. of Labor, BLS, ESD, ERFC; data through Feb. 2017


April 12, 2017

Slide 30


Washington housing permits forecast is higher in the near term compared to November

20

25

30

35

40

45

2013 2014 2015 2016 2017 2018 2019 2020 2021

Th

ou

san

ds

Washington Housing Permits

March November


Fourth quarter 2016 saw a spike in multi-family building permits which is expected to moderate


April 12, 2017

Slide 31


After slowing slightly in the last half of 2016, Revenue Act collections for January activity were strong

Source: DOR and ERFC; monthly data through estimated January 2017 activity

* Adjusted for large one-time transactions, amnesty payments and reporting frequency change, current definition of Revenue Act

650

750

850

950

1,050

1,150

1,250

2002 2004 2006 2008 2010 2012 2014 2016

$millions SA

Revenue Act Collections 3-Month Moving Average


April 12, 2017

Slide 32


Large commercial property sales continue to have major impact on REET collections

-

5

10

15

20

25

1990 1993 1996 1999 2002 2005 2008 2011 2014

$ B

illio

ns

Taxable real estate sales, SA

Excl. Comm'l. Sales >$10M WA total

Source: ERFC, data through 2016 Q4

Large commercial property sales over $10 million totaled $563 billion in January and $573 million in February.


April 12, 2017

Slide 33


Both the number of real estate transactions and the average value per transaction are trending up

40

50

60

70

80

90

100

$50

$100

$150

$200

$250

$300

$350

1990 1994 1998 2002 2006 2010 2014

Th

ou

san

ds o

f Tran

sacti

on

s

Avg

. $

per t

axab

le s

ale

, th

ou

san

ds

Taxable real estate transactions

Value per transaction Transactions

Source: ERFC, data through 2016 Q4


April 12, 2017

Slide 34


The price of cannabis has continuedto fall

6

8

10

12

14

16

18

20

22

24

26

Jul-14 Jul-15 Jul-16

Do

llars p

er g

ram

Retail Price (includes 37% excise tax)

Source: LCB, ERFC; data through February 2017


April 12, 2017

Slide 35


Cannabis sales growth has stalled

30

35

40

45

50

55

60

65

70

75

80

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17

$ M

illio

ns

Retail Cannabis Sales (pre-tax)

Recreational Medical

Source: LCB, ERFC; data through January 2017


April 12, 2017

Slide 36


Conclusion

• WA personal income and employment forecasts are slightly higher than in November; WA and U.S. housing are lower

• As has been the case for some time, Washington’s economy is continuing to outperform the nation

• Operating budget revenues are expected to grow 13.5% between the 2013-15 and 2015-17 biennia and 6.8% between the 2015-17 and 2017-19 biennia

• The level of uncertainty in the baseline remains elevated, with downside risks outweighing upside risks


April 12, 2017

Slide 37


Questions

Economic & Revenue Forecast CouncilPO BOX 40912Olympia WA 98504-0912

www.erfc.wa.gov360-534-1560

economic and revenue update - washington...apr 12, 2017 · economic and revenue update presented...

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