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State's 'unprecendented' hot economy, tight labor market and low unemployment raise concerns for some economists

It's a good time to be a holiday shopper in Oregon.

Despite fears of a recession earlier this year, Oregon's economy remains stronger than much of the country. Unlike a decade ago, when the economy was reeling from a recession, Oregonians have jobs and money. That puts them in a better position to be generous this holiday season.

Hovering at about 4 percent, the state's unemployment rate is at historic lows. Oregon had the second-fastest growing median income in 2018. At 13 percent, Oregon's poverty rate is below the national rate and the lowest since 2000.

"We're in unprecedented times right now," said John Tapogna, president and economist at consulting firm ECONorthwest. "We're in 11th year of an economic expansion and no other Americans have ever lived through that."

While Oregon's economic indicators are strong going into the busiest shopping season of the year, there are signs that trouble some economists. There have also been some blips in the otherwise strong economy that resulted in job losses.

Still, local shoppers, retailers and bankers remain optimistic going into the holidays. Umpqua Bank, a regional bank with branches across Oregon, reports strong consumer confidence. Annette Campista, senior vice president and regional director of business banking, said she's seen an increase in business loan applications, an indicator of economic health.

Campista added that the bank has seen an uptick in consumers saving and many customers have leveraged low interest rates to refinance their homes and consolidate debt.

Jeff Bailey, president and CEO of the Bank of Eastern Oregon in Heppner, saw similar increases in deposits, "steady to better" activity on loans and overall faith in the economy despite the threat trade wars pose to the region's agriculture.

"From a national perspective, consumer spending is still very strong," he said. "In small towns in rural eastern Oregon, it's pretty much the same."

He expects a good year for merchants: "Consumers are fairly optimistic. They're feeling good about their own financial situation."

Pat O'Connor, regional economist at the state employment department, said that while Oregon tends to have a tougher time during recessions, its economy tends to outpace the rest of the country during expansions. However, he added that the high growth that Oregon and the rest of the country have experienced in recent years is starting to slow.

In early 2019, the economy showed signs it was teetering on a recession. While those fears didn't materialize, the economy is still showing signs of slowing. Businesses are investing less, and hiring has slowed.

"Growth has slowed in 2019 and downside risks remain elevated," wrote Josh Lehner, an economist with the Oregon Office of Economic Analysis, in a summary of the state's most recent economic forecast. "However, a recession is not yet seen in the data."

O'Connor said that business investment is down, possibly because of decreased demand or uneasiness over the trade wars. The slowdown isn't surprising, he said. He attributed the tight labor market to employers running out of people to hire.

"I think that's the biggest change over the past years," he said. "But if you have to have some slow growth, it's good to have it at record low unemployment."

O'Connor added that the economy has been propped up by consumers with more money to spend. Earlier this month, economic research firm Moody's Analytics noted that "the consumer is shouldering all the burden in preventing the slowing from turning into something worse."

Running out of gas

Private economists don't paint quite as rosy a picture as the state's analysts. Both Tapogna and fellow ECONorthwest economist Bob Whelan warn there are a few signals that the United States is headed for a recession. They're warning consumers and business owners alike to tread lightly.

"Retail sales are surprisingly weak. To me it looks like the economy is running out of gas," Whelan said. "If I were a retailer, hotelier, restaurateur -- I'd be cautious."

When assessing the economy's strength, Whelan looks at indicators including consumer spending, debt, manufacturing and agricultural production, population growth, employment and housing development. He believes consumer spending is particularly illustrative of the economic health because it accounts for about two-thirds of the economy, the other third being made up of mostly government spending.

According to Whelan, reports from national retailers provide some insight into how Oregon retailers might be faring and what they can expect in the coming months. Kohl's is one company that provides a good snapshot of how much average consumers are spending at a point in time, Whelan said, because the retailer serves a decidedly middle-class demographic.

In early November, the company's stock fell nearly 25 percent in one day after reporting poor performance in the third quarter and projecting a bad outlook for the holidays.

Whelan also warned that consumer spending has relied on credit, particularly in the mortgage and auto industries. Defaults on car loans are at a 20-year high, meaning that consumers are presuming too much about the future economy and using credit terms that outlive their cars. These are signs that a recession could be on the horizon, he opined.

"Don't borrow a lot of money and cut back (on spending)," he said. "That's what I would tell consumers and business owners right now."

Lance Rudge, Portland market leader for U.S. Bank, said Americans will be wary of how political shakeups at the state and national level in 2020 might affect both their businesses and their pocketbooks.

"The economy and job market are strong, but we are seeing that small businesses are hesitant to take on more debt with the consequences from 2008 still in mind," Rudge said.

Prices on the rise

The Trump administration's trade wars pose a particular threat to Oregon, which relies heavily on exports. The state's economic forecast identified slower growth in construction, hospitality, business services and durable goods. It also found that employers are posting fewer help wanted ads and that business investment is down.

Whelan and Tapogna indicate tariffs have actually hurt Oregon worse than what's previously been reported, particularly in the areas of manufacturing and agriculture.

Overall, manufacturing employment in Oregon is declining and increased taxes on products like hazelnuts, timber and microprocessors have caused headaches for farmers, loggers and tech giants alike. Outside of those industries Oregon has fared well, Tapogna said, but prices for certain imported products continue to rise and put the burden on consumers.

"Oregon is sort of in the middle of the pack of all states. We're not as adversely affected as some of the state's in the middle of the country by the export aspect of trying to sell things into China, but on the other side, in terms of tariffs for things coming into the country, it's putting upward pressure on prices," he said.


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