Oregon’s economy is maintaining course from the last forecast, with economic conditions improving and state revenues continuing their positive trends, the state’s economists told a joint meeting of the legislature’s revenue committees this morning. While the Federal Reserve’s interest rate increases have been painful for some businesses and individuals, the hikes seem to be working and the key inflationary indicators, such as durable goods prices, are no longer jettisoning up. Additionally, the job market has returned to pre-pandemic levels, indicating a healthy, yet tight, recovery from the pandemic. Considering the current trajectory, the economists believe the economy will avoid the monetary policy-fueled recession feared only a year ago.
Following the trend of recent revenue forecasts, state revenues are also holding strong, with lawmakers told to expect $343.5 million in newly available resources since the last forecast in September—$790.3 million since the legislature finalized the state budget in May ($593 million for the General Fund alone). This amount provides substantial breathing room for the legislature as leaders craft their plan for rebalancing the state budget during the short session, starting on February 5, 2024. Although the short-term outlook is positive, the economists downgraded their expectations for budget growth in the long term as economic models show slower gains from non-wage forms of income, such as investments and business profits. These projections do not call for a recession but slower positive growth beginning in the 2025-27 budget cycle.
In each revenue forecast, the economists provide the legislature with an “alternative scenario,” a narrative that has taken outsize importance in recent years due to the uncertainty in the outlook. The economists noted they changed their methodology by focusing on a longer-term scenario, looking at the state’s population and demographic trajectory to identify risks in the future. According to recent population estimates from Portland State University and the U.S. Census Bureau, Oregon’s population stalled during the pandemic years and recovered slowly, only now showing signs of growth. The economists believe the state will see positive net migration over the next decade, albeit slower growth than before the pandemic, which could reduce growth expectations in future years.
While the long-term outlook is difficult to predict, the positive short-term forecast heading into the next session allows the legislature to make targeted investments in key priorities. Chief among the spending considerations lately is the state’s response to the drug epidemic and homelessness. Earlier this week, Republicans called for the legislature to swiftly respond to the state’s drug decriminalization law by mandating treatment in place of criminal punishments. In a health policy forum yesterday, Democrats insisted the state needs to address its shortage of addiction and behavioral health providers to ensure an adequate resource network to tackle addiction.
Like we said last week, the next session might only be 82 days away, but for all practical purposes, we are already knee-deep in the session’s work.