Portland Tribune by John Vincent January 26, 2016
Speaking before a packed Portland Business Alliance audience, economist John Mitchell predicted that the region’s economy will continue to expand at an annual rate of about two percent through 2016.
The economy is in its 79th month of expansion following the Great Recession.
Mitchell, the former chief economist for U.S. Bancorp, and now a principal in M & H Economic Consultants sees a broad-based improvement in the employment picture, with the northwest outpacing the rest of the country in job growth.
“One of the puzzling things is that you have not seen more of an increase in wages,” he says, “we’ve been looking for that.” He predicts that the tightening labor market will create upward pressure on wages and that hiring will get more difficult.
“His outlook is very consistent with what we believe and are seeing,” says Jason Norris, VP of Research at Portland’s Ferguson Wellman Capital Management. “You could say we reinforce each other.”
Inflation is more complicated, though Mitchell concludes that inflation will return to near normal levels once the transitory influences of a strong dollar and falling fuel prices taper out of the equation. The strong dollar reduces the attractiveness of U.S. products abroad, lowering export revenue. The same strong dollar lowers prices on goods imported into the U.S.
Lower fuel prices, while they help consumers, are having a larger impact on the economy as a whole than they might have in the past. “This time it’s a little different,” Mitchell says, because of greatly increased domestic oil production.
“There’s a swath of industries that get hit very hard. It’s a change in the equation,” says Mitchell. Nowhere has that impact been more visible than on the stock market, where energy-related stocks and mutual funds have seen dramatic declines.
Mitchell noted that there may be some enduring effects from the recession. This hysteresis, where an event or process changes you, could be responsible for some long-term changes in the behavior of business and individuals in the economy.
Business investment plummeted during the recession. “Normally you would expect it to come roaring back,” Mitchell says, “It didn’t come back the same way this time. This might be a permanent effect.”
Fear seems to have held back entrepreneurial activity, the recovery of which has lagged previous downturns.
Housing in our region has picked up substantially, but suffers from lack of building capacity, which was lost during the recession. “We’ve got the population growth, but we have not seen the response on the supply side that you’ve seen in other places,” Mitchell says.
Mitchell notes that some of the delayed reaction could be attributed to millennial behavior. “People had a slow start in the labor market, maybe burdened by student debt, but when family formation is picking up, I suspect you will see somewhat of a resurgence on the single family side,” he says, predicting continued growth in the single family housing market. Migration patterns from state to state have returned to normal patterns.
Interest should continue a slow rise, with the pace dictated by economic data.
“The U.S. consumer is employed and his or her wages are going up, so that’s a positive,” says Norris. Over the long term that should be a positive for investors, “but what we’ve seen over the last several weeks is that the market doesn’t buy it,” he says. “The market is nervous that the economy is going to slow. We would disagree with that.”
Mitchell looks at a number of other factors and economic drivers when evaluating economic conditions. He notes that the measures of drought severity in the western U.S. have been retreating with recent rainfall. You also need to look beyond our borders to overseas events, their implications, and how they are going to play out, he says.
“It looks like it should be another up year,” Mitchell concluded.