HomeOregon’s coronavirus recession is steepest downturn since Great Depression, state forecasters sayBusinessOregon’s coronavirus recession is steepest downturn since Great Depression, state forecasters say

Oregon’s coronavirus recession is steepest downturn since Great Depression, state forecasters say


Oregon’s economy is heading into its steepest downturn since the Great Depression, state economists predicted Wednesday. They expect it will take several years for Oregon to return to the health it enjoyed before the coronavirus outbreak hit.

Economists estimate the state will lose $10.5 billion in lost revenue over the next five years, a massive budget hit that will trigger sharp cuts in Oregon’s spending on schools, health care, law enforcement and other social services.

Wednesday’s quarterly economic forecast is the first detailed analysis of Oregon’s outlook during the coronavirus outbreak, outlining the impact on the state’s businesses and the resulting effects on state finances.

“While this recession is extremely severe – the deepest on record in Oregon with data going back to 1939 – it is expected to be shorter in duration than the Great Recession. The economy should return to health by mid- decade,” state economists wrote in Wednesday’s report.

Mark McMullen, the state’s economist, said such a sharp decline may be seen with a natural disaster or if a major employer’s workers go on strike. Yet in those cases, recovery to more typical conditions can be rather swift. He said that won’t be the case in the wake of the COVID-19 pandemic.

“It’s clear things won’t be the same,” McMullen said. “Even if there are no public restrictions, it will take a while for some households to want to go out to a football game or take a flight.”

In the meantime, Oregon’s businesses and state agencies face a very difficult path.

Earlier this month, Gov. Kate Brown had anticipated a shortfall of $3 billion for the current two-year budget cycle and had asked state agencies to make plans to reduce their respective budgets by 17% for the upcoming fiscal year that starts July 1.

Economists predict the “unprecedented” decline triggered by the coronavirus outbreak will take $2.7 billion out of the current budget cycle. That’s a roughly 11% hit and is somewhat more moderate than the governor’s forecast from earlier this month.

However, the economists expect the coronavirus will cost Oregon another $7.8 billion through 2025. That’s the biggest reversal ever in state forecasts and underscores just how uncertain economic projections are.

“The latest forecast for state revenue makes it clear that we have tough choices ahead. We will need to tighten our belts. I am working with legislative leaders to preserve critical state services, find efficiencies, and prepare for potential budget cuts,” Brown said in a statement Wednesday. She gave no indication as to when she might call a special session of the Legislature to address the budget shortfall.

The state’s decade-long economic expansion before the pandemic produced $1.6 billion in rainy day funds, which will partially offset the steep revenue declines. Congress is currently debating economic support for the states, which could offset some of Oregon’s budget shortfall.

Nearly 400,000 people filed new jobless claims in the first eight weeks of Oregon’s coronavirus shutdown. The state’s jobless rate spiked from a historic low of 3.5% in March to the highest point on record, 14.2%, in April.

“Oregon families are hurting and have been forced to make significant budget cuts. Now the state must take reasonable actions to bring the budget in line with declining revenues,” House Republican Leader Christine Drazan, R-Canby, said in a written statement Wednesday.

Thousands of businesses – restaurants and bars, in particular – shut down in March when the coronavirus outbreak hit and the governor ordered Oregonians to stay home. Many other businesses never closed and many others are now reopening.

But the state economists warned businesses won’t return to normal until the public health crisis has passed and consumers feel safe leaving home and confident spending money.

“Without confidence in the public health situation, households, firms, and the workforce cannot begin to resume normal activities,” state economists wrote. “Whether restrictions remain in place due to explicit policies, or are enforced via social norms over the uncertainty of the virus, the economy will operate below capacity.”

Economists slashed expectations for revenue from Oregon’s new corporate activity tax, which took effect January 1. Lawmakers established the new business tax last year in expectation it would provide $2 billion in each two year budget cycle for education.

The new forecast expects the new tax will bring in $414 million less than forecast in the current budget cycle, and $600 million less from 2021 to 2023. That’s money schools had been counting on to reduce classroom sizes and help struggling students.

Oregons’ economists made some big, optimistic assumptions about the trajectory of the coronavirus outbreak. They predict a substantial improvement in the health situation this summer and something like total eradication by this time next year.

If that happens, economists predict Oregon may have already hit bottom and can expect a relatively sharp rebound over the next few months. It won’t come close to recovering all of what the state has lost since March, but the state’s economy could be in substantially better shape than where it is right now.

Many Oregonians are sitting at home right now, afraid to go out. If that changes, consumers may go on a mini spending spree – making purchases they deferred during the outbreak.

“There will be quite a bit of catchup as households get the opportunity to spend that they don’t have right now,” said McMullen, the state economist.

The forecast projects Oregon’s unemployment rate will continue spiking to somewhere north of 20% in the next month or two and then fall sharply, to around 15% by this time next year.

“The forecast calls for strong growth later this year as firms hire back some employees to meet the increase in demand that follows the lifting of social distancing restrictions,” the economists wrote. They said one-third of Oregon’s lost jobs will come back rapidly.

However, economists project unemployment could remain above 10% — where it sat at the worst of the Great Recession — into 2023 before beginning a steady decline.

“It will take the economy from near-depression level readings to something resembling the depths of the early 1980s or the Great Recession here in Oregon,” the economists warned. “The unemployment rate will remain in record territory.”

— Mike Rogoway | mrogoway@oregonian.com | twitter: @rogoway | 503-294-7699

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