What the Data Show

The Portland-metro economy and the recession: A mixed report card

Portland-metroís economic performance during the recession is a bit like a student with a ďCĒ average on his report card. The region has some natural strengths, earning Aís in some subjects, but is weak in others and falls behind, getting Cís and sometimes even Dís. The result is a Portland-metro that, while not failing, is not excelling.

Figure 1 shows that the region suffered significantly greater downturns in gross metropolitan product (GMP) per capita going into the recession than the average for all U.S. metro areas. In Portland-metro, GMP declined by 5 percent between 2008 and 2010, compared to an average national metro area decline of 3 percent.

Although the region still has not fully recovered, the good news is that it is recovering at a faster rate than many metro areas. Portland-metro added 4 percent to GMP versus the U.S. average of 3 percent, and increased employment per capita by 2 percent versus the U.S. metro average of 1 percent growth since 2009. But even with Portland-metroís faster recovery rate, cumulatively, our region has still seen an overall 2 percent decline in regional GMP since the recession began in 2008, while the average for U.S. metro regions had recovered to pre-recession levels by the end of 2010.

Figure 2 shows that Portland-metroís employment per capita remained 6 percent below pre-recession levels by the close of 2010, compared to a 5 percent gap among all U.S. metros. Portland-metroís employment drop was also worse, dropping 8 percent (or by 81,200 fewer people employed), which was two percentage points farther than the average for U.S. metro areas. Only 17,900 new employees have been added since early 2010.

How can our region better withstand downturns in U.S. metro employment cycles?

Regional per capita income also fell and has yet to recover to pre-recession levels. Figure 3 shows personal per capita income for the same time period (inflation adjusted). Since 2008, Portland-metro income has tracked the national metro trends. Portland incomes, however, remain 3.7 percent or $1,570 per year below the national metro area average.

These three graphs show the Portland-metro economy is climbing out of the recession, but still has a ways to go. Particularly with respect to employment, the depth and length of the recession present significant challenges. From the employment perspective, the current recession is unlike any other Portland-metro has experienced since the early 1980s.

Unemployment: A historical challenge

While the Portland-metro area may have entered the recession a few quarters later than the rest of the country, once Portland- metro felt its effects, it felt them harder and longer than in previous recessions.

Figure 4 shows how long it has taken Portland-metro to regain pre-recession employment levels in previous recessions. The regionís employment rates were barely impacted by the 1990 recession, and Portland-metro recovered pre-recession employment levels from the 1981 and 2001 recessions within 18 months. But, at the rate the economy appears to be recovering in the current recession, the region is not projected to regain pre-recession jobs levels for up to two more years, or
some six years since the downturn began.

Recovery periods of previous recessions quickly resulted in adding back most of the jobs lost. Figure 5 shows that in the 2008-2010 recession, nearly half of total jobs lost will never be recovered. Even though Oregonís permanent job loss mirrors the U.S. average, Oregon will have to create new jobs at a faster rate to make up for this permanent job loss.

Historically, Portland-metro suffers larger employment downturns in recessions than the average for U.S. metros. Figure 6 demonstrates that, in a number of recessions, the regionís employment declines more than the national metro average. On the upside, Portland-metro tends to grow employment faster than the national average coming out of recessions.

What economic development and workforce strategies could be created to make our employment base more resilient?

The regionís strength:
Gross Metropolitan Product powerhouse

One area where Portland-metro performs exceptionally well is in the growth of its gross metropolitan product per capita (GMP). GMP per capita is a measure of all the goods and services the region produces and sells per person Ė essentially a measure of productivity. And Portland-metro is very efficient; 20 percent more productive than the U.S. metro average.

As seen in Figure 7, between 2001 and 2010, the Portland- metroís GMP per capita grew from about 5 percent below the U.S. metro average to about 20 percent above the U.S. metro average. That large gain, however, did not result in similar employment and income increases. Compared to the U.S. metro average, Portland-metro income and employment declined during that same time frame.

How can our region better leverage its significant levels of productivity to grow private-sector jobs that produce stronger per capita income gains?

To get a better understanding of a regionís GMP, one must look at both goods and services. Figure 8 shows, Portland-metro service firms have remained at the average for all U.S. metros in productivity. It is in the production of manufactured goods, especially high technology electronics, that the region excels. Between 2001 and 2010, Portland-metro rose from the number 72 ranked metro area in the nation for real GMP per capita to number 25, a huge gain showing our regionís productivity strengths.

How can our region boost its private- sector services to diversify and strengthen our regionís economy?

Personal income: How do we compare?

While Portland-metro is above average in generating GMP, it lags behind the national average in the area of personal income, as well as behind cities our region traditionally likes to compare itself to such as Seattle, Minneapolis and Denver, labeled ďaspirational MSAsĒ in Figure 9. Last yearís report showed that while 40 years ago Portland-metro had personal incomes similar to these cities, our region experienced significant economic setbacks in the 1980s and again in 2001 that put our region on a different, less robust income path than Seattle, Denver and Minneapolis.

Historically, Portland-metro and the U.S. metro per capita income average have lagged behind the top 10
metro areas. Over time, the gap has increased as shown in Figure 10. Further analysis was done to see if it was simply Portland- metroís size that was behind lower wages and incomes as large metro areas tend to have higher per capita incomes. But, as it turns out, the Portland-metro areaís per capita income is not as high as one would expect for a city of its size. Portland-metro is ranked 23rd in population size, but 73rd in real personal income per capita and 136th in employment per capita.

Why isnít our region performing up to its potential Ė or even outperforming it Ė like those peer regions have?

Portland-metro has not always had a lower per capita personal income than its size would predict. Figure 11 demonstrates that in the 1970s, the regionís personal incomes were two to three percentages points above what would be expected for $50,000 its size. The recession of the early 1980s, however, dealt a significant blow; but Portland-metro climbed back out in the early 1990s. That gain eroded again in the late 1990s and the gap has continued to grow. Currently, Portland-metro performs $40,000 nearly two percentage points below what would be expected of a metro area its size. Seattle, Denver and Minneapolis metros continue to exceed expectations, generating higher per capita incomes than would be predicted by their size alone.

Although the Portland-metro economy once looked similar to Seattle, Minneapolis and Denver, today those economies are larger. Figure 12 shows that, in terms of per capita personal income, Portland-metro looks like these metros: Cincinnati, 2 Sacramento and St. Louis.

Figure 13 looks at the predicted personal income for Portland-metro and these three metros relative to population and confirms that all four cities perform similarly Ė somewhat below what one would expect for cities of this size. Sacramento, like Portland, used to have personal income higher than what would be predicted for a city of its size while St. Louis
and Cincinnati have been historically below predicted levels.

The question remains, which peer group does our region aspire to be with?

A direct connection:
Better personal incomes equal
better public services

Oregonís general fund, which pays for 60 percent of K-12 education costs and many other state services our regionís residents enjoy, comes largely from income taxes, and the Portland-metro economy is by far the biggest contributor to the stateís income tax revenues.

As per capita income and employment rise and fall over the years, taxes per capita follow a volitile projectory. in Figure 14 the fluctuations in taxes per capita make budgeting a challenge for schools and other public services that depend on state income tax revenue.

Over a 25-year period, real state and local tax and fee revenues have increased at roughly the same rate as personal income. In the 2010 report, for example, the data showed that if Portland-metroís 2008 per capita income had been at the same level as Seattle, the state would have had an additional $1.3 billion in state
revenue, and Multnomah County schools would have
had additional state funding of $86.8 million a year.

Figure 15 shows the long-term relationship between personal income and government operations. For the past 30 years, despite numerous changes in tax and fee policy, Oregonians have devoted a stable share of income to government revenues.

With taxpayers holding steady at 16 percent, how do we grow more jobs that will generate incremental tax revenue?