Earlier this week the state’s quarterly economic outlook and revenue forecast was presented to state legislators as they convened for Spring Legislative Days. Throughout the year, state lawmakers receive updates to inform decision making for the biennial budget. This week the state economists shared ongoing stability in economic data but also noted increased future uncertainty due to high interest rates. 

General Economic Outlook and Oregon Population

The good news is the economic outlook is stable. Economists are still generally optimistic that the Federal Reserve can “pull off a soft landing,” however there remains sentiment among economists that extended above-target inflation and the related delay of interest rate cuts will lead to a recession. The consensus among economists now is that the Federal Reserve will not lower rates until after the November election. 

Economists noted again that the biggest challenge to future economic growth is the tight labor market. Oregon’s population growth has stalled over the last few years, with projected growth of only 0.6% over the next 10 years. Deaths are currently exceeding live births in Oregon, and the only source of population growth is in-migration. Manufacturing output was also a key discussion point. In Oregon, we are seeing a slowdown in manufacturing sales and manufacturing employment. Broadly speaking, these factors are due to flattened demand related to high interest rates.  

Revenue, Reserves, and the Kicker 

The June report showed tax revenue increases of $532 million, higher than anticipated and related to higher than expected personal and corporate income tax returns. This is a significant increase, obviously, and increases the total expected 2023-25 biennium General Fund and Lottery budget to $36 billion, compared to the original close of session budget of $34.2 billion. Projections for future years remain consistent yet lawmakers will likely tighten appropriations in the next biennial budget with respect to the economic uncertainty. 

The state has two reserve accounts, the Oregon Rainy Day Fund and the Education Stability Fund to use in the event of an economic downturn. The June forecast indicates these two funds are currently holding $2.5 billion, and that ending balance reserves from the 2023-25 biennium total $1.2 billion, for total effective reserves of $3.7 billion. Finally, the state economists are predicting a “50-50” chance that there will be a personal kicker in 2025, currently projected at $582 million.  

Click here for more information and a link to the full Economic and Revenue Forecast.