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Economic Perspectives

Steve Scranton
SVP, Chief Investment Officer and Economist

NOTE:

This week’s Economic Perspectives is coming to you earlier than usual and it will be the last Economic Perspectives for 2022. Your next Economic Perspectives will be delivered on January 6, 2023.

Perspectives

This week’s Perspectives section will take a slightly different turn. All year I have focused on specific Economic topics. This edition, I will provide a summary update on the economic picture for the three states that Washington Trust Bank has offices. I believe it is always good to step back from the macro picture and see how the regional picture compares. 

All data is as of 11/30/22

Data Sources:

• Jobs, Labor Force and Wages: Bureau of Labor Statistics
• Housing: Realtor.com
• Percent of wages consumed by a mortgage payment: Realtor.com, Bloomberg and internal calculations.

Summary

• The differing data among the three states and the US highlight that the US is not a homogenous economy.
• National data may not reflect what is going on in your state. Even though not covered, regional data also varies versus statewide data.
• Focus on what is happening around you rather than what the national data is showing if you want to understand your local economy.
• Overall, Idaho’s economy has been the best performing economy compared to Oregon, Washington, and the US.
• Idaho has paid a price for its success as housing affordability has become a major issue for the state.

Observations

• Idaho led the way in jobs growth when measured from 2/28/20.
• The US and Oregon have barely recovered jobs lost during the pandemic crisis while Idaho is well ahead.
• Idaho is now lagging when measured over a one year period. That may simply be a reflection that a “hot” pace of jobs growth cannot be maintained forever.
• The US has a net loss in labor force since 2/28/20 while Idaho, Oregon and Washington have had positive labor force growth.
• You need labor force growth to sustain jobs growth.
• Idaho is well behind Oregon, Washington, and the US when it comes to monthly wages.
• This may be one of the reasons that Idaho has either led or been in the top 10% of the nation in population growth over the past 10 years. Low wages are a powerful attraction for businesses when considering relocation options.
• Ongoing labor shortages have forced Idaho businesses to raise wages faster that Oregon, Washington, and the US since 2/28/20.
• Even with the faster wage growth, the average Idaho worker still lags well behind the US average as well as Oregon and Washington.
• Idaho’s economic success has also created the painful aftereffect of housing affordability — as measured by the percent of a two-income household’s wage that is consumed by a mortgage payment.
• To put the housing affordability issue into a dollars and cents perspective, the following table shows what level of wage, mortgage payment, mortgage rate or home price would have to exist in order to achieve the level of affordability that existed just before the pandemic crisis (2/28/20). For housing to return to the affordability levels just before the pandemic crisis one of the three scenarios would have to happen to reduce the mortgage payment: wages rise, home prices fall, or mortgage rates fall (or some combination of those factors).

Levels needed to return to 2/28/20 levels

Conclusions

• Even though it appears that in the US a recession is developing, Idaho, Oregon, and Washington are currently doing better than the US.
• Make no mistake, if the US goes into a recession, it is highly likely Idaho, Oregon and Washington will also experience a recession. The timing and severity may be different, but it is unlikely that any of the three states are recession proof.
• The silver lining for the three states currently performing better than the US is that businesses and individuals in these states still have time to prepare so that they are positioned to weather the recession and find opportunities that arise from recessions.
• The data shows that the housing affordability issue — as measured by the percent of a two-income wage that is consumed by a mortgage payment — remains a major obstacle for the average worker.
• Two incomes are needed to even consider buying a house. The problem is that if one of the wage earners loses their job or suffers a major salary cut, then your shelter is at risk.
• While you are living in a house, it is a shelter for you not an investment.

• States, cities, and neighborhoods need to understand that housing affordability can be a major driver/deterrent for new business and labor force growth.
• If a business is considering moving to a state, region or city but discovers that its workers cannot afford to live there, the risk rises that the business seeks a different location.
• Governments, businesses, and neighborhoods will need to work together and be willing to compromise to find solutions for the affordability issues.
• While state (or regional) level data gives better insight, it still does not capture how individual workers or businesses are being impacted by current economic conditions.
• As the year-end holiday season approaches, remember that there are individuals who are in financial distress as well as local businesses that may be suffering and need the community’s support. 

Economic Data

Consumer Confidence

• The Conference Board reported an increase in consumer confidence in November. Its index rose from 101.4 in October to 108.3 in November. Falling gas prices and mortgage rates were factors contributing to the increase.
• The Present Situation sub-index rose from 138.3 in October to 147.2 in November.
• The Future Expectations sub-index rose from 76.7 in October to 82.4 in November.

Housing

• The National Association of Home Builders reported a drop in the housing index. The index fell from 33 in November to 31 in December. This takes the index back to levels that existed at the start of the pandemic crisis but not as low as 2008-2009 levels.
• The Census Bureau reported a 0.5% decline in housing starts in November. While still negative, it was an improvement from the 2.1% decline in October. More concerning was the report that building permits fell 11.2% after falling 3.3% in October. Building permits are a gauge of future home building.
• The National Association of Realtors reported a 7.7% decline in existing home sales in November. This was worse than the 5.9% decline in October.
• The one piece of good news related to housing was the weekly mortgage application report from the Mortgage Bankers Association. Mortgage applications rose 0.9% last week after rising 3.2% the previous week.

As the year-end holidays are drawing near and the year is ending, I thank all of you for being readers of this newsletter. I hope that you can take a break and spend time with family, friends, and peers. Enjoy the holidays!

DATA TABLES

Jobs Growth

Labor Force Growth

Wage Growth

Average Monthly Earnings (two income household)

Home Price Growth

Percentage of Paycheck Consumed by a Mortgage Payment (Two Incomes)

Real Gross Domestic Product (GDP) Growth