Monday, June 8, 2009

U of O index shows signs of the economy stabilizing

Professor Duy released the U of O Index of Economic Indicators for April this week.

The University of Oregon Index of Economic Indicators™ rose 0.3 percentage points in April to 85.1 (1997=100). The slight gain was driven by improvements in four indicators —Oregon initial unemployment claims, the Oregon weight-distance tax, U.S. consumer confidence, and the interest rate spread. Remaining indicators deteriorated during the month, and all indicators are down compared to six months ago. While the increase is welcome, most indicators remain at levels consistent with ongoingrecession in Oregon.

As a general rule of thumb, a decline of 2.5 percent (annualized) over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent.

On the job market

Similar to March 2009, Oregon labor market data were mixed. Initial jobless claims continued to decline as the pace of economic deterioration eases, and now stand at their lowest level since last October. While the trend is improving, the level of claims suggests that overall nonfarm payrolls will decline further. Indeed, employment services payrolls— largely temporary-help agencies—remain in decline, down 29.7 percent from the same month last year. Overall, nonfarm payrolls (not included in the index) fell by 9,500 jobs during April, while the unemployment rate rose to 12.0.

On housing starts

Residential housing permits (smoothed) fell again to just 766 permits. The hoped for stabilization in housing markets remains elusive; price declines have not been sufficient to compensate for tighter underwriting and an increased pace of foreclosure activity. The recent rebound in mortgage rates also threatens to slow the path to recovery.


Persistent weakness in the UO Index indicates the Oregon economy is likely to remain in recession for the foreseeable future (three to six months). The pace of the deterioration appears to have lessened in April, with a six-month annualized decline of 9.4 percent compared to 11.8 percent for the previous month. The improvement is welcome, but falls short of a conclusive bottom, and there remains no indication the job market will improve significantly this year.