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Mark McMullen: The Seer

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Articles - November/December 2013
Monday, October 28, 2013

INTERVIEW BY LINDA BAKER

1113 FOB MarkMcMullen
Oregon state economist Mark McMullen
// Photo by Adam Wickham

This fall, as Oregon’s economic engine continued to gather steam, Oregon Business spoke with state economist Mark McMullen about the short- and long-term outlook. A former director of consulting at Moody’s Analytics, McMullen weighed in on the decline in middle-wage jobs, the shift from consumer to business demand and ongoing risks to the economy from abroad.

THE RECOVERY. “We are seeing job growth accelerate this year. Unfortunately, while we are seeing this recovery in employment and income, we’re seeing big chunks of the workforce and economy miss out. That’s why it’s not very satisfying on the ground level.”

LEFT OUT. “For folks unemployed for less than six months, job conditions have normalized. But that’s not true for folks unemployed more than six months. We still have a big chunk of those folks. If we’re sitting at total unemployed at 8%, 5% are the short-term unemployed and three percentage points are the long-term unemployed. We have seen this come down somewhat, but it’s above what we’ve seen in past recessions.”

THE VANISHING MIDDLE. “Jobs between $25,000 and $50,000 are the ones getting hit harder. All significant job growth is either in low-wage or high-wage jobs. Some of this is irreversible — administrative support and sales jobs are under assault from technological change — some is cyclical. Housing took a very hard hit during the recession. We would expect some of these jobs to come back. But long term, we have more and more bifurcated job growth. This has implications for upward mobility.”

RURAL VS. URBAN. “For the past three to four years, rural Oregon’s employment rate has flatlined. Rural economies are disproportionately dependent on construction and real estate jobs because they don’t have particularly diverse economies. They don’t have advertising agencies or ballet dancers to offset construction or to diversify. But as we finally see a turnaround in housing, Southern Oregon, Bend, Central Oregon — these places are starting to see an uptick.”

THE NEXT CYCLE. “It’s going to be led by exporters and procurers of goods rather than producers of consumer services. Every decade since WWII, we’ve seen the American consumer spend faster than overall GDP. This is the first decade when that flips. Investments in exports are going to grow faster, largely because the baby-boom cohort has to save more. That’s going to broadly slow down spending. Technology producers and exports serve business investment demand rather than consumer demand. It will have some implications in terms of how much growth we’re getting out of consumer services and retail.”

SHRINKING REVENUE. “As we lose productive workers to retirement, it’s going to lower the effectiveness of all tax instruments. So it will be tough to sustain enough revenue to grow our programs. It all comes back to the demographic changes we’re seeing and the savings behavior. We’re going to have to see more saving. During the peak of the housing boom, only the wealthiest one or two percent were saving. The rest of us were spending more than we were bringing in. On top of that, Grandma and Grandpa don’t buy a lot of cars and sofas, which is certainly going to have implications going forward.”

LABOR POOL. “The labor force with this aging population is a big concern. In the ’70s, we had wonderful labor growth and we were getting huge increases in economic capacity. In the ’80s and ’90s, we were still seeing a lot of labor-force growth and a lot of people coming from other states. But those participation gains started playing themselves out. Now we have less participation, largely because all these productive baby boomers [are] dropping out of the labor force, and population growth has slowed. So don’t expect the growth rates we have become accustomed to in past periods of economic expansion.”

FUTURE SHOCK. “There are two major risks in terms of near-term derailing economic expansion. One dysfunction is at the government level. The second is problems abroad. The European situation is well documented but still has not been settled. More important for Oregon is a potential slowdown in China. We have become very connected to Asia, much more so than we were 20 years ago when we had the Asian financial crisis hit our region. Nowadays, if something similar happened in China, it would be a much more painful event.”

 

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