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ERFC releases updated economic forecast

The Washington State Economic and Revenue Forecast Council (ERFC) has released it’s June 2020 preliminary economic forecast.

This is the first ERFC forecast that incorporates a COVID-19 induced recession.

Taking a recession into account, the ERFC now expects Real GDP to decline 5.8% in 2020 followed by a 4.0% increase in 2021. In February, before the pandemic kicked into high gear in the United States, the ERFC expected GDP to grow 1.9% in 2020 and 2.0% in 2021.

Economists for the ERFC outlined several data points that have been updated since their February forecast

The decline in Washington employment in April was unprecedented in its depth and speed. We have four months of new Washington employment data since the February forecast was released,” wrote the ERFC. “Total nonfarm payroll employment fell 453,000 (seasonally adjusted) in April and 446,200 in the four-month period. The February forecast expected an increase of 27,500 in January, February, March, and April. Private services-providing sectors lost 359,300 jobs in the four-month period. Construction employment declined by 47,200 jobs and manufacturing declined by 27,700 jobs including the loss of 8,300 aerospace jobs. Government payrolls declined by 11,100 jobs in January, February, March, and April.”

The ERFC’s new figures are also supplemented by a subsequent quarter of benchmark employment data from the Quarterly Census of Employment and Wages (QCEW).

The updated QCEW data tacked on an additional 2,800 to the estimated level of total employment in December 2019. April employment is 470,900 (13.3%) lower than expected in the February forecast.

Washington’s unemployment rate reached 15.4% in April – up from 5.1% in March and 3.8% in February.

Putting the unemployment rate in historical context, the ERFC noted that the April rate was an all-time high for this data series, which dates back to 1976, and the February unemployment rate was an all-time low.

Zooming in on industry in Washington, the forecast takes into account how the disruption of airline travel is expected to impact Boeing.

Boeing has indicated that there will be significant reductions in employment, particularly in the commercial airplane division. We have assumed a decline of 16,000 aerospace employees from
March through September.

As reported by Reuters, Boeing said on Wednesday it was eliminating more than 12,000 U.S. jobs, 6,770 of which are involuntary layoffs. Of these employees, 9,800 were based in Washington State.

In their June forecast, the ERFC also looked at how estimates for state personal income have evolved.

In March, the Bureau of Economic Analysis released estimates for state personal income through the fourth quarter of 2019. At present, Washington personal income in the fourth quarter of 2019 is estimated to be $1.6 billion, or 0.3% lower than in the February forecast due mainly to lower than expected wages and salaries, according to ERFC.

For expected unemployment, the gap between the February and June forecasts is stark.

The ERFC now expects an 11.% decline in Washington’s employment this year compared to the 1.8% increase predicted in the February forecast. As the economy recovers, however, they expect “above-average” growth.

We expect employment growth to average 4.1% per year in 2021 through 2025 compared to the 0.9% average rate expected in February. Our forecast for nominal personal income growth this year is 2.1%, down from 4.7% in the February forecast. The adverse effects of the recession on personal income this year are mitigated by substantial income support through the CARES Act.”

The forecast’s timing did not allow the ERFC to consider the potential financial impact the state might suffer due to insurance fraud, which has roiled Washington’s unemployment system.

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