Oregon's economy has had a rough go of it during the past few years. Following the good times of the late '90s — when high tech boomed, workers were hard to come by and stock market gains sent tax receipts soaring — everything seemed to go wrong. Oregon spent quarter after quarter at the bottom of the barrel, with one of the highest unemployment rates in the nation. Following the dot-com bust, the Portland Metro area suffered even higher unemployment than timber- and agriculture-dependent rural areas that never even got an invitation to the '90s boom.

All that's behind us now. It's time for politicians and business leaders to stop acting like Oregon is still a destitute poor relation to our wealthier cousins to the north and south. Although Oregon still has among the highest unemployment in the nation (6.4% in July, fourth-worst in the United States; the nationwide average was 5.2%), we've performed better than most other states in creating new jobs. State economist Tom Potiowsky put it this way at a recent forum sponsored by the Portland Business Alliance: "We're creating jobs, but not fast enough to absorb everyone moving into the workforce." Potiowsky points out that Oregon's quality of life continues to attract loads of newcomers, especially recent college grads and young professionals who can help build the economy long term.

As Oregon Business has reported in the annual Private 150 and Public Companies issues this year, revenues and profits have been rising strongly at many of the state's biggest companies, such as Jeld-Wen, Intel, Freightliner, Precision Castparts and Nike. Many small- and mid-sized companies — FLIR Systems, Oregon Steel Mills and a host of locally owned timber companies — have been on a tear recently.

Recent economic statistics reflect that broad and steady return to health. The Portland region's unemployment rate has fallen again to the lowest in the state, at 6.0% (equal to Central Oregon's), compared to 7.8% in Eastern Oregon. The Northwest corner has always been Oregon's economic engine, and the health of the region's diverse economy — combining high tech, manufacturing, financial services and value-added agriculture such as organic farming and nurseries — bodes well for the state as a whole.

But — and this is a huge but — Oregon's economy doesn't exist in isolation. Potiowsky stresses that our collective fortunes rise and fall with the macroeconomic waves rocking the nation and the globe. Currency values, interest rates, the federal deficit and the national housing market have more of an impact on Oregon companies and workers than anything done by legislators or bureaucrats in Salem. A steep rise in mortgage rates would hurt Oregon's booming home-building sector much more than it could be helped by a flood of new land for real estate development unleashed by Measure 37.

Forecasters list several potential dangers to the steadily improving economy as 2006 dawns.

As of this writing, the full cost of Hurricane Katrina in the Gulf of Mexico is unknown, but losses may well exceed $200 billion, ten times those of Hurricane Andrew. Oil and natural gas prices have soared short term, and will perhaps stay high in the long term. The cost of reconstruction will be borne largely by the federal government (little of the property loss was insured), increasing the federal deficit. The Federal Reserve will likely hold off on raising interest rates until later this year, but will almost certainly resume rate hikes to stave off inflation and tight labor markets through 2006.

Gross domestic product is being revised downward for the remainder of 2005 to around 3.4% from 4.1% because of Katrina. But GDP will likely tick up to 4.3% in the first half of 2006 as reconstruction gets into gear. The local impact in Oregon is likely to be minor, with higher demand for building products and environmental services.

Tom Potiowsky lists rising energy prices and a sharp correction to the booming housing market brought on by higher mortgage rates as the two greatest risks to Oregon's economy going forward. The growing federal deficit, propped up by huge investment inflows from Japan and China, combined with Americans' abysmally low savings rate, enhances the downside potential. "If you have a savings rate of almost 0%, and oil's going up in price, at some point people are going to have to cut back on other spending," Potiowsky says.

But he predicts a steady slowing of the residential real estate market, rather than a sudden bursting of the housing bubble. The greatest risk, he says, is to places in Oregon that have been buoyed most by speculative money coming in from California's overheated housing markets. "If California drops, Medford and Bend are going to drop," he says. "The way California goes is the way these regions are going to go as well."

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Copyright 2005 Oregon Business magazine