For more than a century, economics has been known as the dismal science because it deals with serious downers -- scarcity, unemployment -- and because its practitioners don't have a great track record predicting the future.

As applied to Oregon at the end of 2004, economics might better be described as the modestly hopeful science. Forecasters agree that the local economy has started to grow again and is on a sustainable, though not stellar, trajectory.

Since mid-summer 2003, job growth has been relatively robust. Oregon added 39,900 payroll jobs from August 2003 to August 2004, a 2.6% increase, while nationwide the increase was just 1.1%. Still, with a net decline of 65,400 jobs during the recession, we need 21,000 more jobs to make up lost ground.

Economist Keitaro Matsuda of Union Bank of California notes that IT manufacturing jobs in the Portland area rose 8% from the beginning of 2004. "The recovery of the IT sector in the Pacific Northwest has far outpaced that of Silicon Valley," Matsuda writes. The explanation lies in specialization -- semiconductors, display technology and chip-making equipment in Portland; software, telecom and computer systems design in Seattle. "The future success of the region's high-tech industry depends on how competitive the two IT centers can remain in their respective areas of specialization," he concludes.

John Mitchell, western region economist for U.S. Bancorp, considers recent setbacks (unemployment unexpectedly rose 0.6% in August to 7.4%) as nothing more than temporary bumps in the road. "Business investment has been rising since the first quarter of 2003," he says, "and it'll continue rising through 2005."

That's significant because our economy is heavily dependent on business investment. We make trucks (Freightliner), rail cars (Greenbrier), semiconductors (Intel) -- all volatile durable goods that are vulnerable to economic cycles. "Now, we're pushing capacity on transportation -- trucks, rail cars -- and there's a lot of investment," Mitchell says. "As employment rises, you need new non-residential construction."

Mitchell doesn't dismiss the possibility of another Silicon Forest boom. "Could the massive investment we had in the '90s happen again? Sure. New stuff will come along -- though it won't be forest products -- and with the installed base we have here, the [high-tech] sector will continue to grow."

The state Office of Economic Analysis lists the following potential risks for the economic recovery going forward: geopolitical uncertainties, the falling U.S. dollar, another sharp stock market correction, possible collapse of the housing market, rising regional energy prices and a slump in semiconductors. Meanwhile, the state revenue forecast is "as dismal as it's ever been," according to OEA economist Michael Kennedy.

Real incomes for Oregonians declined during the recession, and economists predict only modest salary rises in the near term.

Amy VanderVliet, a regional economist with the Oregon Employment Department in Portland, predicts that after a longer-than-expected jobless recovery, in which companies avoided new hiring, the economy will start to create significant job gains -- in Oregon and nationwide.

"Most economists agree that the strong productivity gains of the past three years are unsustainable, that at some point in the near future -- assuming there are no unexpected economic shocks -- businesses must supplement capital and technology with more labor," she writes. "Then once again the economy will be

firing on all cylinders."

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Copyright 2004 Oregon Business magazine