The US economy continues to deteriorate at a pace not seen in generations. Portland is one of the areas of the US experiencing unusually high unemployment rates and job losses. By the spring of 2009, the Portland Metro area has lost almost 60,000 jobs since the end of 2007. As we continue into the rest of 2009, those job losses are likely to increase. Every month, economic statistics reveal the degree of economic pain we are experiencing and suggest when the decline might end.

The unemployment rate in the Portland Metro area continues to increase at record speed – see Figure 1. March statistics indicate that Oregon, at 12.1%, has the second highest unemployment rate in the US, just a half point behind Michigan.

The Metro area lost almost 44,000 jobs in the 12 months leading up to March 2009, representing 4.4% of all jobs. For comparison, the US lost 3.5% of all jobs. See Figure 2. Certain industries were hit harder than others. While the Health Care and Private Education industries continue to grow, every other industry has lost jobs over the last 12 months. Particularly hard hit was manufacturing, which has lost almost one in twelve jobs in the last 12 months.  See Figure 3.

The industry with the most job loss is undoubtedly the Construction industry, which has lost more than one in seven jobs year over year. The real estate bubble burst in late 2007, and the value of Portland homes continues to drop. Every month, Standard & Poor’s publishing an estimate of the value of houses in the US Metro areas. Since the summer of 2007, the value of the average Portland area home has declined by almost 20 percent. Of greater concern, the value of homes is continuing to fall at an increasing rate.  See Figure 4.

No one knows when housing values, or the job market, will stop dropping. A popular economic indicator is housing permit data. Before a construction company can hire people to work on building a new house, they must apply for a housing permit. In the first quarter of 2009, 741 permits were issued, that’s less than one fifth of the number of permits issued in the first quarter of 2007, during the height of the housing boom. This suggests that jobs, at least in the construction industry will continue to disappear through 2009. That’s bad news for an industry that’s already lost about 25 percent of all jobs since the summer of 2007.  See Figure 5.

Portland’s economic troubles are severe, and few metro areas in the US have posted higher unemployment rates. However, the region’s high unemployment rate is not simply a function of the jobs lost. As we’ve lost jobs, Portland’s workforce has continued to grow, primarily from migrants coming from other US states. In the 12 months ending in June 2008, the Portland Metro population grew by more than 30,000 people – as the weakening job market created only about 6,000 new jobs. See Figure 6.

This is not a new situation for us. Every month in 2002, during the last recession, Oregon had the highest unemployment rate in the US.  Oregon, and Portland’s, population continued to grow as we lost jobs. This unusual trend pushed Oregon’s unemployment rate to the highest in the nation in the last recession, and may do so again in 2009.

Table of Contents

0. Introduction

Are the businesses in the Portland metropolitan region prospering?

When we think of business prosperity, we picture a company with growing revenues hiring new employees and opening new plants and offices. Given our persistently negative recent economic news, we might immediately jump to the conclusion that our businesses are on the decline.

But what evidence should we use to determine whether our businesses are thriving?

The Brookings Institution’s Blueprint for Regional Prosperity identifies three types of growth necessary for regional prosperity: productive growth, inclusive growth, and sustainable growth. Although all three play important roles in metropolitan prosperity, this article focuses on productive growth, because businesses are the primary drivers of productive growth.

Productive growth requires innovation and entrepreneurship and leads to income and job growth. We examine data that point to productivity, entrepreneurship, and the ingredients of innovation: venture capital investment, patent activity, and educational attainment.

Finally, we assess the region’s job growth to determine which economic sectors have the most robust growth.

Like other articles on the Metropolitan Knowledge Network, we examine our region’s prosperity in comparison to other regions comparable to the Portland MSA and present the data in order of their 2008 population estimates. Figure 1 shows Portland and the 10 comparator metropolitan areas in descending order by 2008 population.

1. Productivity

Productivity growth is a key ingredient to a growing and vibrant economy. Productivity growth, usually measured as output per unit of labor, is important because it leads to a rising standards of living. Productivity growth usually coincides with rising wages, and companies, industries, and nations with rising productivity are generally considered more competitive and profitable than other companies, industries, and nations. And although the wage/productivity link is currently being debated, rising productivity is generally a sign that workers and company shareholders will eventually benefit.

Productivity is usually measured as output or value added per unit of labor. For the United States and for individual business sectors, the Bureau of Labor Statistics calculates both labor productivity and multifactor productivity, which takes into account not only labor, but also capital and intermediate inputs. It does not publish productivity statistics for states or metropolitan areas.

In an attempt to fill the gap in metropolitan level productivity statistics, we calculate productivity measures for the Portland region and its competitor MSAs by taking the ratio of Gross Metropolitan Product (GMP), published by the Bureau of Economic Analysis (BEA), to total non-farm workers, also published by BEA. Please note that the GMP estimates are experimental. See Figure 2. Therefore, the same caveats that apply to these estimates apply to these productivity measures as well.

Regional Comparisons

Portland ranks low relative to the comparator metropolitan areas in GMP per worker. For the Portland MSA, GMP per worker rose from $62,298 in 2001 to $76,803 in 2006 (see Figure 3). This 23.3 percent increase places the Portland region 5th in terms of productivity growth among its peer regions (see Figure 2). GMP per worker for Portland in 2006 was lower than seven of the peer regions.

The San Jose and Charlotte MSAs had the highest GMP per worker at $118,022 and $109,096, respectively, and the Austin and Salt Lake City regions had the lowest.

Table 1: GDP per Worker for Portland and Comparator MSAs, 2001-2006.

Source: Bureau of Economic Analysis, “Gross Domestic Product by Metropolitan Area” and “Local Area Income and Employment” data sets from 2006.

The Portland-Beaverton-Vancouver Primary Metropolitan Statistical Area includes Multnomah, Clackamas, Washington, Columbia and Yamhill counties in Oregon, and Clark and Skamania counties in Washington.

Table of Contents

Executive Summary

Prosperity refers to the economic success of the regional economy and can be measured using income data. In order to assess regional prosperity in the Portland Metropolitan region, we will consider two measures of income: aggregate regional income (Metropolitan GDP) and income for individuals and households. In addition, we will discuss poverty levels in the Portland Metropolitan region according to the federal poverty standard. To ascertain the significant income variations both within the region and between comparable regions, this paper will compare counties within the Portland Metropolitan region and discuss how Portland measures up to ten “comparator regions” in the United States.

How quickly has income grown?

In the past several years, both aggregate regional income and personal income rose in the Portland Metropolitan region. Between 2001 and 2007, Portland’s per capita personal income grew 19 percent from $32,338 to $38,511. Between 2001 and 2006, the Portland Metropolitan region’s GDP grew 34 percent from $77 billion to $103 billion.

How does the Portland Metropolitan region’s income compare to other metropolitan regions?

Between 2001 and 2006, the Portland region and its comparator regions have seen vastly different rates of Metropolitan GDP growth. The Portland region’s Metropolitan GDP grew at a rate of 34 percent compared to 12 percent for the San Jose, CA region and 67 percent for the Las Vegas, NV region. The Portland Metropolitan region has a similar Metropolitan GDP to Austin and Salt Lake City. Portland’s per capita personal income in 2006 was $38,511, which was on the lower end of the scale in terms of the ten comparator regions but still comparable to the Austin, Charlotte, and Salt Lake City regions. According to the U.S. Census American Community Survey, Portland’s median household income is $52,480—just below Austin, but higher than both Phoenix and Charlotte. The Portland Metropolitan region’s level of poverty is at the median of the comparator region group with 11.5 percent of individuals earning incomes below the federal poverty line.

How is income within the Portland Metropolitan region distributed among counties?
Income varies greatly between the seven counties in the Portland Metropolitan region. Clackamas County has the highest level of per-capita personal income at $41,378, followed by Multnomah County with $38,529. Skamania County has the lowest level of per-capita income at $28,265, while Washington County is very close to the average for the metropolitan area at $36,259.

1. How Should We Gauge Our Region’s Prosperity?

How do we know whether our region is prosperous? Although prosperity probably means different things to different people, we usually think of prosperity as economic success or vibrancy. With respect to the Portland-Vancouver region, then, prosperity refers to economic success or the vibrancy of the regional economy. Does the region’s economy provide the income, goods, and services that people need to feel satisfied with their lives? Do the region’s inhabitants feel economically secure and confident that they can live in a reasonably comfortable fashion? Are they able to enjoy some of the non-economic pleasures that contribute to quality of life? These are some of the questions we might ask as we investigate whether our region is economically prosperous.

This Metropolitan Knowledge Network Journal issue paper presents a variety of data that paint a picture of the prosperity of our region. In particular, we focus on the economic prosperity of individuals. The financial status and viability of business is certainly important to the notion of regional prosperity because businesses create value, earn income from outside the region and offer economic opportunities to individuals. We provide a discussion of business vitality and the data that describe it in a future article entitled “How Prosperous are our Region’s businesses?” This paper focuses specifically on outcome measures of prosperity, including the Gross Domestic Product of the region, personal income, money income, and poverty. A discussion of prosperity should also consider whether we are investing in the drivers or inputs to that prosperity. These drivers include innovation, human capital, infrastructure, and quality places. These indicators of assets for prosperity will be explored in future articles on this site.

1.1 What Measures Are Normally Used to Determine Whether a Region Is Doing Well

Most people gauge the state of their economic well-being, at least in part, by how much income they receive. Income determines, in large part, a person’s or household’s standard of living. It determines whether they can afford to meet the basic needs of their family and whether they can purchase other goods and services that enrich their lives. However, income is only part of the prosperity equation. It is only relevant relative to cost. Thus, factors that affect a family’s cost of living, such as household structure (number of income earners, number and age of children) and location (which affects the cost of housing and transportation) also determine economic well-being.

A new set of data recently developed by the University of Washington estimates the level of earnings required for a household to meet its basic needs without government assistance. This income level, called the Self-sufficiency Standard, varies by county and household type. We must also consider the amount of time a person devotes to earning income. A person earning $40,000 per year working 40 hours per week might feel much better off than someone earning the same annual income but working one full-time and two part-time jobs in order to achieve that income. Thus, an earner’s hourly wage and the activities that a person must give up to earn an income might also enter into a person’s sense of their own prosperity.

While we consider the income of individuals, households, and families in the metropolitan region, we might also look at the region’s income in the aggregate. Regional measures of income allow us to consider the prosperity of the region as a whole, or on a per capita basis, regardless of how it is distributed. We will consider both measures of income—aggregate regional income and income for individuals and households—in discussing regional prosperity. Finally, regional income is determined, in large part, by the level and value of economic activity in the region. The Gross Domestic Product (GDP) for metropolitan regions is the total value of goods and services produced in the region. Akin to the national measure of GDP, metropolitan level GDP can be interpreted as a comprehensive measure of economic activity. At the national level, GDP is the most widely used measure of the state of the national economy.

[Table of Contents]

1.2 Measures of Income

There are generally three sources of publicly available income data:

1. Personal income data is collected and distributed by the Bureau of Economic Analysis (BEA).
2. Money income data is collected and distributed by the Census Bureau.
3. The Internal Revenue Service publishes aggregated measures of adjusted gross income of individuals.

The BEA produces annual estimates of personal income for local areas, including counties, metropolitan areas, and BEA economic areas. These estimates are designed to be consistent with the national income and product accounts, which are used to estimate Gross National Product and other national economic data. The BEA’s personal income measure is a more comprehensive measure of income than the money income measure used by the Census Bureau. As described below, personal income is the current income that is received by, or on behalf of, the residents of that area from all sources, minus their contributions for social insurance (BEA 2008).

The Census Bureau derives income information from the Decennial Census, the American Community Survey, and the March supplement of the Current Population Survey. Money income includes only money income received by individuals and excludes non-cash benefits. Poverty rates reported by the Census Bureau are based on money income. The Internal Revenue Service Adjusted Gross Income measure consists of the taxable income of individuals who filed a federal income tax return. In general, BEA estimates of personal income are higher than both the money income estimates provided by the Census Bureau and the adjusted gross income measure offered by the IRS. For more detail about these three definitions of income, see the inset below.

[Table of Contents]

1.3 Sources of Income

Income reported by the BEA has three sources: earnings from work; income from investment; and transfer payments, which include social security, pensions, and welfare. For most people, the largest part of their income is derived from their earnings from employment. However, some regions may include a larger than average number of people whose main source of income is from transfer payments. This information is important because the economic structure of such regions can be fundamentally different than those with higher percentage of income from earnings. Thus, they may react differently than other regions to national economic trends and to economic policy.

[Table of Contents]

1.4 Metro Level GDP Per Capita

The Bureau of Economic Analysis recently began calculating a gross domestic product (GDP) measure for metropolitan regions. Akin to the GDP for the nation, the metropolitan level GDP estimates the market value of all the goods and services produced in the metropolitan region. In the first release of these statistics in September 2007, these data were described as prototype statistics being released “for evaluation and comment by data users.” The methodology used to create these estimates relies heavily on industry earnings, which causes some problems that are explained in the inset below.