Washington state continues to receive surplus revenue, while the impact of new retaliatory tariffs on exports remains uncertain. That was the takeaway from the Nov. 6 meeting of the state Economic and Revenue Forecast Council (ERFC).
The effect of tariffs on Washington’s economy has been an oft-repeated concern by ERFC, which is tasked with approving the economic forecast used to determine the four-year outlook and consequently what constitutes a “balanced budget” based on projected revenue streams. Yet, as in September, it has remained an unknown. Washington is the most trade dependent states in the country, and state farmers export much of their produce overseas.
According to a new Brookings Institute study examining the effect of tariffs on the different regions and states, $3.7 billion or six percent of Washington’s exports were subject to the new tariffs imposed by China, the European Union, Canada and Mexico. In all, 8,300 direct jobs and 23,600 direct and indirect jobs could be affected. Nationally, the tariffs impact $120 billion worth of U.S. exports.
However, ERFC Executive Director Steve Lerch told the council that many of the tariffs came out only months ago, so “it’s really too early to get a sense I think of those tariffs. There is certainly the potential that some of those tariffs could go away, but I think for the moment, we’re not really sure what the impact will be.”
Incidentally, Lerch reported that after several years of decline, state exports are beginning to increase again.
Meanwhile, the latest figures show that the state economy continues to perform well, with low unemployment rates and $3 million in surplus revenue since the September revenue forecast. The state also estimates that current Washington personal income in the second quarter of 2018 is $10.4 billion or 2.4 percent higher than what was assumed in ERFC’s September forecast. Housing price growth has slowed, though that is likely due to Seattle metro recently relinquishing its title as the hottest real estate market in the country.
The situation in many ways is reflected nationally, with even lower unemployment rates. Also, the Conference Board index of consumer confidence is at an 18-year high, while small business optimism remains the highest in over 12 years.
However, Lerch noted that despite the low unemployment and job growth well outpacing the nation, Washington wage growth has stagnated at roughly three percent annually, regardless of occupation. Also stagnating has been labor productivity growth.
That situation might improve if “workers have access to more capital and software,” Lerch said. “In other words, if businesses are investing in more things that make workers more productive.”
While a recession is not included in the baseline forecast, Lerch said that economists predict a 21-29 percent probability of a recession in the next five months, albeit “none of these things indicate that a recession is imminent.”
ERFC’s next monthly revenue collection report will be released Nov. 15.