UofO Index Shows Improvement in State Economy

PORTLAND, OR-Oregon’s economy improved in June, according to the University of Oregon Index of Economic Indicators, a monthly examination that considers eight different indicators. The Index rose to 106.4 (1996=100) in June, a 0.6% gain from May’s reading. Five of the eight indicators–Oregon initial unemployment claims, Oregon residential building permits, Oregon nonfarm payrolls, US consumer confidence and manufacturing orders–improved in June. The remaining three indicators–the Oregonian help-wanted ads, the Oregon weight distance tax and the interest rate spread–deteriorated. Overall, the behavior of the UO Index remains consistent with continued near-term economic growth prospects. Compared to six months ago, the UO Index has gained 0.6% (annualized), an improvement from May’s negative reading. The six-month diffusion index, a measure of the proportion of components that are rising, rose to 50 (in other words, on balance, half of the components improved).As a general rule, a decline in the index of greater than 2% over six months, coupled with a decline in more than half of its components, signals that a recession is likely imminent. “Consequently, the stabilization of the UO Index since the beginning of the year suggests that the pace of growth slowed from last year, not that a recession is imminent,” states the report.Following a soft May, labor market conditions in Oregon rebounded in June. While Oregonian help-wanted ads slid, the remaining two indicators of labor market strength both improved, according to the report. Nonfarm payrolls climbed by 3,900, more than offsetting May’s revised decline of 2,700. Oregon initial unemployment claims also improved in June. Nonetheless, the job market in Oregon remains soft compared to earlier in the year; average monthly job growth in the second quarter of 2005 was 667 employees, compared to average gains of 7,900 workers per month in the first quarter. The remaining economic indicators were, on balance, positive. The housing market remains strong, with Oregon residential building permits rebounding from two months of declines, and new orders for nondefense, nonaircraft capital goods, a measure of business investment activity, also gained in June, as did consumer confidence. Finally, the spread between 10-year treasury bonds yields and the federal funds rate (the “yield spread”) continued to decline.