The Salem economy, like that of Oregon and the U.S., is doing well so far

written by Pam Ferrara for the Salem Reporter

August 19, 2024

But there are indications that families and households living on incomes in the lower two-thirds of the income distribution aren’t feeling upbeat about the economy – more on this later.

Employment, unemployment, and wages are all positive as economic indicators. But an analysis of inflation trends may help to explain why, in spite of mostly positive trends, many people aren’t feeling so positive about the economy, as measured by surveys of consumer sentiment.

First, employment: In June of 2024, 185,000 people were employed in the Salem MSA (Metropolitan Statistical Area, Marion and Polk counties combined); nearly two million in the state of Oregon; and 159 million in the U.S. After losing breath-taking numbers of jobs in the first months of the pandemic, Salem, Oregon and the U.S. have regained the losses and then some (see graph below). 

The Salem MSA leads with an employment gain of six percent from January 2022 through June of 2024; Oregon employment gain was four percent, and the U.S., five percent.

A note about the month-to-month job change: Employment in the U.S. has increased substantially in every month-to-month time period discussed above. Oregon gained employment in all but five, and the Salem MSA, in all but nine.

Why do Oregon and the Salem area have a few months with job losses? 

Here’s a brief explanation. Employment is estimated from a survey of businesses. The number of businesses surveyed in Oregon is small, and for Salem, smaller still. So, for example, if a business with a sizeable number of employees is late responding to the survey, a job loss might be reported for that month – it’s made up the next month when the business’s response is received. The few monthly employment downturns for Oregon and Salem are likely due to factors related to the small sample size. 

It should be noted that the two largest Salem industries by employment size, and hit hardest by pandemic job losses, Health Care and Leisure and Hospitality, have recovered losses and then some. Salem’s Health Care employment increased 17 percent from June 2022 through June of 2024, and Leisure and Hospitality employment four percent. 

But the Leisure and Hospitality industry lost nearly half its employment in the first two months of Covid, and much of the loss was gained back early on. So, if the industry job gain is measured from June of 2021 through June of 2024, Leisure and Hospitality employment gains totaled 17 percent. 

Another sign of a healthy economy is that Salem, Oregon and the U.S. economy are likely at “full employment” which means that most job seekers have little difficulty becoming employed. The Salem MSA’s unemployment rate for June was four percent, low by all historic standards. That’s about 9,000 unemployed people. 

A brief recap of unemployment history since 2000 demonstrates how low unemployment rates have been. For the early years of the 21st century, the unemployment rate didn’t go below five percent. When the great recession hit in 2008 the rate took a number of months to climb to 11 percent, and six years to come back down to below five percent, which it did in January of 2016. The rate stayed low for the next several years (see graph next page).

Then Covid hit in April of 2020. The unemployment rate shot up to 12 percent, but quickly came back down to five and six percent, and then to below four percent at the end of 2021. It’s hovered between 3.5 and 4.5 percent since then.

These low unemployment rates have had an impact on wages. When hiring is difficult, employers raise wages to attract job applicants. This is what has been happening over the last several years.

But there’s something unusual about the wage gains. They’ve gone largely to lower-wage workers, and here’s why. Recall that early on in the pandemic, most of those losing jobs were lower-wage workers, mostly in the Leisure and Hospitality industry, but also in the lower-paying end of industries like Health Care and even local education (K through 12). As economic recovery from the pandemic progressed, some of these individuals were already employed elsewhere. Employers trying to re-fill these jobs had to raise wages in order to fill their vacancies.

The Economic Policy Institute analyzed national wage information and found that, in real terms – that means adjusted for inflation – low wage workers’ wages increased by 12 percent from 2019 through 2023. Those wage earners in higher wage categories saw real wage increases in the low single digits. The wages of the highest earners increased by only 0.9 percent.

An example closer to home is the following: Of all wage earners in Marion County in 2019, 53 percent of them earned less than $20 an hour. By 2023, that percentage had fallen to 34 percent. 

The spoiler to all this is inflation, which is a measurement of the movement of prices of a market-basket of goods and services over time. From 2020 to the middle of 2024, overall prices have increased by 22 percent. 

Compare this with what happened in the inflation of the 1980s. Back then it took seven years for prices to increase by 22 percent. 

And, since the big run-up in 2022, prices have continued to increase by about three percent on an annual basis.

Food price increases are especially worrisome as they have a bigger impact on lower income households. Food prices overall have increased by 25 percent since 2020, and food at home, by 26 percent – a bit more than overall inflation.

So, it shouldn’t be a surprise that lower and middle-income families aren’t as optimistic about the economy as upper-income families. That’s according to the University of Michigan Survey of Consumer Sentiment, a widely-respected measure that’s been around since 1946. 

A bit of recent history about the survey trends: The survey showed that consumers were optimistic as the effects of the Great Recession of 2008 faded. Then the pandemic hit in early 2020, and optimism declined some. But the big decline in the index happened in 2022, the year that prices increased eight percent. Since then, the index has taken three distinct paths (see graph next page).

Persons in the top one-third of the income distribution are still optimistic about the economy, and persons in the lower two-thirds, not so much.

However, a summation of trends would have to conclude that the economic scene still looks pretty rosy.

But two questions come to mind. The first is, how long will this last? Recession has been predicted for the last several years and so far, hasn’t occurred. But the national employment job gains for the month of July, published in early August, fell considerably below expectations, and the unemployment rate ticked up a notch. Usually, Oregon and the Salem MSA economy follow suit. Oregon’s employment gains for July were substantial, however. But, it’s only one month of numbers and one month isn’t a trend.

The second question is this: What might happen when two-thirds of U.S. families and individuals aren’t’ confident about the economy and about their own financial situation?

Only the passage of time will yield answers to these questions.

Pam Ferrara of the Willamette Workforce Partnership continues a regular column examining local economic issues. She may be contacted at [email protected].