In a preview of the revenue forecast later this month, Washington state economist Steven Lerch told the Economic and Revenue Forecast Council (ERFC) that state coffers are full.
That’s despite the many challenges facing not just the Evergreen state, but the nation as a whole.
“Right now, since the November forecast, we have a collections variance of $350 million,” Lerch said in economist-speak for an increase in predicted revenue during Thursday’s virtual economic quarterly review.
That figure represents an uptick from last year at this same time, he said.
“On the revenue side, Revenue Act collections continue to be very, very strong,” Lerch told the council. “Our last collections were for November taxable activity. They grew by over 17 percent on a year-over-year basis, so very strong.”
Still, any number of factors could derail the good economic news, he cautioned.
“A lot of the forecast risks really are around COVID, around inflation and supply chain issues, but given what’s going on between, you know, Russia and the Ukraine, the recent firings of missiles by North Korea,” Lerch said. “We could certainly cite some geopolitical risks that have the potential to have a negative impact should some of those things come to fruition.”
The pandemic continues to impact the labor market in unusual ways.
“The labor market continues to be very interesting,” Lerch said. “We continue to see a very high level of job openings, but we are also seeing a very high level of job quits.”
Part of that can be explained by people moving to better jobs, according to Lerch, although he acknowledged the obvious: COVID has kept a lot of people from working due to illness.
Inflation, too, continues to bedevil the economy.
“December was the highest, the fastest rate of price increase since June of 1982,” Lerch noted.
He went on to say economic forecasters expect inflation to decrease after this year, from the current 4.5% rate to around 2%.
Events halfway around the world have the potential to negatively impact Washington state’s economy, as well. Tensions between Moscow and Kyiv – at their highest in years – continue to mount with a large Russian troop buildup near the shared borders of the two former Soviet republics. Meanwhile, North Korea launched nearly as many ballistic missiles last month as it launched in all of last year.
The preview wasn’t all bad news, however, with Washingtonians’ personal income and building permits stronger than in the November forecast.
Lerch said wage growth has increase across all occupations, according to a 12-month moving average through December 2021, per data from the Federal Reserve Bank of Atlanta.
He didn’t specifically address inflation eating into wage gains, but did note due to the rolling average nature of the information that “this may understate those wage increases.”
“And what you can see is really across the three of those – high-, medium-, and low-skilled jobs – we’re seeing wage growth increasing,” he said.
Residential construction, both in Washington state and nationwide, has been volatile, but trending up since July 2020, Lerch noted, including very strong price increase for homes.
“And we continue to see very strong price increases for homes,” he said. “A little bit of a slowdown, but, you know, look what we’re talking about here: a slowdown from 20% year-over-year growth to maybe something, nationally, something on the order of 18, 19%, so incredibly strong growth in home prices.”
In fact, Washington’s numbers were a few percentage points ahead of the national average, according to the Case-Shiller home price index year over year figures that Lerch used.
“For this year through 2025, we’re expecting about 1,200 on average – about 1,200 more units of residential construction compared to that November forecast,” Lerch said.
The ERFC’s next quarterly revenue forecast is set for Feb. 16.
The previous revenue forecast on Nov. 19, 2021 reported an increase of $898 million for all funds subject to the budget outlook. According to that forecast, total state revenues are expected to grow 13.4% between the 2019-21 and 2021-23 biennia and 6.3% between the 2021-23 and 2023-25 biennia.
