The demise of the high technology sector last spring slowed the gears of the Oregon economy and helped steer the state into its first recession since 1990-91.
Legislators are clearing financial room in the state budget to accommodate a looming shortfall, while retailers are hoping a lucrative holiday shopping season can boost sluggish sales in a shaky economic climate.
But analysts say a recovery hinges more on the revival of the state’s primary production sectors than government thrift or extra deliveries by Santa — and few expect a recovery to be swift.
“Retailers everywhere are promoting sales and have kept prices down to bring people back and cause them to start spending,” said James Reinmuth, professor of management for the University business school. “But the other side of that is, with prices down, profits are down.
“It will not have any bearing on the long-term implications,” he said.
Reinmuth, co-author of a college economics text and consultant for various start-up firms, said Oregon’s technology, forest industries, agricultural and service sectors power the state economy.
He said those sectors were deeply damaged when irrational expectations fueled economic players to overinvest in dot-com companies that had not proven they could deliver future earnings. When many of those firms collapsed in March 2000, the ripple effect sent waves of doubt throughout the economy and led to the recession, which many believe began in March 2001.
“Technology collapsed, and along with it, other industries began to decline,” Reinmuth said.
In Oregon, transportation suffered particularly severe declines, said Tom Potiowski, state economist for Oregon.
“In 1999 and 2000, we were having some fairly high gas prices and interest rates, and that hit transportation heavily,” Potiowski said.
Potiowski, head of the Oregon Office of Economic Analysis, said when industries began reporting declines across the board this fall, it was clear the state had entered a recession. Potiowski made an announcement to that effect in October.
Climbing unemployment rates also were partial indicators of Oregon’s slowdown.
“We started looking at all sectors — high tech, transportation, lumber, retail and services all lost jobs,” he said. “When you get that broad spread of areas losing, I think things are bad enough to call it a recession.”
The Northwest has been hit particularly hard by dwindling jobs.
Washington and Oregon possess the highest unemployment rates in the nation, at 6.6 percent and 6.5 percent, respectively. The national average unemployment rate is 5.4 percent.
“We have a disproportionate concentration in manufacturing industries in this state,” Potiowski said. “That area was hit hardest. Washington has a different mix of manufacturing, like Boeing and software. But the high tech and Boeing situation caused their problem.”
Intel, a Santa Clara, Calif.,-based manufacturer of Internet software that employs almost 15,000 workers in Oregon, has shut down several of its operations in the last few months, including a streaming audio and video technology office in Hillsboro.
“It became such a competitive business that return on investment was not sufficient,” said Bill MacKenzie, communications manager for Intel Oregon. “We also shut down the Smart Toy Lab, an operation that began as a cooperative effort with Mattel, because, again, return on investment was not sufficient.”
Furthermore, the company has implemented a cost-cutting measure that will trim 5,000 Intel jobs worldwide, MacKenzie said.
“Certainly in Oregon, we are a heavy manufacturing state,” MacKenzie said. “The state economy is linked strongly to the manufacturing sector. And since our manufacturing base is heavier than most states, the situation with high tech has probably exacerbated the problem.”
Analysts said it is unclear when Oregon will emerge from the slowdown, though some are looking at the economic glass as half full.
“The economy has bottomed out and is already starting to come back,” Potiowski said. “These are the lowest interest rates we’ve seen in 40 years.”
Reinmuth said because brokerage firms are reporting that investors are sitting on large reserves and are not buying stocks, declining interest rates could generate more borrowing.
“Merrill Lynch reports that reserves are 20 times higher than they were two years ago,” he said. “The NASDAQ and the Dow took good bumps (Thursday). And since Sept. 11, both markets are up significantly. That seems to be an indication of a return of investor confidence.”
But Potiowski said it is too early for a vote of confidence in economic recovery.
“I think we’re looking at the bottom hitting during the second quarter of next year,” he said. “And we should see a mild upturn for the rest of 2002.”
Higher education reporter Eric Martin can be reached at [email protected].