Rising energy costs are reshaping the economic outlook — and businesses across the country are feeling it. With oil prices more than doubling from roughly $50 per barrel last quarter to approximately $107 today, the ripple effects on inflation, consumer spending, and recession probability are significant. Economists now estimate a 30% chance of recession — up from 20% just last quarter — driven largely by energy costs that are outpacing income growth and pushing inflation toward, and potentially above, 3%.
Every one-cent increase in gas prices removes approximately $1 billion in consumer spending from other sectors of the economy. That’s not just a fuel story — it’s a cash flow story for businesses in every industry.
For our members and clients in the Pacific Northwest, NACM Commercial Services Oregon lobbyist Cindy Robert of Rainmakers Government Strategies breaks down what Oregon’s Q2 Economic and Revenue Forecast means at the state level — including some genuinely positive budget news amid the uncertainty.
Read the full Economic Forecast and Revenue Forecast from Oregon’s Office of Economic Analysis.
From Cindy:
Today, the Office of Economic Analysis presented the fourth Economic and Revenue forecast for the biennium.
Some points:
- Energy prices are impacting the state economy. Last quarter oil was about $50 a barrel. Today it is about $107 per barrel.
- If oil prices increase to $150 per barrel for an extended number of months, we will move into a recession.
- Interestingly, the economists stated that every one cent increase in gas prices removes about $1 billion in spending for other areas of the economy.
- Energy costs are increasing faster than income.
- This impacts inflation rate which is now about 3%
- Last quarter economists predicted the likelihood of a recession was 20%, they changed that to 30% because of increasing energy costs.
- Oregon GDP growth is behind the US by 1.1 percentage points.
- Unemployment rates are stabilizing – though Oregon still exceeds the national average.
- One positive for the bottom-line numbers was that Oregon disconnected from three parts of HR 1 the “One Big Beautiful Bill” (see my end of session report for details) which makes for a $30 million income impact.
- Also positive was that the stock market, which hit a record high last week, continues to generate capital gains for those with investments, which means more money for the state.
Key takeaways on difference from the previous forecast (February):
- Projected 2025-27 Net General Fund Resources are up $345 million (0.9%) from the previous forecast.
- Projected 2025-27 Lottery resources are up $35.2 million (1.9%) from the previous forecast.
- Projected 2025-27 combined net General Fund and Lottery Resources are up $380.2 million (1.0%) from the previous forecast.
Numbers adjusted since Close of Session (COS) when the legislature passed the biennial budget:
- Personal income tax revenue is down $127.3 (-0.4%) from the Close of Session (COS) estimate.
- Corporate tax revenue is up $157.3. (4.6%) from the COS estimate.
- General Fund gross revenue is up $153.3 million (0.4%) from the COS.
- Net General Fund and Lottery resources are up $30.8 million (0.1%) from the COS.