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ERC forecasts modest near-term growth, flags tariffs and weak employment in Washington
Summary
Economic Revenue Forecast Council told House Finance the current biennium is $105 million ahead in the November forecast while the next biennium is $185 million behind; tariffs, weak employment, and elevated inflation are key risks to the state outlook.
Dave Reich, executive director of the Economic Revenue Forecast Council, told the House Finance Committee on Jan. 13 that the council’s November forecast shows state revenues up by $105 million in the current biennium but down $185 million in the next biennium.
"Overall, as we've said before, The U. S. Economy continues to kind of moderate a little bit," Reich said, summarizing the national and state outlook. Reich emphasized tariffs as a principal near-term risk — he said most estimates put the average tariff rate in the 15%–20% range — and described tariff-related price effects as a one-time inflation bump that should drift down over time.
Reich presented data showing the Seattle CPI rose about 3.1% in December and said the council expects elevated inflation in 2026, with forecasts of approximately 3% CPI inflation in 2026 and 2.5% in 2027. He noted the council expects two additional federal funds rate cuts later in the year under its baseline, and that consumer spending in 2025 was in part driven by higher-income households.
On Washington employment, Reich said growth remains weak: payroll employment was up roughly 0.3% year to date through November, below the U.S. pace. Growth has been concentrated in state and local government and in health care and social assistance, while construction employment has contracted.
Reich also outlined revenue drivers and risks. Retail sales tax, the business and occupation tax, and property tax make up the bulk of the state’s operating revenues; the November update reflected a tobacco settlement payment and improved estate-tax receipts that boosted the current biennium forecast but a weaker sales- and B&O-tax outlook that reduced the next biennium forecast.
Committee members asked about sectoral income distribution, forecast pessimistic/optimistic scenarios, and the ability to disaggregate personal income by income groups. Reich said slides comparing optimistic and pessimistic scenarios are available in ERC materials, and the quarterly forecast document and packet contain additional detail; he offered to supply follow-up slides and data the council maintains.
Reich closed by noting significant sources of uncertainty — tariffs, federal policy, ACA subsidies, and potential federal employment changes — and the council said it would issue another update with new data in mid-February.
