Region likely to dodge economic doldrums
While the rest of the country worries about catching economic pneumonia next year, the worst the Seattle area and Washington state should...
Seattle Times business reporter
While the rest of the country worries about catching economic pneumonia next year, the worst the Seattle area and Washington state should face is a case of the sniffles.
"There's a lot of doom and gloom dominating the national headlines, but the Seattle market continues to prosper," said Wells Fargo senior economist Scott Anderson. "Seattle continues to lay the groundwork for another decade of expansion."
Economy watchers say many of the forces threatening the nation with a severe slowdown or outright recession should either leave this region relatively unscathed, or even work in its favor:
• Despite the nationwide housing slump, Seattle's housing market — and the jobs that directly and indirectly depend on it — has held up fairly well.
• With companies such as Microsoft, Boeing and Weyerhaeuser, the state's economy is more geared toward business investment than is the nation as a whole. That means an expected slowdown in consumer spending will affect the state less.
• The weak dollar boosts Washington's export industries, such as aerospace and agriculture, even as it makes imported products — from oil to big-screen TVs — more expensive.
• Near-record prices for wheat, milk, apples and other staple crops benefit the state's farmers, though they also contribute to higher food prices at the nation's supermarkets.
"All of the state's major industries are hitting [peaks] at the same time," Portland-based economist John Mitchell said.
Anderson rates chances of a Seattle-area recession next year at just 15 percent, versus 35 percent for the nation as a whole.
Still, the state and regional economies may be pinched by the national slowdown. Particularly for businesses tied to the housing and mortgage crises — banks, contractors, lumber mills — 2008 is likely to be a rough year.
And if the U.S. economy does fall into recession, demand could drop for everything from Zune music players and shoes at Nordstrom to 737 jets.
Mitchell, until recently the regional economist for U.S. Bancorp, said he thinks nonfarm payrolls in Washington will grow by "somewhere north of 2 percent" next year, down from the 3 percent growth he expects 2007 to show once all the numbers are in.
In the Seattle metro region, Anderson expects payrolls to grow by 1.5 percent (about 22,200 jobs) next year, down from the 3.3 percent growth (47,200 jobs) added between November 2006 and last month. The local unemployment rate will rise to 4.3 percent from the 3.7 percent posted in November, he said — still quite low by historical standards.
Here's a rundown of some of the forces expected to have the greatest impact on the Northwest economy next year.
Still better than elsewhere
For anyone who has shopped for a home recently, it's hard to believe that by national standards Seattle's housing boom has been rather modest. Seattle ranked just 10th out of 20 metro areas in terms of price appreciation since January 2000, according to the S&P / Case-Shiller Home Price Index.
Nationally, home prices peaked in mid-2006, and as of the third quarter were down 4.5 percent from a year earlier. Seattle has been one of just five Case-Shiller markets to still show a gain since that peak: 7.8 percent as of September, tops in the nation. (Portland, another of the favored five, is up 4.5 percent.)
Since then, however, sales volumes and prices have softened and likely will be a drag on the region's economy — just not as heavy a drag as in the rest of the country.
"Prices are going to crack, but don't worry about it," said Ken Mayland of ClearView Economics in suburban Cleveland. "If you've had a run of several years of appreciation, and you have to give back half a year or a year's worth of appreciation, it's not the end of the world."
People who've been counting on rising home prices to help them refinance out of an unbearable adjustable-rate mortgage might disagree. Even so, Wells Fargo's Anderson said, as of the third quarter Washington was near the bottom in terms of mortgage delinquencies — 1.5 percent of all home loans.
Expected to grow more slowly
A bigger concern arising from the mortgage mess, said economic consultant Bill Conerly of suburban Portland, is that banks stung by bad home loans could cut back on other lending, depriving businesses of the capital they need to grow.
That would be bad news for Washington, since key state industries such as software, electronics, aerospace and wood products sell mainly to other businesses rather than directly to consumers.
Most economists expect consumer spending will slow next year. But some, at least, think business spending — which perked up this summer after four weak quarters — has more room to grow; they expect that credit for businesses will be crimped, rather than crunched.
"What I'm hearing is that, outside of real-estate development, if a company's balance sheet looks the same as it did a year ago, they have the same access to capital as a year ago," Conerly said.
Anderson, however, expects U.S. business spending to slip back to growth of 4 percent to 5 percent next year, down from the 9.3 percent rate posted in the third quarter. The state's official economic forecast is for just 2.4 percent growth in business spending.
Weak dollar bolsters exports
Exports were by far the strongest sector of the U.S. economy last quarter, growing at a blistering pace that would reach 19.1 percent if continued all year.
That's good news for Washington, the nation's most export-dependent state. In the first three quarters of 2007, the state exported nearly $47 billion worth of goods, a 23.4 percent increase over the same period last year. Airplanes and parts made up nearly two-thirds of the state's exports — and nearly 80 percent of Boeing's 2007 orders through November were from outside the U.S.
Exports have been fueled by strong growth overseas, especially in emerging markets such as China and India. Another factor has been the weak U.S. dollar, which makes American goods cheaper for overseas buyers — and foreign products more expensive here.
Favorable export conditions should continue next year. Although forecasters at the Economist Intelligence Unit predict overall global growth will slow, Asia, Africa and Eastern Europe should grow much faster than North America and Western Europe. And while most currency experts think the dollar has either bottomed out or is close to doing so, few are looking for more than a modest recovery.
A boon for much of the state
High crop prices have helped raise the cost of groceries, but they've been a godsend for Eastern Washington's farmers.
Wheat has risen from $3.32 a bushel a few years ago to $8.12, said Desmond O'Rourke, president of the Belrose consulting firm in Pullman. Apples that went for 27.4 cents a pound now fetch 37.7 cents; prices paid to dairy farmers for milk have climbed 50 percent.
That's a far cry from the 1995-2005 period, which O'Rourke called "a pretty dismal decade" for the state's farmers.
Prices of cereal crops such as wheat and barley have been pushed up because some farmers switched fields to corn for ethanol production, O'Rourke said. But much of the credit for agriculture's strength also goes to foreign demand. In the first nine months of 2007, cereal exports totaled $1.98 billion, up 29.6 percent over the same period in 2006. In the past five years, O'Rourke said, India has become the fourth-biggest importer of Washington state apples.
With Eastern Washington's economy based on agriculture, the good times on the farm have translated into higher retail sales and lower unemployment, and helped to fuel a construction boom in places such as Wenatchee and Moses Lake.
The general outlook for farm commodities appears to be similar next year, O'Rourke said, with any slackening of domestic demand offset by foreign markets. But, he cautioned, overseas trade can cut both ways.
"There's no reason," he said, "why Washington's entire apple industry couldn't be outsourced to China."
Drew DeSilver: 206-464-3145 or firstname.lastname@example.org
The information in this article, originally published December 23, 2007 was corrected January 1, 2008. A previous version of the story mistakenly described a rate of change as a "year-over-year" gain. Home prices in Seattle rose 7.8 percent between June 2006, the peak of the national housing cycle, and September 2007.
Copyright © 2007 The Seattle Times Company
UPDATE - 09:46 AM
Exxon Mobil wins ruling in Alaska oil spill case
UPDATE - 09:32 AM
Bank stocks push indexes higher; oil prices dip
UPDATE - 08:04 AM
Ford CEO Mulally gets $56.5M in stock award
UPDATE - 07:54 AM
Underwater mortgages rise as home prices fall
NEW - 09:43 AM
Warner Bros. to offer movie rentals on Facebook