Even healthy, local economy faces large questions
Construction cranes in Seattle's Belltown area (January 2014) Credit: Graham Coreil-Allen/Flickr
The economic and financial numbers are beginning to roll in for 2013 — great year for the stock market, jobs increased though not rapidly, there was little or no inflation. Plus, the overall U.S. economy grew, home prices rebounded in most areas and the global economy was stronger than expected.
In the Seattle area, there was solid growth with the unemployment rate dipping to 5.3 percent. Statewide, the rate was the lowest in five years. Boeing and the International Association of Machinists agreed on a new contract that brings the 777X to the Seattle area, including a $10,000 bonus to about 31,000 machinists.
In the first quarter, the local economy will get a short-term boost from Boeing totaling nearly $750 million. The new contract with the International Association of Machinists to bring the 777X to the Seattle area includes a $10,000 bonus to about 31,000 machinists, about $310 million. According to The Seattle Times, other regular bonuses to both white collar and blue collar workers for Boeing's good financial performance in 2013 are expected to add another $400 million.
Long term, the agreement with machinists assures jobs in the Puget Sound area, but aerospace employment dropped about 2,500 jobs in 2013. That's a clear sign that while Boeing has a huge backlog and new airplanes in its future, it will likely build them with far fewer workers than in the past.
So, last year was OK, but where are we now? Recent reports point to some continued questions about the economy. Gross domestic product, the sum of all the goods and services in the economy, grew 3.2 percent in the fourth quarter, down a bit from the unexpectedly strong 4.1 percent in the third quarter but suggestive of a strong recovery.
But then the U.S. Bureau of Labor Statistics' report in early January dashed some of those hopes with a tepid report on job growth — only 74,000 jobs were added in December, well below expectations. The unemployment rate dropped from 7 percent to 6.7 percent but for the wrong reason: Most of the decline was because there were fewer people actually looking for work.
Two key numbers in the report help tell the overall story on the economy and jobs. The BLS said that for 2013 the labor force participation rate declined by 0.8 percentage point while the employment-population ratio was unchanged. The participation rate is the lowest it has been since the 1970s, well before women started entering the work force in large numbers. The unchanged employment ratio means that the economy may have added jobs during the year, but it was barely enough to offset population gains.
In Washington state, the unemployment rate fell to 6.6 percent in December, the lowest rate in five years, according to a Jan. 23 report by the state Employment Security Department. The Seattle-Bellevue-Everett area was at 5.3 percent in December, capping a somewhat volatile year for the local economy.
Paul Turek, an economist with the department, said recent job weakness has “dissipated” with the addition of 4,800 jobs in December. However, the declining unemployment rate continues to be the result of more people leaving the workforce.
Overall, then, it's clear the economy is still suffering from the after-effects of the steep recession more than four years after it officially ended in June 2009. Here are the big questions about the economy in Seattle and Washington state for the coming year.
Where is the economy headed? The economy should continue to post modest growth for 2014, perhaps about 2.5 to 3 percent on average for the year. There are still a few “buts” for the economy. The state Economic and Revenue Forecast Council, the state’s chief economic forecaster, said the softness in the Chinese economy, continuing slow growth in Europe and a possible debt-ceiling crisis in Washington will affect how quickly the economy grows.
The OECD, a Paris-based organization that tracks major industrial economies around the world, puts economic growth in the U.S. at 2.9 percent in 2014 and 3.4 percent in 2015. Blue Chip Consensus, used by the state for its forecasting, puts growth at 2.6 percent for 2014.
Reuters recently reported that China expects its economy to grow by only about 7.5 percent in 2014, setting up one of the weakest years in a decade. China is Washington’s top trading partner so a slowed economy there will have an impact here.
What about the stock market? The stock market posted one of its best years in 2013 with the Dow Jones Industrial Average up more than 26 percent and the S&P 500, a proxy for the entire market, up 29 percent. Is the market likely to have another great year? Nope.
Already the market has lost about 5 percent this year with the main culprit continued weakness in “emerging markets” — read China and India. But there are two other basic forces at work. One, the classic definition of inflation: Too much money chasing too few goods. The other is the traditional role of the Federal Reserve: Buy to expand, sell to contract.
The Fed has pumped a lot of money into the economy over the past few years with its purchase of bonds and other financial instruments. The yield on many traditional conservative investments — bonds, certificates of deposit, money market funds and so forth — has been very low over the past few years as the Fed has kept short-term interest rates near zero. So one of the few options left to investors was putting money in stocks. Too much money floating around and not enough investment vehicles other than stocks produced the stock market's gains. Classic inflation.
That’s not going to happen in 2014. The Fed said again in January that it would ease back on its purchases, which means interest rates will begin to creep higher, making bonds more attractive. Result: A flat to down stock market.
What about jobs with that weak report in December? It’s a tough one to answer. What is increasingly apparent is a fundamental shift in the nation’s work force and employment opportunities.
Crosscut in April 2012 reported on the changes in the labor force participation rate — the percentage of people working compared with the overall population. It had dropped then to just below 64 percent, with a sizeable part of the drop accounted for by demographics, particularly the “boomers” turning 65. That seems to be continuing with the participation rate still low and falling, to 62.8 in December. It was more than 66 percent before the recession that began in early 2008.
The labor force participation rate in the Seattle-Bellevue-Everett area traditionally has been higher than that in the state. “This is still the case,” said Anneliese Vance-Sherman, an Employment Security economist specializing in King County. “Throughout 2013, the (Seattle) labor force participation rate has hovered in the 68 to 69 percent range. By comparison, the statewide labor force participation rate has been in the 63 to 64 percent range. Both have weakened throughout the recession and recovery period. In the lead-up to the recession, labor force participation rates for Seattle and Washington were about 72 and 68 percent respectively.”
Nationally there are still more than 10 million unemployed. Job growth averaged about 180,000 a month for both 2012 and 2013 — as noted that’s enough to account for population gains, but not enough for sustained job growth.
And the changes continue to accumulate. Sears, a major retailer, is in trouble after a dismal holiday season. There was a report of a “tsunami” of store closures in the retail world — bad news since that’s a part of the economy that can employ people at many different wage levels.
Boeing is increasing the rate of production on its family of jets, but the head count is not going up significantly as it did in the past. Aerospace employment peaked at 97,300 in November 2012. In the 12 months since the peak, employment in this sector is down 2,600 jobs. “We continue to believe that this downturn will be relatively mild due to the large and increasing backlog of orders,” according to the state Economic and Revenue Forecast Council. “The current reductions are due to improvements in productivity rather than reductions in production.”
What about Washington state? The economy is not as strong elsewhere as in the Seattle area. In December, for example, the unemployment rate was 7.3 percent in Spokane, 8.1 percent in the Tri-Cities and 10.6 percent in Yakima.
The Portland-Vancouver area is doing fairly well with an unemployment rate at 6.2 percent, though Clark County itself has an unemployment rate of 7.4 percent. Eastern Washington depends a great deal on agriculture so weather plays a big part in the economy. Washington’s relatively dry winter so far is having an impact on the winter wheat crop, but there is still time for enough moisture to ensure a good crop.
Grant County, which includes Moses Lake, continues to be an interesting spot. ChinaSoft and Microsoft both have operations there because of the availability of low-cost power. A new canola plant is opening soon and direct-selling giant Amway is building a $32 million plant in Quincy to process organic herbs and teas. SGL Automotive Carbon Fibers, a joint venture with German luxury automaker BMW, also is expanding its operations there.
What about Seattle? The Seattle area remains the economic engine of the state with almost half the jobs in the state in the Seattle-Bellevue-Everett area. The Seattle area has recovered almost all the jobs lost in the recession, while statewide there are still about 35,000 fewer jobs now than just before the recession.
Even the aerospace sector is stabilizing, according to state economist Turek. Recent events, including the vote by Machinists to accept a Boeing contract, have helped with hiring expected to “move back to a level we’ve seen recently,” Turek said. Whether there is further expansion “is a Boeing question rather than one for me,” he added.
“The Seattle-area labor force stalled during much of the recession and recovery (2009 to early 2013),” said Vance-Sherman of Employment Security, “but has recently shown signs of growth relative to what we are seeing at a statewide level.”
Another good economic statistic? Just look around and you can see the strength in the Seattle area — construction cranes, reports of stronger housing markets, big commercial real estate deals and stronger on-line sales for Amazon.
So this year looks fairly good for a city like Seattle with diverse businesses and strong markets. But the overall economy remains held in the grip of the recession — six years since the recession began and job growth has still not fully recovered. A city like Seattle will see a bump in disposable income (think fuel for the economy) while others feel trapped. Figures from the Census Bureau show that mean household income for the bottom 5 percent declined about one half of 1 percent from 2007 to 2012. For the top 5 percent, mean income rose 10 percent. Income inequity is real and it is not likely to get any better this year.