Why the Pacific Northwest economy is so strong

Quick, what do the Boeing 787, a weak dollar, cheap electricity, Microsoft Vista, high-priced oil, and solar-grade polysilicon have in common? Answer: All help keep the Pacific Northwest economy growing briskly during a period of slow U.S. economic growth. The U.S. economy in the January-March quarter grew at the slowest rate in four years. In dramatic contrast, parts of the Pacific Northwest are flat-out booming, and most of the rest grows at rates as much as double the U.S. average. Montana had the nation's lowest March unemployment rate, 2.0 percent. Both Montana and Idaho (unemployment rate: 2.8%) are essentially at full employment. Idaho ranks No. 4 in the U.S., Montana No. 7 in employment growth for 12 months through March, according to Arizona State University's monthly Job Growth Update. Washington at No. 10 and Oregon at No. 11 aren't far behind. All four states are growing employment substantially faster than the U.S. as a whole. And the new jobs aren't just in burger joints and latte stands. Construction is at or near record highs in all four states. Washington's high-paid manufacturing sector is expanding, as are some other high-paid sectors such as software publishing and professional and business services. Montana's boom, spurred in part by rising global demand for raw materials including copper, has spread to most sectors of its economy. Population growth at roughly three times the national average spurs broad growth in Idaho. What else is behind Pacific Northwest growth? Boeing's dramatic turnaround, for starters. Boeing and its suppliers have been growing payrolls at the rate of abut 500 a month for almost three years. Washington's aerospace head count, at 77,500 in March, is still dramatically below the 113,100 reached in early 1998, but it is up 27 percent from the cyclical low of 60,800 three years ago. High oil prices? I, too, wince at the gas pump. But it is $60-$70 oil that has made the Boeing 787 the most successful new-airplane launch in history. Boeing has promised customers roughly 20 percent more fuel efficiency per seat mile than today's fleet. It is the main reason the 787 is sold out through 2012 (more than 570 orders so far), while the less-fuel-efficient jumbo Airbus A380 (555 seats to the 787's 200-300) is stuck at about 150 orders, far fewer than needed to amortize development cost. Aerospace jobs account for fewer than one in 40 jobs in Washington, compared with about one in 15 a decade ago, one in 10 40 years ago, but they remain among the highest paid, with wages roughly double the state average, so they are influential beyond their numbers. Software publishing is another high-paid sector and, with aerospace, very much a driver of Washington's economy. We know from Microsoft's latest quarterly earnings report that the Vista operating system is off to a great start. Microsoft's biggest challenge today is winning the battle for "mind share" among young consumers. When was the last time you heard an iPod-toting, Google-using teenager wax eloquent about a "cool" Microsoft product? But with $28 billion in the bank, Microsoft has the wherewithal to finance continued growth, and it already is an outsized player. The company has 35,000 employees in the Puget Sound area (76,000 worldwide), up about 15 percent in a year. It occupies more than 11 million square feet of office space on and around the sprawling Redmond campus – and just announced it will take up 1.3 million square feet of space in new buildings under construction in Bellevue. Cheap electricity? Its the main input, along with cheap land, for the massive "server farms" that Microsoft, Google, Yahoo, Intuit, and Ask.com are building or planning in rural parts of the Pacific Northwest. I like to think of these massive buildings – unimpressive from the outside but stuffed with servers, air-conditioning, and backup power systems, and with security to match Fort Knox – as the railroads and steel mills of the digital economy. Cheap electricity has also attracted world-scale players in solar power to the Pacific Northwest. Norway's Renewable Energy Corp. (REC) last year began building a new $600 million plant to produce solar-grade polysilicon alongside an existing polysilicon plant at Moses Lake, Wash. REC also began spending $50 million to de-bottleneck operations at its Advanced Silicon Materials plant in Butte, Mont. It just announced it will spend an additional $485 million in the Pacific Northwest to boost capacity. (Full disclosure: After writing about Renewable Energy Corp. last year, I bought a few shares.) Several weeks ago another global solar powerhouse, SolarWorld AG of Germany, picked up for less than 10 cents on the dollar a never-opened chip plant in Hillsboro, Ore., that had been built a decade ago by Japan's Komatsu. SolarWorld will invest about $400 million to turn the plant into North America's largest producer of solar-grade polysilicon. Think of REC and SolarWorld as the aluminum smelters of 60 or 70 years ago, taking advantage of electricity that is still relatively abundant and cheap. The weak dollar also is a plus for the Pacific Northwest. It's a pain if your tastes run to French wine, German cars, and Italian suits, but almost everyone else is a winner. We're an export-oriented region. The cheap buck makes our exports a bargain and raises prices of stuff that our farms and factories must compete against. Worried that the Chinese control too many dollars? Relax. The last thing the Chinese want is a run on the dollar that would sink the value of the trillion or so they have accumulated. Not all is roses in the Pacific Northwest, of course. The housing downturn has hurt manufacturing employment in Oregon, which still disproportionately depends on the forest industry. Truck-making in both Washington and Oregon is down because new diesel-exhaust rules sucked so much truck-buying into 2006. Revenues are higher in all the states, but as any policy-maker will tell you, in the public sector needs always outrun resources. Don't expect a tax cut soon. In Washington, in fact, get ready for a 10 percent sales tax, partly because the share of the economy subject to the tax (tangible goods) is declining. Risks? Either Boeing or Microsoft – both are key drivers regionally - could stumble badly. The housing downturn could worsen, crashing the forest industry, still important regionally. The global economy could run off the rails. Anything's possible, but the odds the Pacific Northwest will start to lag the U.S. anytime soon have to be rated pretty low.