“It’s the economy, stupid.” That’s what many of us wanted to shout at Washington, D.C., during the recent debacle over the debt ceiling debate. It was a cruel joke for most people, especially those trying to cope with an economy that continues to sputter without creating anywhere near the number of jobs needed.
After one rating agency downgraded American debt, after a wild ride on the stock market the past week, after continued problems in Europe, there is little confidence that the economy will pick up any time soon. But is the economy headed for a double-dip recession? Probably not, and regions like the Greater Seattle area are a good reason why not.
There is little question the economy has stalled with gross domestic product showing very small gains over the past two quarters. The Bureau of Economic Analysis said real gross domestic product — the output of goods and services produced in the U.S. — increased at an annual rate of 1.3 percent in the second quarter and 0.4 percent (less than 1 percent) for the first half of the year.
Nationally, the employment report on Aug. 5 was viewed as fairly positive, with 117,000 jobs created. But that’s less than half the needed monthly total to even begin to make a dent in the overall situation. And 193,000 people left the labor force, meaning they have all but given up trying to find a job in the first place. Another measure of the economy, the list of announced layoffs tracked by the outplacement firm Challenger, Gray & Christmas, jumped sharply in July to a 16-month high of 66,414. The job cuts were up 60 percent from the previous month, when employers announced plans to shed 41,432 workers.
One of the measures of the economy that is gaining some visibility is what’s called the labor participation rate. It is the percentage of working-age persons in an economy who are employed or looking for a job. In July 2008, just before the Great Recession, the rate stood at 66 percent. Today it is at 63.9 percent, according to the Bureau of Labor Statistics. That means a lot of people have simply given up and now face one of the characteristics of the 1930s Depression – significant long-term unemployment and the realization that those workers “of a certain age” may never work again.
In the Seattle-Tacoma-Bellevue area, however, the economy does not “feel” quite so bad. The area continues to be a region that bucks the trend, at least partly. So, the Seattle area is on the list of metro areas with growing numbers of jobs, yet the region still has a relatively high level of unemployment. In June, the Bureau of Labor Statistics said Dallas, Boston, Houston, and the Seattle area led among metropolitan areas reporting over-the-year increases in jobs. The unemployment rate in June for the Seattle-Bellevue-Everett area was 9.1 percent.
What does that mean? It is the likely emergence of two economies in the Seattle area. One economy, driven by high-tech and sophisticated manufacturing companies (Boeing, Microsoft, Amazon, Google, and so forth) is doing just fine. The other economy, driven by traditional businesses and occupations (construction, retail, and traditional manufacturing) is either stuck at a low level or continuing to decline.
Aerospace jobs are up 6.8 percent (Boeing has added 6,600 jobs over the past year). Software publishing (Microsoft) jobs rose 4 percent. Construction jobs are down 3 percent. The impact of government budget cutting means government jobs are down 3 percent since June 2010.
Overall, the economy here is doing fairly well. The Seattle-Bellevue-Everett area “has continued to add jobs month over month throughout 2011. May 2011 proved the first month to show higher employment than had been measured one year prior and two years prior. June 2011 numbers showed a continued strengthening of this trend,” according to the state Department of Employment Security.
A Wednesday (Aug. 17) report from Employment Security reflects the growing trend of two economies. The report said the state added 5,700 jobs in July, but the unemployment rate remained unchanged at 9.3 percent. June’s unemployment rate was revised upward from an original estimate of 9.2 percent to 9.3 percent and job growth in June also was revised upward, from 3,600 to 4,700.
“When the unemployment rate refuses to budge, people tend to not notice that we’ve added jobs for 11 months straight,” said Dave Wallace, the acting chief economist for Employment Security. “The job gains have been steady, but not enough to chip away at the unemployment rate.”
In Seattle, the seasonally adjusted unemployment rate rose to 8.9 percent from 8.8 percent in June.
Earlier in August, the forecast from the state Economic and Revenue Forecast Council said the outlook for the state had dimmed “as consumer confidence has plummeted in the wake of U.S. budget wrangling and renewed European sovereign debt fears.”
“Our guarded optimism about the second half prospects of the national economy has given way to a sinking feeling of pessimism,” the Council said. “The national economic outlook has weakened significantly since our last forecast. The European economy is in no better shape as its sovereign debt problems have now spread beyond Greece to Italy and Spain. To add to the mess, although Congress was able to lift the federal debt ceiling in time to avoid a default on U.S. Bonds, it was not timely enough to prevent a debt rating downgrade by Standard & Poor’s (S&P). Bond, equity and commodity markets are now all pointing to a sharp economic slowdown ahead. Consumer confidence is in the tank. The risk of the national economy slipping back into recession has increased significantly.
“The state, along with the nation, is now facing additional shocks. The resulting decline in consumer confidence is likely to slow growth in Washington in the second half of this year and has increased the risk of another recession in the state’s economy.”
Another usual source of at least some economic growth is population growth. But the state now is growing at a rate of just 0.64 percent from the state’s official 2010 census count.
This unexpected slowdown in population growth is due to the slower than expected economic recovery, which affects two components of population change: natural increase (the number of births minus deaths) and migration, according to OFM.
Migration to Washington, largely driven by economic opportunity, is a major component of the state’s growth. This year’s net migration is estimated at 6,600, the lowest level in more than two decades. Worker mobility remains low nationwide because of difficulties with both selling homes and finding work. Part of the overall decrease in migration is due to a decline in international migration, OFM said in a report on the forecast made in April.
Some final points to make:
Anyone who says they know what is going on in the stock market does not know what they are talking about. “If investors are not confused by the gyrations of financial markets, the television commentators, the newspaper writers, the speeches from politicians, and the interventions in the economy by government institutions, I would be amazed,” said Bob Ward, vice president-investments at Graham Ward Wedbush Securities here. “The world economies have devolved greatly from that we have experienced since WWII. We have not been here before.” At best the stock market is a leading indicator and as such it sees little growth in the next six months or so.
The Federal Reserve’s announcement that it will keep interest rates near zero until 2013 is probably good news for the economy. But for savers and for people on fixed incomes, the news is terrible. Many older people have counted on income from savings to help them supplement Social Security. Money market yields, in a normal cycle, should be about 2 percent over core inflation, or about 3.5 percent. American Express had a big full-page advertisement Wednesday (Aug. 17) offering savings accounts at 1 percent. Better than a bank savings account at least, but still it generates $10 a year per $1,000 of savings.
Don’t expect the economy to recover any time soon. Even the current job growth in the state means it would take two more years to return to pre-recession employment levels. The picture is even bleaker nationally — more like approaching 10 years at current levels.