Washington to other states: 'We suck less than you do.'

Hard numbers reveal a confusing economy that's exporting more, hiring less, and still quavering before Europe's debt and America's political gridlock.

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Good thing we'll have some of these to sell.

Hard numbers reveal a confusing economy that's exporting more, hiring less, and still quavering before Europe's debt and America's political gridlock.

Last week Arun Raha, the state’s chief economist, provided some of the hardest numbers yet about Washington's economy, at the 17th annual Washington State Economic Symposium in Olympia. The picture that emerged was grim. For jobs, the state's financial condition, and the economy in general, recovery is still years away.

Consider this: After hearing his economic forecast, I asked Raha about the growing sense that the Great Recession was such a steep decline that it will take a decade for the economy to fully recover. He agreed that it was probably true “and we may only be about half way through it unless someone does something right.” In the current national budget morass, nobody seems to be doing much right, the latest example being the failure of the super committee to reach agreement. That means it could be 2017 before the recession's effects are behind us.

Reports presented at the conference paint a persuasive picture of higher-than-average state unemployment rates for several more years. While jobs are being created, the pace of job growth remains slow; only 1.500 were added in the past six months. If the Occupy movement focuses on disparities in the economy and lack opportunity, it will be around for some time to come.

Several views of the economy reflect the dismal picture of the years ahead. Raha said, for example, that gross domestic product, the sum of goods and services in the national economy, had recovered to its pre-recession 2007 level, about $14 trillion. But the nation has 6.8 million fewer jobs. How can that be?

The answer is productivity and technology. The people who have jobs are working harder than ever, often for lower wages, Technology helps businesses make do more with fewer people. Boeing is a good example: It's producing more airplanes with fewer people.

Raha noted that 45 months after the recession started, Washington's employment is still down to the tune of 134,000 jobs, 5.4 percent of the labor force. At the state's current rate of job creation, it will take more than four years to get back to where employment was at the start of the recession.

Even economists find some of the data confusing. For example, last week's labor market report showed that the state added 4,600 jobs in October, thanks to an increase of 4,900 jobs in government. (The private sector lost jobs.) But state and local governments are all in crisis over declining revenues and, as a result, are cutting budgets; shouldn't that mean they're cutting jobs? “We were really surprised by the number,” said Dave Wallace, an economist at the state Employment Security Department.

The employment report did include some marginally good news. The unemployment rate dropped from 9.2 percent to 9 percent - but that rate has been stuck at about 9 percent for several years now. The Employment Security Department revised its report for September to show that only 10,700 jobs were lost then, rather than the 18,400 originally reported. An estimated 314,698 people were still unemployed and looking for work in October, and 176,390 of them received $255 million in unemployment benefits; nearly 140,000 were no longer receiving unemployment benefits. As of Nov. 5, another 64,550 had run out of benefits.

Raha said the biggest threat to the U.S. economy remains the debt crisis in Europe. He explained that American banks are not immune to the situation there, noting that their exposure to European debt is about $1.4 trillion. “What happens in Europe does not stay in Europe,” he said: A European banking crisis would become a U.S. banking crisis, and tip the economy into another recession. “My guess, my forecast, is that Europe will do what it takes to avoid a banking crisis,” Raha said hopefully.

Another risk to the recovery is the political gridlock in Washington, D.C, which has led to a steady erosion of both consumer and business confidence. The lack of action in the super committee could affect the state, Raha said, because of the big cuts in defense spending if the across-the-board automatic cuts are triggered. This state has a number of military bases that could be affected.

A quick poll of the 400 or so people from all over the state at the symposium is instructive. Raha asked how many believe the super committee will come up with a plan. Only two hands out of an audience of about 400 raised their hands. When asked how many thought there would be some action by the end of the year, not one hand rose.

Even the good news raises questions. Real consumer spending grew 2.4 percent in the third quarter (good news), but real disposable personal income fell by 1.7 percent over the same period (bad news). So where did the spending come from? Savings, according to Raha: The savings rate fell to 3.6 percent in September, well below its post-recession peak of 5.8 percent in June of 2010. That means the additional spending likely came from savings, a situation that cannot last long.

Despite the dismal news, Raha noted a number of positive areas in the state's economy, including aerospace, software, exports, and agriculture. Boeing has seven years of production in its backlog, Raha said, not counting the recent mega-orders from Indonesia’s Lion Air and Dubai-based Emirates Airlines. It has added about 6,000 jobs in the past six months, accounting for most of the growth in manufacturing employment.

Aerospace, i.e. Boeing, dominates this state's exports, but a number of other industries have also increased their sales abroad; agriculture is another sector that relies on them. Raha said exports excluding aerospace are up 35 percent this year. A recent study shows mid-sized companies that export are adding both new countries and new shipments.

Software is also strong, though figures from the Employment Security Department show the sector's employment has been almost flat for the past few months. Amazon continues to grow at its new South Lake Union campus.

Raha’s latest revenue forecast projects $122 million less for the state in the next two years than previously expected. But this is a minor adjustment, less than one percent of the overall state budget. Legislators will meet in Olympia later this month to deal with continuing budget woes in the current biennium. The state needs to find another $1.4 billion in spending cuts. The first forecast for the next biennium will be made in February, and Raha doesn't expect it to show much improvement.

On the positive side, Raha predicted that this state will outperform the nation during the slow recovery to come, thanks mostly to aerospace and exports. He proposed a new motto for Washington, in contrast to other states: “We suck less than you do.”


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About the Authors & Contributors

Stephen H. Dunphy

Stephen H. Dunphy

Stephen H. Dunphy writes on business and economic issues for Crosscut. He was a business editor and columnist for a number of years at The Seattle Times.