A Hard Fall

After a brutal year, local leading economic indicators are pointing upward, and the next decade looks even more promising.

By Dick Conway | January 2010 | FROM THE PRINT EDITION

downarrow The Washington state economy will build steam through the spring and summer of 2010, but total employment won't return to peak levels of 2008 until well into 2011, analysts forecast. And for many residents and businesses, the gloomy outlook will persist. "Economists say they see a recovery, but try to tell that to the 7 or 8 million people [nationwide] without jobs," says Costco CEO Jim Sinegal.

The good news is that Washington is still in better shape than the national economy. "Our highest wage sectors, aerospace and software publishing, are relatively stable and that has helped," notes Washington state economist Arun Raha. Phyllis Campbell, chair of JPMorgan Chase, Washington, says she is "cautiously optimistic" about the future because of the region's many entrepreneurial companies and its exposure to international trade at a time when Asian economies are returning to health.

But there are still plenty of industries in a world of hurt. Weak consumer spending continues to hurt the retail sector. Also troubling are problems in the real estate sector where the inventory of homes remains uncomfortably high. "We see a particularly significant oversupply among higher-priced houses," explains Glenn Crellin, director of the Washington Center for Real Estate Research. The commercial real estate market is in even worse shape as vacancy rates continue to rise. That situation will reduce the number of jobs in the construction sector in 2010 to 150,000, down sharply from 208,000 in 2007. Raha worries that regional banks' exposure to bad loans in the construction sector will force them to raise reserves, making less credit available to businesses in the state. Here Seattle economist Dick Conway looks at what took us into the current recession and what we have to look forward to in the coming year.

How Did We Get Here?

Forecasting recessions is not a strong suit of the economics profession. There is the stale joke about the economist who predicted six of the last two downturns. And the cartoon of an economist hip deep in a hole declaring that there would be no recession.

Why do economists have trouble predicting recessions? For one thing, there has been little opportunity to practice the art. The Puget Sound region has suffered only four major slumps in the past forty years.

Recessions are also idiosyncratic. Thus, past downturns leave few clues about the timing and nature of future setbacks. The Boeing Bust (1969-71)