Economic Outlook: Shades of 1990?

A local recession isn’t imminent, but don’t get too cocky.
With evidence of a booming economy practically everywhere we look — help-wanted signs, local government surpluses, congested freeways — it is difficult to imagine a slowdown,” I said at a business leadership conference in Vancouver, British Columbia, in early 1990. “But a closer look at the nature of the Seattle economy and its recent growth portends change.”
This gloomy outlook on the Seattle-area economy was not well received. One critic said the outlook was hard to swallow given the bullish picture of the current state of the economy I had provided: “Five percent job growth in 1990 will reduce the unemployment rate to 4 percent. In response to full-employment conditions, people are moving into the area at the rate of 40,000 per year and fueling one of the hottest housing markets in the nation.”
But there were larger forces at play. Between 1983 and 1990, Boeing had created 45,000 new jobs and boosted its payroll by $2.3 billion. Counting the multiplier effect, the airplane maker had been responsible for more than 40 percent of the Seattle area’s seven-year jobs gain. Without the Boeing surge, the local economy would have advanced at the slower national rate. This meant that if Boeing halted hiring and the national economy applied the brakes, the Seattle economy could come to a screeching stop by the end of 1990. 
Sure enough. By the fourth quarter of 1990, aerospace employment had fallen 3,100 from its cyclical high, while the nation’s real Gross Domestic Product (GDP), which had reversed course midyear, fell at a 3.4 percent annual rate. As a consequence, Seattle jobs — which had increased 4.9 percent between 1989 and 1990 — declined at a 0.7 percent annual rate in the fourth quarter. That slowdown contributed to the collapse of the housing market and four years of sluggish growth.
Accuracy alone does not make for a good forecast, since dart throwers occasionally hit the mark. Based on a theory of regional economic growth and calibrated with 30 years of data, the model we used to prepare the forecast provided a logical explanation of where the Seattle area economy was likely to head.
The accuracy of the Vancouver forecast also depended on “tells,” which, in poker, are changes in a player’s behavior. The forecast hinged on two assumptions: Boeing would reduce the size of its workforce and the nation’s economic expansion would come to an end. Two facts, or tells, supported this prognosis: Aerospace jobs peaked in November 1989, according to monthly labor data, and the Department of Commerce’s U.S. Leading Economic Index had been falling steadily since the autumn of 1988, a signal that a national recession was overdue.
Most forecasts do not work out so neatly. Since Doug Pedersen and I began publishing The Puget Sound Economic Forecaster in 1993, we have dutifully reported our prediction errors to give readers some sense of the uncertainty associated with the forecasts. Based on 22 end-of-year forecasts, the average absolute one-year-ahead prediction error for Puget Sound employment has been 0.8 percent. The average error for real GDP, as forecast by the Blue Chip panel of national economists, has been 1.0 percent. Two recessions resulted in the largest regional employment prediction errors: the Dot-Com 9/11 Recession (2.5 percent in 2001) and the Great Recession (4.0 percent in 2009).
Recently, our forecasts have been quite accurate. At the start of the economic recovery in 2009, two developments seemed likely: The U.S. economy would rebound slowly because of restrictive federal fiscal policies and the Puget Sound region would outpace the nation because of thousands of new jobs at Boeing and Because the two economies stuck to the playbook, the average absolute one-year-ahead prediction error for the first six years of the expansion was only 0.3 percent for real GDP and 0.2 percent for regional employment.
Now that the Puget Sound recovery is getting long in the tooth, there are questions about a possible slowdown or even another recession. Unfortunately, when an economy approaches a turning point, uncertainty about its course mounts, as evidenced by the outsized prediction errors associated with downturns. But a review of the 1990 experience provides some clues about the regional economy’s likely path this time around.
As in 1990, the Puget Sound economy was in top form in 2016. In fact, last year was its best year since 2006. Based on preliminary data, employment increased 3.1 percent — nearly twice the national gain; the unemployment rate fell to 5.0 percent — just 0.2 percentage points higher than the United States rate despite surging regional population; and per capita income rose to $62,117 — 25.6 percent above the national average.
There was, however, one hint of a slowdown. The regional employment growth rate remained flat for the third straight year — 2.8 percent in 2014, 3.0 percent in 2015 and 3.1 percent in 2016 — due in part to the loss of 5,400 aerospace jobs.
Another similarity with 1990 has been the narrow focus of the regional expansion since the Great Recession. Although the Puget Sound economy has changed in many ways since 1990, its structure and behavior have remained fundamentally the same. Instead of one dominant player, it now has three: Boeing, Microsoft and Amazon. With a combined payroll of approximately 155,000 employees, they directly and indirectly support roughly 465,000 jobs. This figure represents 23 percent of total regional employment, which virtually matches Boeing’s impact in 1990.
Between 2010 and 2016, the regional economy added 286,000 jobs, expanding at a 2.6 percent annual rate. The contribution of Boeing, Microsoft and Amazon amounted to 105,000 jobs (35,000 directly and 70,000 indirectly). This constituted 37 percent of the total employment gain over the six-year period. If not for the lift given by these three companies, Puget Sound employment would have grown by 1.7 percent, exactly the national rate.
I have always said, “Give me a good forecast for the nation and Boeing, and I will give you a good forecast for the region.” Obviously, we must now include Microsoft and Amazon, but the implication is the same. If the dominant players in the region are no longer expanding their combined workforce, the regional economic growth rate will tend to converge with the national rate.
Last year, Amazon (+4,000), Microsoft (+2,000) and Boeing (–4,000) added 2,000 jobs on net and continued to provide a modest boost to the economy. Our short-term forecast for this year presumes that Microsoft employment will level off, while the job gains at Amazon will more or less offset losses at Boeing. Consequently, Puget Sound employment growth will slow from 3.1 percent in 2016 to 2.1 percent in 2017 and 1.8 percent in 2018.
Because of improving wages and a higher inflation rate, nominal personal income is expected to keep increasing at about 5.5 percent per year. In response to the cooling economy, population growth will decline from 1.7 percent in 2016 to 1.3 percent in 2018. With jobs increasing faster than population, the regional unemployment rate will remain at 5.0 percent.
Despite the slowdown, the region will continue to outpace the nation. In 2018, as the economic recovery from the Great Recession matures, U.S. job and income growth rates will fall to 1.1 percent and 4.9 percent, respectively.
Our regional forecast calling for slower growth is consistent with readings from the Puget Sound Index of Leading Economic Indicators. The index is designed to predict the direction of the economy, as measured by employment, three to four quarters in advance. After climbing strongly since 2009, it has shown signs recently of possibly flattening. This suggests that the regional economy is decelerating rather than turning down.
Even though we have no immediate concerns about a local recession, we are wary. A sluggish national economy, jobs cuts at Boeing, an end to hiring by Amazon and a downturn in housing and office construction  could do the trick.
As for the timing of a possible recession, the experience of 1990 is informative: The Puget Sound economy can turn on a dime.
DICK CONWAY is cofounder of Conway Pedersen Economics, an economic forecasting service for the Puget Sound region.

Economic Outlook: Gazing Beyond 2017

Economic Outlook: Gazing Beyond 2017

Crystal-ball predictions of what’s to come.

The 5 W’s of the news industry
by Mónica Guzmán 

WHO: After years of existential struggle, lots of smallish media organizations (e.g., iterations of Nextdoor and neighborhood blogs) will have become essential to the Seattle communities they serve. You’ll identify with several of these communities — composed of people who live how you live, like what you like or want what you want — and you’ll know them as hubs that include you, not just outlets that inform you. 

WHAT: By 2035, almost everything you do will become somebody’s data, and artificial intelligence — those algorithms that already customize content — will churn out a version of a story just for you. Want knowledge that isn’t so nosy? You’ll probably need to pay more for it.

WHEN/WHERE: Smart objects such as driverless cars will tell you everything you need to know. But after key research findings on the perils of distraction and the benefits of in-person interaction, you’ll finally know when to turn them off and shut them up.

WHY: With information that’s so personalized and segregated, distinguishing what enlightens us from what only affirms our attitudes will be tough. Luckily, a new set of tools — and a new kind of journalism — will have evolved to lead us to information that our algorithms would have never found.  

MONICA GUZMAN is a columnist for The Seattle Times and cofounder of The Evergrey, a daily email newsletter about Seattle.


Imagine an ever-changing waterfront
by Charles Royer

James Corner, the lead designer for Seattle’s new waterfront, doesn’t believe it will ever be finished. He is not handing in a finished design at the end of his contract. 

He is designing a canvas that future generations will shape and reshape. He once said the idea for the waterfront is really that of a classic Pioneer Square loft: a large space that new generations of residents will change and reorganize to accommodate the needs, demands and trends of their own time. 

So Seattle’s new waterfront really is not about what it might look like. Sure, it will be green and open to the sky and the water and the mountains. And open to the crowds — the hustle and bustle of people at play or at rest or just passing through the big city. 

But it is more about how the waterfront will be used by succeeding generations: locals, newcomers and visitors, young and old, the fit and the not so fit, all seeking to contribute to the mix of activity in a place that encourages a changing use. 

Think of a lot less stressful noise and more happy noise. Music. Laughter. Even healthier fish and a cleaner Elliott Bay. 

I hope for what we have dreamed: a waterfront for all, to use as each person chooses.  

CHARLES ROYER, a former Seattle mayor, is cochair of Seattle’s Central Waterfront Committee.


Ferries on Lake Washington? It could happen — again
by Leslie Helm

Lake Washington is a magnificent community asset, but it’s a barrier where traffic is concerned. Michael Christ has a solution. He’d like to reintroduce passenger ferries, which graced the region’s waterways from the 1850s to the 1930s.

Christ, the CEO of Seco Development, is betting heavily on Renton’s Southport mixed-use waterfront development. He pictures slow-moving barge-like ferries transporting 150 to 175 people and countless bicycles at a time. A trip between Renton and Seattle’s South Lake Union might take an hour, he says, but there would be Wi-Fi and a chance to get some work done.

“It would be so much more beautiful than driving,” says Christ. “It would be romantic.” 

Skeptics — and there are plenty — say commuters prefer bus, light rail or car, adding that boats are expensive, and that there isn’t enough development along the lake to make the plan work. 

Christ calls them shortsighted. The boats he envisions are energy efficient and cheap (less than $5 million for three boats circling the lake) and would connect with other public transportation.

Maybe King County Executive Dow Constantine, who backed the popular water taxi between West Seattle and downtown, will go for a new “Lake Link.” Sound far-fetched? Maybe not. The county has considered reviving an idea, raised and quashed when the Great Recession hit, of testing two passenger-ferry routes to the University of Washington — one from Kenmore and the other from Kirkland.

As Christ points out, big growth is projected for cities all around the lake. “You’re going to have 5 million people living around this lake,” he notes. “It’s just a question of time before this happens.” 

LESLIE HELM is the executive editor of Seattle Business magazine.