Everett, Wash.
Published: Saturday, June 6, 2009

State economy down, but nearing the bottom

By Curt Woodward
Associated Press

 OLYMPIA -- Even though Washington's economy is performing worse than expected, economists say the end of the recession is clearly in sight, with the state and national economies expected to recover in tandem later this year.

In a report delivered Friday, the state Economic and Revenue Forecast Council said the recession should bottom out in the third quarter, with a gradual recovery -- shaped like a U rather than a V, said Arun Raha, the state's chief economist.

"I think the free-fall phase is over," Raha said. "We can see the end of the recession, even though we're seeing it from a lower point than we thought we would be."

Positive signs include loosening credit markets as well as upticks in home sales and equity markets. Declines in car sales, housing starts and consumer spending are possibly bottoming out.

The pace of job losses also should slow in the coming months, with state unemployment expected to peak in the second quarter of 2010 at 10.6 percent. Unemployment typically lags an economic recovery; the latest report put Washington's jobless rate at 9.1 percent, its highest level since 1984.

Employment is weakest in construction, non-aerospace manufacturing, and professional and business services.

Construction in particular appears to have undergone a structural change in Washington, Raha said, and federal stimulus spending still has not affected the sector in a major way.

"We do not expect construction employment to recover until late in 2010. Many of the jobs have gone away for good," he said.

Raha said the nation appears to be in the third stage of a recession -- after trying to stay calm and then panicking, Americans are starting to "get excited and make things."

But consumer confidence is still poor, painting a troubling picture for state government finances. Washington's tax system relies heavily on sales and business receipts, meaning that gyrations in government finances are tied closely to consumer behavior.

Raha said he expects consumer confidence in the state to improve in the first half of 2010, once job losses begin to peak and consumers feel more secure about their employment.

"I do believe that between Madison Avenue and the way banks hand out credit, eventually we will be able to get consumption back up," Raha said.

But even then, it takes a couple of months for renewed consumer spending to flow into the state's bank accounts, he noted. That serves as a warning for state lawmakers on the council, since they just concluded patching a 21/2-year budget deficit of $9 billion.

The Forecast Council meets again in two weeks to deliver a more closely watched forecast of state government's tax collections over the coming months.

If the projections are down too severely, that could raise the chances that lawmakers might have to return to Olympia for a special legislative session to do further work on the already crimped budget.

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On the Net:

Economic review: http://www.erfc.wa.gov/pubs/ec20090605color.pdf
© 2009The Daily Herald Co., Everett, WA