The Pacific Northwest economy is strong, thanks to Boeing, Microsoft, Amazon and many others that are doing well. Even on the national scene, the resilience of the economy is strong, making talk of a recession premature.
That’s the message presented in Everett last month at Frontier Bank’s annual economic forecast by Michael Parks, editor and publisher of the highly respected Marple’s Pacific Northwest Letter on the regional economy.
“Globally, the economy is decelerating, but from a very high level. The U.S. economy has slowed markedly but remains incredibly resilient. Consumers, who account for two-thirds of the nation’s gross domestic product, remain the key to a strong economy,” he said.
“However, I think that even if we do see a light recession in the first quarter of the year, we should be through it in a couple of quarters,” he predicted. “Overall, what is happening is simply moving back to a more normal level of activity, so the comparison is bound to be negative. In fact, I see no recession at all in the Washington state forecast.”
Officially, the National Bureau of Economics considers a recession two consecutive quarters of a broad downturn in business activity affecting production and employment. But it takes months for the bureau to determine an official recession. By that time, Parks said, “We should be through any national downturn in the economy before it even qualifies for that label.”
He noted that over the past 25 years there have been only two recessions, each lasting eight months, in 1990-91 and 2001.
A self-proclaimed optimist by nature, Parks said he has reason to be a little more cautious than usual about 2008.
For instance, it will be important to the Northwest for Boeing to win the $40 billion Air Force tanker contract that is expected to be announced soon in the competition with Northrop Grumman and EADS, parent company for Airbus.
Another cautionary area is the raging global banking crisis, he said.
“When offshore investors put in $20 billion to rescue Citibank and Merrill Lynch, that’s unnerving. We’ve just come through a period of financial engineering where bankers were paid on volume and the incentive was to make deals without worrying whether they made any sense. Banks have to start trusting each other again,” he said.
The third caution on his mind is China, with $1.5 trillion in foreign exchange reserves, mostly in U.S. dollars. That figure grew 46 percent during 2007. How that country might use that economic power needs to be watched, he said.
“With those provisos, I’m optimistic. The national economy, after all, has weathered wars, accounting scandals and an attack on our nation, yet we’ve endured and the economy is still OK, showing its resilience,” he said.
In the Pacific Northwest, prosperity is general and widespread, he said. Washington state is in the middle stages of a long cyclical aerospace recovery supported by extensive long-term aircraft sales for numerous aircraft, including the new 787.
But the regional economy also is driven by the successes of the software industry, including Microsoft and Adobe, plus a vibrant high-technology sector, trade commodities and population growth.
Key advantages for Washington, he said, include rising manufacturing employment with booming aerospace and software publishing industries, computer server farms and solar plants in Eastern Washington, export advantages for manufacturing and agriculture because of the weaker dollar, above average population growth and having a critical mass in the vibrant high-tech sector.
“Prosperity is shared by many ZIP codes in the state,” he said. “The state’s job growth is up 8.5 percent in November 2007 over November 2004, with the Seattle-Everett area up 9.9 percent, Tacoma up 8.6 percent and Bellingham up 9.4 percent. Since May 2004, aerospace employment has grown around 500 jobs per month to just over 80,000 in the state, up 34 percent from its low point in 2004.”
Also, construction employment in the state has grown 41 percent, up 61,800 jobs from March 2002, reaching around 215,000 today. Washington state’s overall population has been growing at a rate twice the national average since 2006, increasing from around 4 million residents in 1980 to 6.6 million at the start of 2008.
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