Only a fool would make predictions, especially in as fraught a year as 2016. Instead, here are my markers to watch.
All markers for 2016 will be distorted by the circus otherwise known as the American presidential campaign and election.
That said, here’s what I’ll be watching this year:
• Chi-Washington. Last week’s panic selling on the Shanghai Stock Exchange is a sign that China’s economic troubles haven’t eased up. If anything, slowing growth, high debt, the troubled banking system and the difficulty of shifting to a consumer economy have grown worse.
China’s woes figured prominently in International Monetary Fund head Christine Lagarde’s statement that growth will disappoint (yet again) this year and the world economy could face unexpected shocks.
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In a survey by Politico, Tyler Cowen, professor of economics at George Mason University, said:
“I believe China is currently in the range of 3 to 5 percent growth, and headed rapidly to zero. Some people take this to be a radical position, but is it? Is it so uncommon for countries to have recessions every now and then? It’s now China’s turn, due to debt buildup, excess capacity and problems in reforming their state-owned enterprises.”
This worst-case scenario could prove disastrous — and contagious.
Washington is the No. 1 state for exports to China. It also draws large amounts of Chinese investments in real estate and Chinese tourists. Exports kept the economy growing last year, but a contraction could rock the state, especially airplanes.
• Other export markets. Washington exporters should also be on notice that the World Bank issued a report warning that a “perfect storm” of turmoil in the largest emerging markets. In addition to China, it cited Brazil, Russia, India and South Africa.
“Spillovers could be considerably larger if the BRICS growth slowdown were combined with financial market stress,” including from the Federal Reserve raising interest rates, the report stated.
Also worth noting is that Canada, Washington’s second-largest trading partner, is facing economic weakness. The biggest cause is the collapse in commodity prices, including oil.
• Boeing. This year will mark the centennial of the company’s founding in Seattle by William Boeing. It moved its headquarters to Chicago in 2001 but remains a huge employer here, especially in commercial airplanes.
The 100th anniversary will likely be marked by some anxiety and tension, too. The company anchors the vital Puget Sound area aerospace cluster, but statewide employment fell to 79,334 at the end of November vs. more than 86,000 at the start of 2013. Will the decline continue?
To be fair, companywide employment has tapered off and an older generation is retiring, but South Carolina’s Boeing employment has risen.
Also negotiations will get serious between Boeing and the Society of Professional Engineering Employees in Aerospace (SPEEA), which represents the company’s engineering workforce. Pressure to accept 401(k)s instead of pensions will be among the contentious issues.
Finally, the Renton-assembled 737 MAX will make its debut flight as early as February. Continued smooth success here is important, especially as Wall Street worries about future jet demand in a slow-growth world.
• Trans-Pacific Partnership. The most ambitious trade agreement in U.S. history was wrapped up last year. President Obama sells it as a high-standard pact that would create American jobs. Critics see it as a corporate giveaway or worse.
Washington state, not surprisingly, has broad support for TPP. It is already a net winner from the prevailing trade paradigm, so would perhaps do marginally better with the agreement.
But even though Obama won “fast track” authority for TPP, Congress may not bring it to the up-or-down vote in this election year. Republican support, which Obama counted on, has fallen away and not merely because of antipathy for the Democratic president. The GOP front-runner, Donald Trump, has denounced TPP.
• Seattle hotness. How much and even whether the extraordinary economic expansion here continues is hostage to some of the outside forces listed above. Also, popping of a bubble in commercial construction or tech stocks could ruin more than our day.
These events would not merely hurt those annoying, overpaid techies or The Man. Contractions and recessions affect the least wealthy the worst and lately have widened inequality.
Nationally, factory output is slowing and manufacturing jobs are in decline. Although unemployment is down, wages remain stagnant. And this is an aging expansion by historical standards, even though many Americans haven’t felt it.
But the worst rarely happens. When I talked to Fred Rivera, managing partner of the Seattle office of Perkins Coie, the law firm, and his colleague Dave McShea, a more even outlook emerged. The firm has counseled some of the region’s most noted companies, including Microsoft, Boeing and Zillow.
McShea, a partner who is also chair of the executive committee, noted that the metro area’s outlook remains strong because of the strength of our larger companies.
“We’re doing quite well, relatively speaking. With cloud computing in particular, we have two of the largest players” in Amazon and Microsoft, he said. (The caveats are, if public markets swoon it can have cascade effects on pockets in the tech sector.)
In other words, it would slow merger activity because valuations have fallen and hurt startups and expansions as the investment chain from angel investors through venture capital and private equity pulls back.
Rivera said, “Things are very strong in the downtown core, with some very large buildings going up or being finished this year.” Also, Weyerhaeuser is set to move to Pioneer Square from Federal Way later in 2016.
• And finally. The Northwest enters the year in an uneven position. Washington and Oregon are outperforming the nation. The unemployment rate for Idaho was 3.9 percent in November.
Alaska, on the other hand, is struggling. Its gross domestic product has declined since 2012 and this past November’s unemployment rate, the latest available, was 6.4 percent. That compares with 5 percent nationally. The culprit is falling oil prices, which even has Alaska contemplating an income tax.