What if a slowdown comes in 2016? Seattle’s hot expansion wouldn’t be immune to the consequences. In fact, we have some serious weak points.
A few big banks see a substantial risk of a U.S. recession this year. In December, Citigroup put the chances at 65 percent.
JPMorgan Chase’s Jamie Dimon dismisses the danger. The Federal Reserve maintains the odds of a downturn are only 10 percent.
Economists were generally upbeat at the annual forecast conference of the Economic Development Council of Seattle and King County this month.
Chris Mefford, president of the research group Community Attributes, laid out the metropolitan area’s many strong points and why we should expect to see continued growth. It may be slower than 2015, but the economy will expand.
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If this continues for a few more months, Seattle-Bellevue-Everett will have had the longest streak of job gains in recent history.
Those who worry about a downturn have ample reason. China and emerging markets are in trouble. Commodity prices, including oil, have collapsed, driven by excess supply and falling demand. Tech stocks may be dangerously overvalued. This is an aging business cycle. Also the manufacturing sector has been struggling, often a sign of impending recession.
Jumpy stock markets were not reassured last week when the Federal Reserve kept interest rates steady, citing slowing economic growth at the end of last year.
Then The New York Times Magazine ran a sobering essay from Adam Davidson asking, “Why are corporations hoarding trillions?” This includes $1.9 trillion in cash from American businesses “just sitting around.”
The reasons aren’t entirely clear. But he wrote, “The answer, perhaps, is that both the executives and the investors in these industries believe that something big is coming, but — this is crucial — they’re not sure what it will be.”
Trouble, if it comes, could take many forms beyond the technical definition of a recession. It could manifest itself as a “growth recession,” which would have unhappy implications in an already slow-growing economy.
Regional recessions, common in the 1980s, could also strike. Low oil prices have already caused bankruptcies and layoffs in the Oil Patch. The recovery has already been deeply unequal, favoring tech centers such as Seattle while leaving metros dependent on housing or traditional manufacturing behind.
At worst: a shock from China, whose official statistics are notoriously unreliable.
Any of these in a connected and fragile global economy would eventually shake what has been one of the greatest booms in Seattle history.
Here is where I see our biggest spots of vulnerability:
• Boeing. Last week, the company rattled Wall Street by lowering its forecast for commercial-airplane deliveries this year, as well as guidance for profit and cash flow.
Significantly, Boeing said it would cut production for 777s, with implications for jobs.
Although the 737 is going strong, Boeing’s overall employment in Washington fell to 79,238 at the end of December from more than 86,000 at the start of 2013.
Any slowdown at Boeing would ripple out into the wider Puget Sound region aerospace cluster.
• Commercial real estate. Seattle has been one of the nation’s hottest markets, thanks to a growing economy and investors, including from China, seeking yield and a safe haven.
The Federal Reserve beginning to raise interest rates might cause investors to look elsewhere, particularly if the central bank feels confident enough to continue the increases in March.
Like most hot markets, Seattle risks overbuilding, too. Add in a global shock or a general slowdown, and many of the projects rolled out with such fanfare might not come out of the ground, at least in this cycle.
• The ports and logistics. Washington exporters are already facing the head winds of the global slowdown, especially in China, the state’s No. 1 export destination. The strong dollar is especially hurting U.S. exports.
Some important shipping yardsticks are already signaling trouble. Container activity from China’s ports is down 40 percent from its 2012 high. The venerable and venerated Baltic Dry Index, has been hitting new lows.
Meanwhile, rail traffic fell the most in six years in 2015. Much of this is related to coal and oil, but it remains an important indicator of the economy’s health.
All this complicates the work of the new Northwest Seaport Alliance, which married the shipping operations of the Port of Seattle and Port of Tacoma. Although it seemed to hold its own in 2015, it felt the oil-related slowdown on Alaska routes. Most important, the situation makes raising the ports’ market share, which has been falling for years, more difficult.
• Startups. These enterprises have been another pillar of the Seattle boom. Yet Washington saw a sharp decline in venture capital in the fourth quarter. That might be a one-off. After all, Seattle offers the amenities and “ecosystem” that attracts tech investment and talent, yet it is less expensive than Silicon Valley.
But a bust in the tech bubble — witness the near hysteria because Apple might have sold only 78.4 million iPhones in the fourth quarter — could dry up the capital pipeline for startups.
None of this may happen.
For example, University of Oregon economics professor Tim Duy provided a useful counterpoint to those who worry that a manufacturing pullback inevitably signals recession. Much of the factory weakness is found in sectors associated with the oil business. It doesn’t signal a sustained overall contraction.
Low oil prices may yet give this recovery new life. That is, once the speed and depth of the price decline is absorbed and sectors that benefit take off. China may even be better off than the pessimists fear.
So place your bets on the spinning wheel.