Kenya Jacobs can identify with the quote from baseball's Satchel Paige: "Don't look back, something might be gaining on you. " This something is recession.
Kenya Jacobs can identify with the quote from baseball’s Satchel Paige: “Don’t look back, something might be gaining on you.” This something is recession.
When she moved from Houston to Seattle last March, the Texas city was already staggering from the housing downturn. Eight houses on her block were in foreclosure. The house she owns is still for sale and vacant for lack of renters.
Now in Seattle as a trainer for Starbucks, Jacobs says a recession is “imminent … people I meet who have moved from all over the country have seen it where they came from. There’s no way Seattle can dodge the bullet. It’s very scary.”
I got another perspective from veteran local economy watcher Michael Parks, editor and publisher of Marple’s Pacific Northwest Letter. He’s mulling over an “R word,” too: resilience.
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“As is usual, the Washington state economy is out of phase. We’re prospering when rest of country is slow,” says Parks, who sees slower growth in 2008 but no recession.
There’s truth in both perspectives. It’s difficult to believe the housing meltdown won’t at least singe Seattle. You can see some of the ashes already in the difficulties at Washington Mutual. Yet the region is in a stronger position than most.
That doesn’t guarantee a downturn won’t be contagious. Anything connected to the housing slump is vulnerable, and a deep trough could cause wider damage. But global demand for Washington products, such as airplanes, software and grain, and strong population growth remain advantages.
The more intriguing question is what happens during and after the downturn. Recessions are transformative events, no less for cities and states than for individuals and companies. They wring out imbalances and create winners and losers, sometimes unpredictably.
Meanwhile, the aftermath of recessions has changed radically over the past two decades. Recoveries are slower and uneven, with average Americans often slow to see the fruits of a new expansion.
The rules of business may change on the other end of a downturn, especially in how capital is deployed.
“What matters most in how a downturn plays out is the composition of your growth, the cards you’re dealt,” said Diane Swonk, chief economist of Mesirow Financial in Chicago. “The classic example is Detroit.”
Motown’s automakers sat astride the American economy for decades, even as the city’s infrastructure sagged and population fled. But starting in the late 1970s, as automakers faced more foreign competition, each recession took away more highly paid blue-collar, and eventually white-collar, jobs.
In 2007, even before a full recession, Michigan lost 90,000 jobs. Many were in the auto industry, highlighting the dependence on one formerly powerful sector.
Now you can find examples in Florida, Las Vegas and Phoenix, epicenters of the housing collapse.
In Phoenix, for example, where an estimated one in three jobs is dependent on housing, the pain is already acute. The city budget faces as much as a 20 percent cut.
Big losses at banks are shaking prosperous Charlotte, N.C., the nation’s second-largest banking center, where two proposed downtown skyscrapers have been shelved in recent weeks.
In other words, these relatively narrow economies are more exposed to a contraction, particularly because it is hitting their key sectors. Recovery will likely take longer there.
Seattle is less dependent on these ailing sectors and is even benefiting from some otherwise troubling trends. For example, higher oil prices are helping Boeing book orders for new, fuel-efficient airliners.
Parks even argues that delays in the 787 have added local stimulus as Boeing pushes to get the new jet moving.
A weaker dollar is adding demand for Washington exports.
Bigger and bigger
The outlook is more mixed in another consequence of downturns: industry consolidation. In recessions, onetime leaders can stumble in the less-forgiving environment. New players and ideas emerge, and often the big get bigger.
Thus Microsoft is bidding for Yahoo and Amazon has snapped up the audiobook company Audible.
On the other hand, Washington Mutual, a headquarters crown jewel, is suffering from the mortgage crisis. With its stock price at a 12-year low, the company could be a tempting takeover target.
Struggling Tully’s Coffee may be looking for a buyer.
Atop the list of recessionary losers is government revenue as tax collections fall. Worse, this risks the competitive position of states and cities when the economy recovers, because funding for education, research and infrastructure stagnates or declines.
“The danger is that you undo all the important strategic investments that were done in previous years,” said Mary Jo Waits, project director of the Pew Center on the States in Washington, D.C. “Developing talent, research and development and work-force programs are all important to the future.”
It remains to be seen how that plays out in Olympia. Unlike many states, Washington is blessed with a budget surplus, projected at $1.4 billion, but the state still must address a high dropout rate while critical transportation projects remain stuck in gridlock.
Seattle’s biggest exposure to a downturn may be complacency. Economic memories can be short amid so much prosperity. But it took years for the region to recover from the 2001 tech bust, a mild recession by national measures.
Steve Crosby moved to Seattle from Los Angeles in October 2001 to take a job at Vulcan. He watched the city face the aftermath of Sept. 11 and a major earthquake, the dot-com bust and the loss of Boeing’s headquarters.
“This place was beginning to really feel dark times,” he recalled. “It was pretty grim.”
Issues such as addressing income disparity and work-force housing can become abstractions even in good times. In harder times, they risk eclipse, even though they are critical to the region’s ability to attract and retain business once the economy rebounds.
One thing is pretty certain: We won’t see the kind of expansion that predominated from the end of World War II until the late 1990, with widespread and fairly speedy recovery. The new expansion, exemplified after 1991 and 2001, is slow, uneven and unpredictable, giving rise to the phrase “jobless recovery.”
Even in the recent expansion, average wages stagnated and poverty rose. Meanwhile, the capital markets evolved. After the 2001 downturn, venture capitalists looked overseas for better deals; it took years for many of those investors to look at domestic companies again.
The shakeout also began the rise of private equity and more exotic derivatives. In other words, the rules of the game changed as the new expansion started.
The reasons include heightened global competition, a new premium on educated workers and government policies. But for cities and states, the stakes just get higher. Weaker regions will find recoveries harder, and even strong ones wake up to new global rivals and challenges.
If there’s a consensus on competitiveness, it comes down to policies that build, attract and retain talent and capital, both of which are more mobile today than ever before.
That means top-notch K-12 education, world-class research universities, clusters of flexible, fast knowledge companies, great amenities, adequate infrastructure and, increasingly, limits on greenhouse gases and environmental damage.
It means mastering the art of reinvention in each turn of the economy.
It doesn’t come cheap. The alternative is more costly. Ask Detroit.
Jon Talton is a journalist and author living in Seattle. For more than 20 years he has covered business and finance, specializing in urban economies, energy, real estate and economics and public policy. Talton has been a columnist for The Arizona Republic, Charlotte Observer and Rocky Mountain News, and his columns have appeared in newspapers throughout North America on The New York Times News Service.