If the region’s vigorously growing economy slows, what’s next? Much depends on what happens nationally and around the world.
The strong economic growth of Seattle and Washington state appears to be downshifting.
This assertion comes with plenty of qualifiers and questions, but early data are undeniable.
Statewide, month-over-month growth in nonfarm employment has fallen from 3.4 percent in October 2016 to 2.1 percent this past October.
The trend holds for the Seattle-Tacoma-Bellevue metropolitan area: October’s 2.4 percent growth was notably slower than the 3.5 percent in the same month in 2016.
The downward line in job growth holds true for many individual employment categories, from information to retail trade and food and drink establishments.
One more sign: The index of leading indicators for Washington, compiled by the Federal Reserve Bank of Philadelphia, fell sharply from March through August, before a slight uptick in September, the most recent month available. The index (compiled for each state) aims to look at growth prospects six months out.
Now the caveats.
Washington and metro Seattle are still growing. Employment is at record highs. Unemployment is at or near record lows. Plenty of construction is in the pipeline in Seattle, and developer and investor enthusiasm in real estate here is high for 2018.
More concerning is a negative or flat rate of employment growth in Spokane this year. The Kennewick-Richland area has seen a deceleration in growth, too. The same trend is true in much of Oregon, including metro Portland.
Making forecasts for states and metros is made more difficult by the lag times of most data, as well as a lack of the economist firepower and fine-grained information available at the national level.
That said, the state’s November forecast sees slowing growth to come in several indicators.
But — and this is most important — a slowdown in the rate of growth isn’t a recession or even necessarily a warning.
The Obama-Trump-Bernanke-Yellen expansion continues to hum along. Last week, national gross domestic product growth was revised upward to 3.3 percent in the third quarter, adjusted for inflation. And inflation is extremely low. The caution: This is an elderly expansion by historical standards.
As for Seattle and Washington, many readers will look at a growth slowdown as a good thing. We need time to catch up with population growth that’s normal for a Sun Belt state but discombobulating for us.
And that would be fine if we could cruise in a Goldilocks economy: Not too hot, not too cold, but just right. The cherished soft landing necessary for a sustainable long run.
It might not even be a speed bump for the go-go tech economy, which led and far outperformed the slow expansion after the Great Recession. Amazon keeps adding space here even as it looks at offers for HQ2 from other cities. Microsoft this past week announced a multibillion-dollar expansion and renovation in Redmond, which might even be connected to light rail someday.
These giants operate in a global marketplace and are sitting on mountains of cash. While their health is essential to the region’s economy, the two are not synonymous. Unless, that is, a nasty downturn or stock-correction hits — then their sniffles become our pneumonia.
Goldilocks would also be helped by some stability at Boeing, which has shed more than 5,000 jobs from the end of January to the end of October. Employment is down almost 20,800 from the most recent peak set in October 2012.
Overall manufacturing employment is the only area where we are actually in negative territory. And whether from moving jobs or automation, growth in this sector is facing severe challenges as an employment engine.
Trade is another spoiler of the porridge. Overall, world trade has been sluggish for years, and, also hurt by a high dollar, Washington exports have suffered. From difficult NAFTA renegotiations to an “America First” vow, the Trump administration is not operating by the consensus under which Washington exporters flourished.
I’m also skeptical that slower growth, or even an outright recession, would have much long-term effect on house prices in the city or the most desirable parts of the metro area. We’re now part of the enduring West Coast levitation seen from San Diego to San Francisco, lately in Portland, seemingly forever in Vancouver, B.C.
The good news is that housing is being built here, and many parts of the metro area are relatively affordable. But short of a Mount Rainier eruption, North Korea nuclear strike or Bolshevik takeover, supply and demand will keep prices high here. (Cleveland and Pittsburgh, very nice cities, are much more affordable.)
On the other hand, a growth slowdown might hurt. If it gets weak enough, we land in a “growth recession.” That’s not an actual recession, where output goes into negative, but a slowdown significant enough that it shocks the economy. If a car suddenly goes from 90 mph to 25, you’ll feel it. Your face might hit the dashboard.
Back in the 1980s, despite the overall expansion, a number of states were even in localized recessions. This was largely a result of falling oil prices. That’s happening less now, but Alaska is among the places once again feeling pain from cheaper petroleum. And some hotbeds of housing speculation took years to dig out of the Great Recession.
Such a state-focused downturn is less likely in Washington, thanks to a highly diversified, high-end economy. Our fate is more tied to national and world trends.
So let’s hope for Goldilocks.
The only thing to worry about is the arrival of bears.