Quarterly Economic Measures Report
Fourth Quarter, 2000
Executive Summary
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As part of its year 2000 special programs contract with the Office
of Regional Policy and Planning, the Central Puget Sound Economic
Development District (EDD) produces quarterly reports on national
and county economic measures. This document is an executive summary
of the fourth quarter, 2000 report.
Please contact us for more
information about the QEM reports.
I. THE NATION
Economic Measures
The United States economy grew by a mere 1.4% in the final quarter
of 2000, its weakest performance in five and a half years, and the
clearest sign yet that the pace of economic growth is slowing rapidly.
The deceleration in real GDP growth in the fourth quarter primarily
reflected a decline in business investment in equipment and software
and a slackening of consumer demand. The rate of GDP growth in the
third quarter was revised downward to 2.2 percent. However, due to
the much higher growth rates in the first half of the year, overall
growth for the year 2000 came in at a robust 5.0 percent, the strongest
showing in 16 years.
The GDP implicit price deflator showed a slight increase in the rate of
inflation in spite of the slower pace of growth. It rose by 2.1%,
up from 1.6% in the third quarter. The consumer price index
remained stable throughout the final quarter of 2000, with consistent
increases of 0.2% each month. For the year as a whole, the index grew
by 3.4%, compared with a 2.7% increase for all of 1999. Higher
energy costs were the principal factor behind the year 2000 price
increases, the largest since the Persian Gulf War in 1990.
The Federal Reserve raised short-term interest rates six times between
mid-1999 and May of 2000 in order to slow economic growth and forestall
inflation. The central bank took no further action for the remainder of
2000, although the rapid slowdown in output and relatively low
inflation will almost certainly lead to interest rate cuts sometime in
the first half of 2001.
During the fourth quarter of 2000, yields on Treasury bonds (which
move inversely to price) dipped in reaction to the uncertain political
and economic climate. Controversy over the outcome of the November
presidential election as well as anxiety over falling stock prices
caused yields to drop sharply in the latter half of November and
December to levels not seen in over a year.
In expectation of possible interest rate reductions early in 2001,
mortgage rates continued to decline from mid-year peaks, trending
noticeably downwards from October through December of 2000.
Industrial/Manufacturing Measures
In the fourth quarter, investment in producers' durable equipment fell
by $13.8 billion, the first outright decline in almost ten years.
Purchases of information processing equipment and software continued to
rise during the fourth quarter (up 2.3%), albeit more slowly than
in the previous quarter (4.0%). Nonfarm inventories grew by
$62.4 billion in the fourth quarter, following an increase of
$67.4 billion in the third quarter.
Factory orders in October were down by 4.0%, the weakest
performance since a record 8.1% decrease in July. A temporary drop
in demand for transportation equipment and electronics fueled the
October decline. In November and December these same two sectors led a
modest recovery, as factory orders grew by 1.9% and 1.1%,
respectively. Non-defense capital goods orders, excluding aircraft, a
key indicator of business investment, declined by 4.2% from the
previous quarter.
Industrial production declined at an accelerating rate through the
three final months of 2000. Overall, fourth quarter production fell by
1.1%, the first quarterly drop since the opening months of 1991.
Capacity utilization rates also fell steadily throughout the quarter
in response to declining demand.
Income Measures
Personal income demonstrated somewhat greater volatility in the final
three months of 2000, influenced by federal subsidies to farmers. It
rose 0.2% and 0.4% in November and December, respectively, after
falling 0.2% in October. Exclusive of such payments, personal
income grew by 0.4% on average for the quarter, reflecting a
slower, yet still expanding, economy. Per capita disposable personal
income rose slightly in the fourth quarter, up 1.3% over the same
period one year earlier.
II. THE REGION
Economic Activity
The regional pace of inflation slowed in the final quarter of 2000. The
consumer price index (CPI) for the western U.S. was up 0.7% from
the previous quarter, for an annual rate of 3.0%. The estimated
CPI for the Seattle metro area rose 0.8% in the fourth quarter of 2000,
for an annual rate of 3.4%.
The number of bankruptcies recorded in King County continued to decline
in the fourth quarter of 2000, down 1.9% from the previous quarter and
7.6% from the same quarter twelve months earlier.
New business starts within the city of Seattle recovered nicely in the
fourth quarter of 2000, with nearly double the number of new licenses
issued compared with the same period last year.
Air traffic at SeaTac continues to follow a long run trend of steady,
year-to-year growth. The number of air passengers recorded in the
fourth quarter of 2000 grew by 1.5% over the final three months of
last year. Air cargo traffic increased by 5.8%. By contrast, container
traffic at the Port of Seattle fell slightly, down by 0.5% over the
same period one year earlier.
Convention Information
The number of conventions and events held in King County during the
fourth quarter of 2000 grew by about one-third over the same period
last year. Total room nights, a measure of the volume of tourist and
business traffic, increased 18.5%. Local room taxes collected during
the third quarter of 2000 increased 9.0% from the same period last
year. Local room tax per event, a proxy measure for delegate expenses,
declined by nearly 30% from the same period twelve months earlier.
According to Steve Morris, president and CEO of the Seattle-King
County Convention and Visitors Bureau, the outlook for 2001 is
strongly positive, with both hotel occupancy rates and
convention-related spending expected to reach record levels.
Taxable Retail Sales
Taxable retail sales in King County rose 7.4% overall in the third
quarter of 2000. Among the major sectors, construction continues to
grow most rapidly, up 12.7%. Growth was fairly evenly distributed,
however, with finance, insurance and real estate (10.4%), services
(9.2%), transportation, communications and utilities (8.9%), and
manufacturing (7.5%) all experiencing above average gains. Taxable
retail sales in the City of Seattle were up 6.3% in the third quarter
of 2000. With the exception of services, which grew by 9.8%, and
wholesaling, which rose by only 1.6%, growth was unusually broad-based,
with every other major sector falling within one percentage point of
the overall average. The leading component in the services sector was
once again computer services, which was up nearly 40% over the third
quarter of 1999.
Employment
The job market remains tight in spite of the slower pace of economic
growth. At the national level, unemployment fell to 3.7% in the fourth
quarter. Statewide, unemployment was up slightly at 4.8%. In the final
months of 2000, the unemployment rate for King County moved downward
slightly to 3.3%. Average monthly initial unemployment claims in the
third quarter of 2000 were up by 8.2% compared with the same period
last year. The number of unemployment beneficiaries declined by 0.8%.
In the Seattle metro area, the number of nonagricultural wage and
salary workers grew by 1.9% in the fourth quarter of 2000. Employment
in goods-producing industries declined by 2.1%. Employment in
services-producing industries increased by 2.9%. Job losses in
manufacturing slowed (down 3.5%). Services employment continued to
expand (up 4.1%), led by growth in business services: computer &
data processing (up 21.3%).
Job Dislocation Activity
For the year 2000, layoffs at 45 companies led to the dislocation of
7,294 workers. Roughly half of the job losses recorded by the King
County Reemployment Center were due to workforce reductions at
Boeing, with almost all of these cuts taking place in the first half
of the year. Further manufacturing job losses were reported at
PACCAR/Kenworth Trucks (657), Boston Scientific Corp. (321), and
apparel manufacturer Thaw Corp. (200). The collapse of the Internet
bubble in March forced many previously high-flying dot-coms to reduce
staff levels. Onvia.com (175), Amazon.com (150), and eProject.com (31)
were among those affected.
Boeing and Airline Industry Data
After nearly two years of steady declines, the number of Boeing
workers in Washington State has stabilized at slightly more than
77,000 employees. With the number of new orders booked up over last
year, contractual backlogs overall at Boeing rose by 24% over fourth
quarter 1999 figures. Backlogs in the commercial airplane division
were up 23%, and in the space and communications division increased
by 26%.
Wages
In the second half of 1999, overall monthly wages rose in the
third quarter (7.8%) and again in the fourth quarter (9.4%). Total
wage levels in the final quarter of 1999 were higher than in the same
quarter one year earlier, by 16.4%. The major sectors with the highest
average monthly wage were services (up 33%) and manufacturing (8%).
Real Estate
Construction
In King County, sales of new and existing homes in the fourth quarter
of 2000 were off 3.0% from the same period one year earlier. At the
same time, however, home prices continued to rise, with both the mean
and median sales prices up by 5.3% over fourth quarter 1999 levels.
In the City of Seattle, the number of commercial and industrial permits
issued in the fourth quarter of 2000 declined by 2.7% from the same
period one-year earlier. The value of non-residential construction
declined slightly, down 0.3%. The number of residential permits issued
for existing units grew by nearly 44%, while those for new construction
declined by 18%. The dollar value of residential construction increased
by more than 86% and the number of new units built increased by almost
44% over the same period twelve months earlier. The number of permits
issued for new housing units in all of 2000 hit a record high, up 50%
from the year before.
Office Market
The dot-com shakeout continues to make itself felt in the regional
market for office space. Space returned to the market in the form of
subleases resulted in the first negative absorption rates in the region
since the third quarter of 1996. According to CB Richard Ellis,
approximately 1.2 million square feet has been returned to the market
in the past year. The overall vacancy rate for the region rose to 5.2%
in the fourth quarter of 2000. Vacancy rates in downtown Seattle and on
the Eastside rose from virtually zero to 4.3% and 3.9%, respectively.
Despite the slight contraction in the high tech sector, demand remains
strong. Average lease rates continue to inch upward. Over 8 million
square feet of new office space is currently under construction
region-wide, much of it pre-leased.
Industrial Market
Vacancy rates tightened even further in the final three months of 2000
to 3.0% region-wide. Strong demand resulted in an additional 2.5
million square feet of new space absorbed in the region, with the
majority added in the Kent Valley and Tacoma/Fife markets. An
additional 2.5 million square feet remains under construction. Lease
rates for both high-tech and industrial space remained stable across
the region in the fourth quarter of 2000. The single exception was
downtown Seattle, where lease rates for industrial space jumped from
forty-five to fifty cents per square foot.
Retail Market
Vacancy rates for retail space, already at low levels in the first half
of 2000, continue to fall across the region, with overall rates
dropping to 2.7% in the second half of the year. Due to the tight
market, average asking lease rates rose just over $3.00 per square
foot region-wide. At 592,865 square feet, net absorption in the second
half of 2000 was barely a third of the volume added to the market in
the first half of the year. An additional 1.4 million square feet is
currently under construction, nearly half of it on the Eastside.
Apartment Market
Apartment sales volumes in the Puget Sound region totaled $379 million
in the second half of 2000, the highest level in two years. The
increase was fueled by a surge in activity in the Southend market
($186 million). Rising rents in the downtown core and on the Eastside
have driven up demand for more affordable units to the south. Average
price per unit region-wide declined slightly in the second half of the
year, largely due to a slowdown in sales on the Eastside where average
price per unit is highest. Vacancy rates in the Puget Sound region rose
slightly in the second half of 2000, to 3.8% from 2.6% in the first
half of the year. Demand remains strong, however, and rents continue
to creep upward, 2.1% in the past six months. Downtown Seattle
experienced the highest rate of increase at 7.6%, while rents on the
Eastside rose 4.5% on average. According to CB Richard Ellis, 5000 new
rental units are expected to be completed in 2001, and an additional
7000 units the following year. These additional units, combined with
slower regional growth rates, may eventually lead to a softening in the
rental housing market. For the near future, however, demand is expected
to continue to outpace supply.
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Updated: January 29, 2004
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