Quarterly Economic Measures Report
Second Quarter, 2001
Executive Summary
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As part of its year 2001 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 second quarter, 2001 report.
Please contact us for more
information about the QEM reports.
I. THE NATION
Economic Measures
Despite overall resiliency, the weakness in the U.S. economy is now apparent,
with the possibility of recession more likely. However, with GDP growth still
barely in positive territory (both inflation-adjusted and seasonally-adjusted
dollars), this quarter marked the tenth consecutive year of economic growth,
the longest expansion on record. These GDP figures are based on more complete
data sources than those figures announced one month ago. In advance estimates,
the growth in real GDP was estimated at 0.7%, while the new estimate is 0.2%.
Also, more recent data has final estimates for fourth quarter 2000 revised
downward to a 1.3% annual rate.
Business investment, which fueled much of the record growth in GDP last year,
declined for the second straight quarter. Spending on equipment and software fell
by 15.1% in the first quarter of 2001 following a 2.1% decline in the
final months of last year.
Inflation remains subdued, despite the run up in the prices for oil and
electricity. The GDP deflator accelerated slightly in the first quarter,
growing at an annual rate of 2.2% compared with 3.3% last quarter. Restrained
by slower demand, the consumer price index advanced at a 4.0% annual rate in
the first quarter of 2001, compared with a 5.6% pace in the same quarter one
year earlier.
In the second quarter of 2001, the Federal Reserve again moved aggressively by
lowering interest rates on three separate occasions. Each time, the Fed reduced
the federal funds rate by half a percentage point, from 5.0% at the start of
the year to 3.75% by the end of the second quarter of 2001. Although interest
rates are at their lowest level since August 1999, further rate cuts are
anticipated. Meanwhile, the Federal Reserve carefully watches both inventory
and new investment numbers for signs of new life.
Government may be a beneficiary of the fall in short-term bond rates. However,
this is offset by an increasingly upward sloping yield curve, because long-term
rates remain unchanged and weaker tax revenue forecasts.
Mortgage rates were also largely unaffected by cuts in short-term interest
rates throughout the quarter. According to Freddie Mac, average rates for a
fixed rate 30-year mortgage hovered just above 7.0% in the second quarter,
down from last year's peak of 8.64%.
Industrial/Manufacturing Measures
The current economic downturn is most evident in the manufacturing sector. In the
second quarter of 2001, investment in producers' durable equipment (equipment
and software) declined by $43.7 billion, following a revised $11.6 billion
drop in the first quarter of this year. Nonfarm inventories fell by $37.8
billion, the second straight decline in inventories.
New orders for manufactured goods in the first quarter of 2001 were down 7.0%
in the second quarter, following a 4% decline last quarter. Weaker demand
was evident in all major industrial sectors. Orders for non-defense capital
goods, excluding aircraft, a measure of business investment, have declined
steadily.
After rising slightly in March, total industrial production resumed its decline
at an annual rate of 3.7%, the biggest rate of quarterly decline since the
first quarter of 1991. The last time output fell for two straight quarters was
during the last recession some ten years ago. The rate of capacity utilization
also fell in June to 77.0% but remains at a level more than 2.5 percentage
points below its 1967-2000 average. The March increase ended a string of seven
months of decline.
Of these numbers, the most significant are decreased inventory levels and the
continued decline in capacity utilization (from 79.5% to 77.6%). Economists
hope to see an increase in utilization to a level above 80% as a sign that
recovery is in progress. However, it appears to be too early to know if
inventories have reached their appropriate levels to signal that the adjustment
is finished.
Income Measures
Personal income increased at an average monthly rate of one-half a percentage
point, demonstrating less volatility than in 2000. Income growth has remained
remarkably steady over a period otherwise characterized by falling business
investment and rising unemployment. Per capita disposable income rose 1.7%
over the previous twelve months to $24,203. Personal consumption expenditures
increased 2.5% in the second quarter (off from 3.0% in the first quarter),
while corporate profits decreased 28.5 billion in real dollars (one-half of
the decrease that occurred during the first quarter).
II. THE REGION
Economic Activity
In the western United States, overall prices increased 1.1% compared to 1.1%
in the second quarter of 2001. In the Seattle CMSA, consumer prices jumped
1.25% from December to February. Rising housing costs provided the strongest
upward pressure on the regional consumer price indexes. The number of
bankruptcies recorded in King County continued its upward trend, up 23.6% in
the second quarter over the same quarter one year earlier. (This is compared
to 18% in the first quarter). New business starts are down by 34% from
last year. The number of air passengers recorded at SeaTac rose in its seasonal
pattern from the first quarter; it is also slightly above last year's totals.
Air cargo traffic continues down by an average of 2.5%. At the Port of
Seattle, water-borne freight traffic also continued its decline by almost 20%
from last year's average.
Convention Information
The completion of Seattle's expanded convention center in mid-July, and an
increase in the number of cruise ship departures from the Port of Seattle are
expected to result in strong growth in the tourism sector in the latter half of
the year. Meanwhile, convention activity is up another 7.5%, with a
positive impact on local taxes, but overall occupancy remains at the 2000
levels.
1
Taxable Retail Sales
Taxable retail sales in King County grew 1.4% overall in the first quarter of
2001 compared to the same period one year earlier. Once again, construction grew
most rapidly at 12.8%. Services (5.5%), manufacturing (5.3%), and
finance, insurance and real estate (15.1%) all experienced above average
gains. Retail trade, which accounts for more than forty percent of overall sales,
was outpaced by growth of total sales and fell slightly 1.5%. Wholesale
trade continued to experience real decline, down 10.1%. In the city of
Seattle, taxable retail sales fell 0.2% overall. Finance, insurance and
real estate experienced the greatest gains at 19.8%. Services grew by 3.1%.
Computer services have fallen steadily their 1999 peak levels. Construction
(6.6%), retail trade fell (-2.5%), and manufacturing (-2.6%) all
grew at a slightly slower pace. Transportation, communications and utilities
(10.4%) and wholesale trade (-14.0%) both declined in the fourth
quarter of 2000.
1 Taxable retail sales data lag by three to six months.
Employment
Evidence of the current economic slowdown began to be seen in the employment
figures for the first time in the first quarter of 2001, when national
unemployment rose to 4.6% and state unemployment reached 6.1%. In the
United States as a whole, during the second quarter, the unemployment rate
fell slightly to 4.5%. The Washington State rate fell to 5.6%. In King
County, the percentage of the labor force unemployed grew to 4.4% after
remaining at slightly more than 3.0% for the past year. Countywide, average
monthly initial unemployment claims in the first quarter of 2001 were up 26%
from the first quarter 2000, while the number of unemployment beneficiaries
rose 32%.
In the Seattle metro area, the number of nonagricultural wage and salary
workers grew by 2.9% in the first quarter of 2001. Minor gains were evident
in the following sectors: goods producing, construction, trade, and government,
with the largest increase in numbers of jobs coming in the services and services
producing sectors.
Job Dislocation Activity
Through the first six months of 2001, reductions by dot-com companies as well
as outright firm closures dominated the job dislocation statistics.. Amazon.com
laid off nearly 800 employees locally when it consolidated its customer service
and support functions. Similar reductions occurred at Convergys (350),
Ticketmaster (270), eFunds Corporation (240), DMC Stratex Networks (229), and
Webvan Group Inc. (189).
Boeing and Airline Industry Data
The number of Boeing workers in Washington State rose slightly in the second
quarter of 2001 to 79,500. The increase was overshadowed by the sudden
announcement by Boeing in March that it planned to move its headquarters
operations out of the region by the end of the summer. With the number of jobs
lost only a relatively modest 500, the impact on the local economy is expected
to be more symbolic than actual. Boeing insisted that it has no plans to reduce
the size of its local manufacturing workforce. Currently, the outlook for Boeing
remains positive. Contractual backlogs in the commercial airplane division were
up 12.7% in the second quarter of 2001 over the same period one-year earlier.
Total backlogs rose 15%.
2
Wages
Average monthly wages in King County fell by 28.3% overall from the third
quarter 2000 to third quarter 1999. The monthly average wage in FIRE, which was
the highest of any sector, increased by 24.8%. Wages in retail grew fastest,
at 115%. The only sectors that showed a decline in the monthly average wage
in the third quarter of 2000 included Services (-45%), Wholesale (-35%),
Manufacturing (-8.2%), and Mining (-5.7%).
2 Average monthly wage data for King County lags by as much as one year.
Real Estate
Construction
Sales of new and existing homes in King County in the second quarter of 2001
decreased by 11.4% over the same period last year. Average number of days on
the market increased slightly, and prices have begun to decline. The average
sales price for new and existing homes was down 1.0%%; the median sales price
grew by 1.0%.
In the City of Seattle, the number of commercial and industrial permits issued
in the second quarter of 2001 rose by 4.9% following a 2.0% decline in the
first quarter of 2001. The number of residential permits issued for existing
units increased 8.0%, while those for new construction decreased by 4.6%.
Office Market
According to CB Richard Ellis, the vacancy rate in Seattle jumped to 9.6% in
the first quarter of 2001, up from 6.0% the previous quarter, as the tech sector
returned space to the market. On the Eastside, the vacancy rate rose to 9.3%
from 5.1%. Cushman and Wakefield estimated that sublease vacancies accounted for
half of the total vacancy rate in both of these major sub-markets. More than 1.9
million square feet of new office space was absorbed region-wide in the first
three months of the year, due to extensive pre-leasing. Average class "A" lease
rates reflected this increasing supply, falling in both Seattle and on the
Eastside. The expansion of the sublease market has made many developers cautious,
with a number of projects on hold for now. Approximately 4.5 million square
feet of new office space remains under construction throughout the Puget Sound
region. Seattle alone has more than 2 million square feet under construction,
about 80% of which has been pre-leased.
Industrial Market
In the industrial market, demand appears to have peaked. Vacancy rates across
the region fell moderately to 3.8% from 4.5% last quarter. The Kent Valley and
Eastside sub-markets continued to experience slight increases. Net absorption in
the region as a whole increased slightly, with only 190,000 square feet added
compared with 150,000 square feet in the previous quarter. Average asking lease
rates were unchanged across all markets.
Retail Market
Vacancy rates for retail space, already at low levels rose slightly in the first
half of 2001, with overall rates rising to 2.8% in the first half of the year.
Due to the tight market, average asking lease rates rose just over $2.00 per
square foot region-wide. Net absorption is down, while an additional 1.4 million
square feet is currently under construction, nearly half of it on the Eastside.
Apartment Market
Sales and 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, and there has been a move toward lower-priced
units in south King County. Despite these changes, overall vacancy rates in the
Puget Sound region remain unchanged in the first half of 2001, holding at 3.8%.
As a result, overall demand appears strong, and average rents continue to inch
upward at a rate of 2.1% in the past six months. Downtown Seattle experienced
the highest rate of increase in rents at 7.6%, while rents on the Eastside rose
4.5% on average.
Return to Top
Updated: January 29, 2004
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