Quarterly Economic Measures Report
Third Quarter, 2001

A primary indicator of economic distress is the number of unemployed. Jobless claims numbers for the Seattle area had already drifted higher in the 2nd and 3rd quarters of 2001. Local unemployment rate ran more than one percentage point above the national average prior to September 11th. Then, in the one-month period after September 11th, they spiked upwards an additional 48%. This rate of increase compares to an average of 16% in Snohomish and Pierce Counties, an average of 15% throughout the Pacific Region states, and 10.8% nationally during the same period. (Supplemental tables and graphs are provided.)

Manufacturing sector losses do not include the announced plan by Boeing to layoff up to 30,000. Most of the layoffs will be in the commercial airline divisions; the production goals were cut in half for most commercial airline groups. Puget Sound will suffer the brunt of these job reductions. Boeing announced plans to layoff 8,000 in this area on December 14th. Sometime after the Thanksgiving holiday, a second round of layoffs will be announced, to take effect in January 2002.

In addition to the direct layoffs, Boeing's downturn impacts a diverse group of suppliers and subcontractors in the Puget Sound, and consumer spending in Seattle-King County. The long-term income multiplier for Boeing is 1.5 and its employment multiplier is 2.5 in the state input-output tables.

Although it is not a complete list, there are numerous other layoff events listed in the attached tables. Just to give a few examples: Genie Industries let go 350 employees and more are to follow; this is an example of the downturn that is cascading throughout the Construction, Architecture and Engineering cluster. Nordstrom released 250 office and thousands of retail store employees following a 9.4% decline in sales in September. In addition, employment remains soft in technology clusters, e.g., computer equipment companies, Internet companies, software companies, and related services, especially the marketing and communications group. Real Networks is one prominent name.

Low-income, non- or semi-skilled workers might be hurt the most, in that this is the nation's first recession post-welfare reform. Many former welfare recipients are in the workforce, but they at risk of losing these entry-level jobs. Others are accessing the unemployment benefits system for the first time. Many may not know how to use the UE system, which can be a confusing tangle of rules. Worse, many do not have enough work history to qualify for unemployment, but, at the same time, they are being refused service by the "Welfare Work First" system, because both systems are overburdened. Similarly, City Light's "Project Share," a low-income household assistance program for electricity costs, might become maxed-out.

In addition to the unemployment figures, numerous other statistics indicate distress. The types of statistics include less freight shipments, very high hotel vacancies, fewer home purchases, high vacancy rates in office lease space, lower tax revenues, and so on.

Why are effects felt so strongly in Seattle-King County? One answer is that the dominance of Boeing had helped to balance out the downturn in hi-tech over the previous nine months. Now the entire aerospace group, including Boeing, Alaska Airlines, the Port of Seattle, cargo and shipment companies, is suffering, and the effect on the Seattle-King County economy is crushing. Aerospace is an example of an industry cluster. Clusters are related groups of businesses that organize by type of activity and geography to enhance their combined competitiveness. Other clusters in Seattle-King County include telecommunications, software, film production, biotechnology, environmental services, health services, and producer services. Clusters enhance job growth and business success in a normal economy. In our current economy, the negative impacts are broadly felt, and newly emerging clusters can be strangled.

The cluster of producer services provides an example of how strength can become a weakness in times of economic distress. According to a study completed by the Central Puget Sound Economic Development District in 1990s, producer service jobs in Seattle-King County grew at six times the national rate for the past two decades. In other words, Seattle successfully exported marketing, design, communication, legal, and other services to the rest of the nation. Now that the entire national economy is in bad shape, the losses of the entire country become Seattle-King County's business losses. Our dependence on trade activity has created a similar impact. A third answer lies in the precipitous decline in tourism, travel, and convention activity. Hotel and restaurant unions report a 40% loss of employment, and Seattle-downtown hotels report vacancy rates below their 55% break-even point. Ironically, only the airport hotels have maintained higher occupancy rates; this might be due to the contracts with airlines for flight crew accommodations.

Small businesses have been especially hard hit. Prior to September 11th, earthquake damage, the spike in electricity rates, and the slowing economy caused cash shortages. Many companies addressed their capital needs by increasing their short-term borrowing. Now, rolling-over short-term notes is proving difficult and expensive. In Seattle and King County, small businesses make up at least 20% of total gross income and 25% of local business taxes.

Future Prospects
On the national stage, stock markets have regained most of the pre-September 11th levels. In the short-term at least, conditions for a partial bull market may take hold. The real strength of the markets will be tested in early February. This is when the 120-day post-trauma adjustment period ends; 120 days is a historically typical pattern of positive adjustment before a negative correction sets back in. The upsurge in consumer spending during October, due to the success of 0% financing on new cars and trucks, is another positive sign.