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Quarterly Economic Measures Report
Second Quarter, 1999
Executive Summary
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As part of its year 1999 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,
1999 report. Please contact us for more information about the QEM reports.
I. The Nation
U.S. Economic Measures
The nation's economy continued to slow in the second quarter, with Gross
Domestic Product (GDP) growing at a 2.3% annual rate, down from the
4.3% rate the previous quarter. The growth rate was the slowest since
the 1.8% growth rate in output in second quarter of 1998. For the
twelve-month period, GDP was up 4.1%. The reduction in growth was
largely attributed to a slowdown in personal consumption (up only 4%
in the second quarter, down from 6.7% in the previous quarter). Also
contributing were a continued decline in government consumption and a
relative lackluster increase in quarterly business inventories (up by
$19.4 billion in the second quarter of 1999, but down from $38.7 billion
in the first quarter and $44.2 billion in fourth quarter 1998).
Consumer prices remained flat in May and June after rising sharply in
April, when the 0.7% increase was the largest monthly gain in eight
years. The GDP implicit price deflator, a broader index that measures
the prices of all domestically produced goods and services, rose only
at a 1.6% rate in the most recent quarter.
The low inflation forestalled any move by the Federal Reserve to raise
interest rates during the second quarter. However, expectations of a
possible quarter point rise in early July, as well as continued fears of
inflation in the face of record low unemployment rates, led to a general
rise in bond yields throughout the second quarter. By the end of June,
the yield on the 30-year Treasury bond rose to nearly six percent, its
highest level in more than a year.
Mortgage rates also rose throughout the quarter. The national average
effective interest rate for new homes rose to 7.02% in June, the highest
since August of last year. Mortgage rates for the Seattle CMSA followed
a similar pattern, but with numbers slightly higher overall than the
national average.
Industrial Measures
Manufacturing indicators were generally positive. New capital investment
in producer's durable equipment continued strong at an annual rate of
15.3% in the second quarter compared with an increase of 9.5% over the
first three months of the year. Increases in nonfarm inventories,
however, were at their lowest since early 1996-only $15.8 billion in the
second quarter, following increases of $35.1 billion in the first
quarter and $37.5 billion in the fourth quarter of last year. Industrial
production increased to a 3.9% annualized growth rate, the largest
quarterly increase since the fourth quarter of 1997. Capacity
utilization for total industry declined slightly (80.4%). New orders
for manufactured goods were unexpectedly down in April by 1.4%,
principally due to a sharp drop in demand for transportation equipment,
which fell by 12.5%. In contrast, demand for manufactured goods in May
was surprisingly strong, as new orders rose by 1.0% to $348.2 billion.
Gains in May were fueled by a resurgence in demand for transportation
equipment, and by demand for defense capital goods, up by 19.0% after a
34.9% drop in April. Growth continued in June, but at a slower pace,
with new orders for manufactured goods up by 0.7% to $350.7 billion.
Nondefense capital goods orders, excluding aircraft and parts, were up
only slightly in April by 0.3%, then down in May and June by 2.9% and
3.8%, respectively.
II. KING COUNTY
General Economic Indicators
Inflation slowed in the central Puget Sound region, as the CPI for the
Seattle CMSA increased at a scant 1.8% annual rate, substantially down
from the 5.8% annual rate experience in the first quarter.
Bankruptcy filings rose in the second quarter in both King County (4.2%)
and the Central Puget Sound region as a whole (2.2%), the first quarterly
increase since first quarter 1998. Filings are down from a year earlier
in both King County (-8.1%) and the central Puget Sound region (-7.4%).
Bankruptcy filings have been generally falling since peaking in early
1997.
New business starts for the City of Seattle increased 5.4% in the
second quarter of 1999, up 28.7% from the same quarter in 1998.
Air passenger traffic at SeaTac continued to follow a long run trend of
steady growth with seasonal fluctuations. The number of passengers
arriving at and departing from the airport in the second quarter of
1999 increased 7.6% from the second quarter of 1998. In contrast, the
volume of air cargo handled at the airport declined by 1.3% from the
second quarter of last year. The amount of waterborne freight handled
at the Port of Seattle was up by 2.0% over the previous quarter.
Convention Information
The number of conventions and events held in King County during the
second quarter of 1999 was up over 12 percent from the second quarter
of 1998. Total room nights, a measure of the volume of tourist and
business traffic, increased by almost 23 percent over the same period
last year. Local room tax collections for the first quarter of 1999
were down by 4.1%, the first such decline recorded by this report (since
Q1 1993).
Taxable Retail Sales
Taxable retail sales in King County were 10% higher in the first quarter
of 1999 than the first quarter of 1998. (First quarter 1999 figures are
the most recent available). Construction led the way in growth for the
fourth consecutive quarter (up 21.7% over first quarter 1998). Services
and transportation, communications and utilities were a close second and
third with gains of 14.4% and 13.7%, respectively. Computer services,
consistently a strong component of business services, was up only 8.2%
over the same quarter one year earlier, compared with previous gains in
the 20 to 30 percent range. Retail trade increased by 9.5%, driven by
strong growth in auto sales (12.8%) and in sales of furniture, appliances
and electronics (16.8%). Finance, insurance and real estate grew a mere
3.1%, and manufacturing declined for a second straight quarter
(down 4.5%). Taxable retail sales in the City of Seattle followed a
similar pattern, up 10.7% in the first quarter of 1999. As in King
County, leading sectors were construction (up 20.5%) and transportation,
communications, and utilities (up 14.6%). Retail trade increased 10.2%.
Wholesale trade grew by 8.1%. Finance, insurance, and real estate
increased by only 3.7%. Services rose only 4.2% from the same quarter
twelve months earlier. In contrast to King County, manufacturing retail
sales in the City of Seattle increased by 5.6%.
Employment
King County's second quarter unemployment rate declined slightly to
3.1%, continuing a two-year trend of unemployment rates in the 3 percent
range. Local labor markets remain tight, ahead of Washington State as a
whole, with a second quarter unemployment rate of 4.5%. This is much
closer to the national rate, yet still represents an historic low for
the state, which has not had an annual unemployment rate under 5% since
1990. However, average monthly initial unemployment claims in the first
quarter of 1999 were up 13.2% over the same period last year; the number
of unemployment beneficiaries rose 7.9%. Much of the increase is due
to recent Boeing layoffs.
Year to year job growth in the Seattle metropolitan area averaged a
moderate 2.0% during the second quarter of 1999. All the employment
gains came in the services-producing industries, which grew by 3.7%.
Business services, which account for about a quarter of all services
jobs in the Seattle metro area, was buoyed by an 8.5% increase in
computer and data processing jobs. With the real estate market booming,
construction employment continues to show impressive gains, up 6.7%,
along with finance, insurance and real estate employment (5.9%). Due
to downsizing at Boeing, manufacturing employment was down 5.4% from a
year earlier, with durable goods off by 6.2%. Employment in the
production of aircraft and parts took the largest hit, falling by 11.2%
from last year's levels.
Job Dislocation Activity
Job losses due to firm closures or workforce consolidation during the
past year have been dominated by employment reductions at Boeing. The
King County Reemployment Center has recorded 11,106 dislocated workers
attributed to the aerospace giant since mid-1998. Layoffs rose sharply
in the fourth quarter of 1998 and the first four months of 1999, largely
due to the current reorganization at Boeing. The number of dislocated
workers jumped to 4,210 in the fourth quarter of 1998, up from only 799
in fourth quarter 1997. In the first four months of 1999, that figure
more than doubled to 9,544, up from 825 the previous year. This
included 782 seafood processing jobs lost at American Seafoods. and 290
jobs gone when the Bogle & Gates law firm closed its doors. Other major
losses included 300 jobs at Praegitzer Industries, a computer chip
manufacturer in Redmond, 250 aerospace manufacturing jobs at Hexcel
Corp. in Kent, and 250 production jobs at the former Rainier Brewing Co.
in Seattle. In May of this year, 40 manufacturing positions were
eliminated at SI Technologies in Tukwila and 18 at IDD Aerospace in
Redmond. These were overshadowed, however, by the loss of an additional
934 jobs from Boeing's regional workforce in King, Snohomish, and Pierce
Counties.
Boeing and Airline Industry Data
The largest job losses in the Central Puget Sound Region continue to
come from ongoing layoffs at Boeing. According to the Labor Market and
Economic Analysis Branch of the Washington State Employment Security
Department, workforce reductions have averaged about 1,300 per month
since mid-1998. Boeing employment in the second quarter of 1999 was down
almost 17% from the second quarter of 1998. Boeing contractual backlogs
declined during the second quarter, down by 14.3% from the same period
one-year earlier. Backlogs in the commercial airplane division were
especially improved, down by 16.2%. Although up-to-date information is
not yet available, profitability and earnings among U.S. air carriers
has been substantially positive over the last four years, 1995-1999.
Income
Strong growth in wages characterized the fourth quarter of 1998, with
the monthly average wage in King County up 6.7% from the previous
quarter. Monthly wages were highest in finance, insurance and real
estate, which rose 10.8%. Fourth quarter wage levels in services and in
mining were almost as high. The monthly average wage in agriculture,
forestry and fishing showed the most improvement over the previous
quarter, up by 29.1%. In the Puget Sound region overall, average monthly
wages were up 6.4% in the fourth quarter of 1998. In the four counties
taken together, the highest average wages were paid in manufacturing,
which were up 9.2% from one quarter earlier. Wages in agriculture,
forestry and fishing gained the most, up 21.1%.
Real Estate
Construction
The single-family housing market remained robust in the second quarter
of 1999 in spite of slightly higher interest rates. The average sales
price of new and existing homes was up almost 11% from the same period
one year earlier. Houses are still selling rapidly, with an average
time on market of 38 days. In several Seattle neighborhoods, houses
are on the market only 17 to 22 days. Sales of new and existing homes
rose by 8.3% in the second quarter. The number of new homes alone,
while only about 12 percent of the total housing market, was up by
nearly 75%.
The pace of new building activity in the City of Seattle appears to be
slowing. New residential permits were down in the second quarter by
4.1% from the second quarter of 1998. Year on year results for commercial
and industrial permits declined by 2.5%. At the same time, however, the
dollar value of the total volume of residential construction rose almost
78%, while the value of nonresidential construction nearly doubled.
Office Market
The office market in the Puget Sound region is experiencing a building
boom not seen since the ill-fated expansion of the 1980s. Growth is most
concentrated in downtown Seattle and on the Eastside, where demand is
greatest. In Seattle, vacancy rates in the second quarter fell below 4%
for the first time as the market absorbed an additional 284,122 square
feet of office space without the addition of any new buildings. There
are 14 new projects currently under construction, however, which will
eventually add another 2,336,407 square feet to the downtown office
market. In the Eastside market, over one million square feet of new
office space was added in the second quarter, approximately
three-quarters of which was immediately rented. The remaining additional
space led to an increase in the vacancy rate on the Eastside from a very
low 1.8% in the first quarter to a mere 3.7%. An additional 3.6 million
square feet will be added when the 32 projects currently under
construction are completed. Whether demand will keep pace with supply
remains to be seen.
Industrial Market
During the first quarter of 1999, demand for traditional industrial space
was down due to the workforce reductions at Boeing and the still-recovering
Asian economies. At the same time, however, the local boom in the
software, e-commerce, and biotech industries led to increased demand for
high-tech industrial space. These trends have strengthened as they
continued in the second quarter of 1999. Vacancy rates for high-tech
space in the Puget Sound region fell to an historic low of 3.3%. Vacancy
rates for traditional industrial space rose slightly to 4.6%. In all
markets but Seattle, additional industrial square footage was added
during the second quarter.
Retail Market
The retail market in the second quarter of 1999 has remained relatively
quiet after a flurry of construction late last year. Much of the recent
retail development has focused on the redevelopment of existing
buildings. Net absorption was way down in comparison with recent
quarters, virtually flat in downtown Seattle and north of the Ship
Canal, slightly higher in the Southend and on the Eastside. Vacancy
rates edged slightly higher overall, with Bellevue the one exception.
New, up-market venues in Bellevue and Seattle have driven average lease
rates slightly higher in those areas, as much as $2.50 per square feet
on the Eastside.
Apartment Market
The three-year trend in rising apartment rents and diminishing vacancy
rates may at last be coming to an end. On the demand side, migration to
the Puget Sound region is slowing, and many former renters have taken
advantage of low interest rates to become homeowners. At the same time,
the supply of housing has expanded as long-planned property developments
reach completion. Rents, meanwhile, have remained relatively flat in
1999, after rising sharply in the previous two years.
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Updated: January 29, 2004
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