Quarterly Economic Measures Report
Second 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 second quarter,
2000 report. Please contact us for more information about the QEM reports.
I. THE NATION
Economic Measures
Gross domestic product grew at an annual rate of 5.2% in the second quarter of 2000.
The first quarter growth rate was revised downward to 4.8%. The continued robust
economic growth was fueled by business investment, particularly in equipment and
software, which accounted for nearly a third of the increase in GDP. Consumer
spending, which has been behind much of the recent expansion, slowed in the second
quarter.
Despite the high overall growth rate, there was little evidence of renewed
inflationary pressure in the second quarter. The GDP price deflator showed inflation
rising at a 2.5% annual rate in the second quarter, down from a 3.3% rate in the
first three months of the year. Mirroring the results at the end of the first
quarter, the consumer price index in June was up 0.6% over the previous month, and
3.7% over the same period one year earlier. Again, however, much of this was due to
higher gasoline prices, particularly in the Midwest. In the three month period April
to June, the core rate of inflation (which excludes the more volatile food and
energy prices) averaged a modest month to month increase of 0.2%.
In the past year the Federal Reserve has raised short term rates by one quarter
point on five separate occasions, seeking to slow the pace of economic growth and
reduce the risk of renewed inflation. In May the Fed went a step further, raising
the federal funds rate by half a point to 6.5 percent. The discount rate was also
raised half a point to 6 percent. Many of the largest banks immediately followed
suit, increasing prime lending rates to 9.5 percent.
Interest rate hikes by the Fed coupled with the repurchase of government debt by
the Treasury Department have resulted in an inverted yield curve, with shorter term
10-yr and even 3-yr bonds trading at higher rates than the standard 30-yr
Treasuries. Inflation fears have tended to keep bond yields higher, although rates
have tended generally downwards following the Fed's last interest rate increase in
May.
With interest rates rising, mortgage rates have continued their upward trend. The
interest rate on conventional 30-year, fixed rate loans rose as high as 8.6% in May,
the highest level in five years, but fell to 8.2% by the end of the second quarter
of 2000.
Industrial/Manufacturing Measures
Producers' durable equipment grew by $53 billion, for an annualized rate of 21% in
the second quarter of 2000, matching first quarter gains. New computer purchases
continue to dominate business investment. Nonfarm inventories rose by $54 billion.
Signs of continued strong demand were evident in the orders placed with U.S.
manufacturers during the second quarter. Growth was broad-based, with factory
orders up 2.9% from the first quarter of 2000 and 12% from the same quarter
one-year earlier. Industrial production also grew in the second quarter, up
nearly 6% on average from the same period last year. While still well below
capacity, the capacity utilization rate rose above 82% for the first time in
almost two years.
Income Measures
Per capita disposable personal income rose slightly in the second quarter, up 2.1%
over the same period one year earlier.
II. THE REGION
Economic Activity
Price levels in the region were up slightly in the second quarter of 2000. The
consumer price index (CPI) for the western U.S. was up 1.1% from the previous
quarter, for an annual rate of 4.4%. The estimated CPI for the Seattle metro
area rose 1.4% in the second quarter of 2000, for an annual rate of 5.6%.
The number of bankruptcies recorded in King County continued to decline in the
second quarter of 2000, down 4.3% from the previous quarter and 9.6% from the same
quarter twelve months earlier.
New business starts within Seattle surged in the second quarter of 2000. Licenses
issued in the months April to June were up more than 70% over the same period last
year.
Air traffic at SeaTac continues to follow a long run trend of steady growth. The
total number of passengers passing through the airport in the second quarter of 2000
increased 3.7% from the same period one-year earlier, while air cargo volumes
rose 1.5%. Container traffic at the Port of Seattle rose slightly, up 1.9% over
the past twelve months.
Convention Information
The number of conventions and events held in King County during the second quarter
of 2000 failed to equal last year's levels, down 3.2%. Total room nights, a
measure of the volume of tourist and business traffic, declined by 10% from the
same period last year. According to a study completed by Wolfgang Rood Hospitality
Consulting of Bellevue and PKF Consulting of San Francisco, during the first six
months of 2000 hotel room occupancy in downtown Seattle was down 4.8% from the
same period last year. Local room taxes collected during the first quarter of 2000
were up 13% from the same period last year. Local room tax per event, a proxy
measure for delegate expenses, rose 12% from the same period twelve months
earlier.
Taxable Retail Sales
Taxable retail sales in King County rose 12.1% overall in the twelve months
leading up to the first quarter of 2000. Among the major sectors, construction
grew fastest, up 19.4%. Services (13.1%) and retail trade (12.1%) also showed
average or above average gains. Taxable retail sales in the City of Seattle were
up 10.9% in the first quarter of 2000. As in the county as a whole, construction
activity led the way with growth of 22.2%.
Employment
With its booming economy and tight labor market, King County continues to enjoy
record low unemployment. While the number of unemployed in King County rose 3.4%
from the same period last year, the unemployment rate was unchanged from the
previous quarter at 3.2%. Statewide, the unemployment rate stood at 4.5%.
Nationally, the unemployment rate was slightly lower at 3.9% for the quarter.
Average monthly initial unemployment claims in the first quarter of 2000 rose by
16.7% over the same period last year; the number of unemployment beneficiaries
declined by 12%. (Statistics on the number of beneficiaries by industry remain
temporarily unavailable as of August 1999.)
In the Seattle metro area, the number of nonagricultural wage and salary workers
grew by 2.2% in the second quarter of 2000. Compared to the second quarter of 1999,
goods-producing industries were down by 2.8%; services-producing industries up by
3.1%. In line with the ongoing shift in the economic base of the Puget Sound
region, manufacturing employment declined by 6.1%, led by job losses in
transportation equipment, aircraft and parts (down 12.6%), while services
employment increased by 4.9%, led by growth in business services, computer &
data processing (up 26.2%).
Job Dislocation Activity
Roughly half of the job losses recorded by the King County Reemployment Center in
the first six months of the year-about 3000-were due to workforce reductions at
Boeing. Further jobs were lost at PACCAR/Kenworth Trucks (350), Boston Scientific
Corp. (321), and apparel manufacturer Thaw Corp. (400). The downturn in the
previously high-flying Internet sector led to the first high-tech layoffs at
Amazon.com (150) and eProject.com (31).
Boeing and Airline Industry Data
There are some signs that after two years of steady declines, the number of Boeing
workers in Washington state may be stabilizing at around 77,000 employees.
Meanwhile, in spite of a 40-day strike earlier this year by technical and
engineering workers, contractual backlogs remained relatively flat, up 0.6%
from the same period one year earlier. Backlogs in the commercial airplane
division rose by 0.3%.
Wages
With employment and payroll data now available for the second half of 1999, overall
monthly wages can be seen to have risen 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 were down 10.4% in the 12-month
period ending with the second quarter of 2000. At the same time, however, the
average number of days on market declined from 38 to 35 days, and both the mean
and median sales price rose by a little more than 10%.
In the city of Seattle, the number of commercial and industrial permits issued in
the second quarter of 2000 declined 4.3% from the same period one-year earlier; the
value of non-residential construction was down by 12.1%. The number of residential
permits issued for existing units was down 10.8% while those for new construction
rose by 6.7%. The dollar value of residential construction increased by more
than 40% and the number of new units built nearly doubled.
Office Market
The market for office space in the Puget Sound region tightened still further in
the second quarter of 2000, with the vacancy rate falling to an unheard of 2.8%.
In downtown Seattle, vacant office space has become virtually nonexistent, with
vacancy rates at 0.6%, according to a report by Colliers International. CB Richard
Ellis reported vacancy rates in the downtown market of just over one percent, and
on the Eastside of 0.7%. Regionwide, a total of 1.4 million square feet of new
office space was added this quarter. More than seven million additional square
feet is currently under construction, 80 percent of which is already preleased.
Strong demand in an increasingly tight market has driven lease rates to record
levels. In the second quarter, top office rents in Seattle exceeded $50 per square
foot for the first time.
Industrial Market
Strong demand by high tech firms has led to lower vacancy rates in the Puget Sound
industrial market, at 3.9% in the second quarter, down from 4.7% in the first
quarter of 2000. Demand was strongest in the Kent Valley and on the Eastside.
In spite of the tightening market, lease rates have remained relatively flat
across the region. Construction activity in the second quarter was nearly double
that in the previous quarter, with more than 3 million square feet of new
industrial space expected to be added in the coming months.
Retail Market
Just as in the office and industrial markets, the retail market tightened even
further in the first half of the year, with vacancy rates down from 5.5% in the
second half of 1999 to the current 3.5%. Vacancy rates were lowest in downtown
Seattle, with a mere 1.6%, in spite of the addition of more than 700,000 additional
square feet. In the face of such strong demand, one would expect a surge in lease
rates. Instead, average lease rates were down in the first half of 2000, a fact
attributable to the absorption of much of the prime retail space, according to CB
Richard Ellis.
Apartment Market
The expected softening of the apartment market has yet to materialize. While the
number of buildings changing hands continues to decline (the volume of sales has
dropped by nearly two-thirds since the second half of 1998), the average price per
unit was up once again in nearly every sub-market in the region. Meanwhile, demand
for rental housing has driven vacancy rates downward region-wide, dropping to 2.6%
in the first half of 2000. In Seattle, the rate fell to 2.2% from 3.4% in the
second half of last year. Strong demand and low vacancy rates resulted in a 2.4%
rise in rents in the first half of the year. Current conditions have also
encouraged developers-more than 10,000 new apartment units are now under
construction, with an additional 25,000 units in the planning stages, according
to CB Richard Ellis.
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Updated: January 29, 2004
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