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Quarterly Economic Measures Report
First 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 first quarter,
2000 report. Please contact us for more information about the QEM reports.
I. The Nation
Economic Measures
The U.S. economy officially marked its 108th month of continuous expansion
during the first quarter of 2000, a record for the postwar period. GDP grew
at a 5.4% rate during the first three months of the new year, slightly below
analysts' expectations but quite robust nonetheless. The result could be
considered disappointing only in comparison to the revised 7.3% growth rate
from the previous quarter. Consumer spending, which accounts for roughly
two-thirds of U.S. output, continues to be the driving force behind the
ongoing expansion. Recovering from a pre-Y2K lull, spending by businesses
was up sharply, led by a $20 billion jump in spending on computer equipment.
The remarkable thing about the current expansion has been the absence of any
hint of inflation, although there are a few signs that the honeymoon may be
coming to an end. In the fourth quarter of 1999, the GDP price deflator, a
key inflation gauge, rose at a 1.9% annual rate, compared to 1.1% in the
third quarter. Advance reports for first quarter 2000 show the implicit
price deflator up by 2.6%. In March the consumer price index suggested the
possibility of renewed inflation, up 0.7% from one month earlier and 3.7%
over March of 1999 (compared with a 2.7% increase for all of 1999). While
higher energy prices contributed substantially to the March gains, even the
core rate of inflation (exclusive of food and energy prices) rose 0.4% in
March, twice the rate observed in January and February.
Fears of increasing inflationary pressures have led the Fed to act
preemptively. In the past ten months, the Federal Reserve has raised
interest rates five times for a total of 1.25 percentage points. A further
increase at the May 16th meeting of the Federal Open Market Committee would
be the sixth in less than a year. As of the end of first quarter 2000, the
federal funds target rate stands at 6%, its highest level in almost five
years.
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 the recent volatility in the stock market has led
some to seek the relative safety of government securities.
With interest rates rising, mortgage rates have continued their upward
trend. The interest rate on conventional 30-year, fixed rate loans hovered
around 8.25% throughout the first quarter of 2000. The impact of higher
capital costs is beginning to be felt within the housing sector. The
National Association of Realtors recently noted that sales of existing
homes nationwide were down 10.7% in January of 2000, the largest monthly
decline in more than three years.
Industrial/Manufacturing Measures
Producers' durable equipment grew by $55 billion in the first quarter of
2000, for an annualized rate of 23.7%, nearly twice the rate in the first
quarter of 1999. The increase was largely due to a resurgence in computer
purchases postponed due to Y2K concerns. Nonfarm inventories rose by $38.1
billion, following an unusually high $71.4 billion dollar increase in the
final quarter of 1999. Signs of continued strong demand were evident in the
orders placed with U.S. manufacturers during the first three months of 2000.
Led by sales of electronic components, factory orders were up 2.5% from
the fourth quarter of 1999 and 8.7% from the same quarter one year earlier.
Industrial production increased on average by 0.5% in the first three months
of 2000, slightly ahead of fourth quarter 1999 gains. At 81.5%, capacity
utilization rates remain low.
Income Measures
Disposable personal income, or income after taxes, was up 0.9% in January,
0.3% in February, and 0.7% in March. Income growth in the first quarter of
2000 was largely attributable to stronger job growth and higher hourly
earnings.
I. The Region
Economic Activity
Price levels in the region were up slightly in the first quarter of 2000.
The consumer price index (CPI) for the western U.S. was up 1.0% from the
previous quarter, for an annual rate of 4.1%. The estimated CPI for the
Seattle metro area rose 0.8% in the first quarter of 2000, for an annual
rate of 3.4%.
Bankruptcy filings in King County were at their lowest levels in more than
five years. Bankruptcies declined 3.6% from the previous quarter and 9.7%
from the same quarter twelve months earlier.
New business starts within Seattle returned to normal levels in the first
quarter of 2000 following an unusually low number of new business licenses
recorded in the final months of 1999. Licenses issued in the first three
months of the new year were up more than 40% 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 first
quarter of 2000 increased 6.2% from the same period one year earlier, while
air cargo volumes rose 2.8%. Container traffic at the Port of Seattle
declined by 10.7% from first quarter 1999 levels.
Convention Information
The number of conventions and events held in King County during the first
quarter of 2000 was essentially unchanged from first quarter 1999. Total
room nights, a measure of the volume of tourist and business traffic,
declined by 14% from the same period last year. Local room taxes collected
during the fourth quarter of 1999 were up 16% from the same period last
year. Local room tax per event, a proxy measure for delegate expenses, rose
a healthy 44% from the same period twelve months earlier.
Taxable Retail Sales
Taxable retail sales in King County rose 12% overall in the twelve months
leading up to the fourth quarter of 1999. Among the major sectors,
transportation, communications, and utilities demonstrated the highest
growth with an increase over fourth quarter 1998 of 56.9%. Construction
activity, exhibiting continued strong growth, was up 19.1%. The services
sector had its best quarter in years, up 12.2%. Much of the increase was
due to growth in business services, including computer services, up by
24.2%. Retail trade, which accounts for 45 percent of all retail sales,
rose 8.8%. Countywide, manufacturing finally showed some signs of a
recovery-after four straight quarters in decline, it rose by 9.8%.
Taxable retail sales in the City of Seattle rose slightly higher than the
county overall, up 13% in the fourth quarter of 1999. As in the county as a
whole, sales in transportation, communications and utilities grew most
quickly of all the major sectors, up by 44.9%, followed by construction
(23.8%). Manufacturing activity was up 18.0% over the same period one year
earlier. Finance, insurance and real estate, uncharacteristically, saw a
12-month drop in sales of 5.8%.
Employment
With its booming economy and tight labor market, King County continues to
enjoy record low unemployment. The number of unemployed in King County was
down by 4.4% from the same period last year. By the end of March, the
unemployment rate stood at a mere 3.0%. The statewide unemployment rate
reached record monthly lows in both January and March, finishing the
quarter at 4.7%. Nationally, moderate job growth kept the rate of
unemployment steady at an average 4.4% for the quarter.
Average monthly initial unemployment claims in the fourth quarter of 1999
declined by 1.8% over the same period last year; the number of unemployment
beneficiaries declined by 0.6%. (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 2.0% in the first quarter of 2000. Compared to the first
quarter of 1999, goods-producing industries were down by 6.6%;
services-producing industries up by 4.3%. In line with the ongoing
shift in the economic base of the Puget Sound region, manufacturing
employment declined by 11.2%, led by job losses in transportation
equipment, aircraft and parts (down 20.8%), while services employment
increased by 5.4%, led by growth in business services, computer & data
processing (up 22.1%).
Job Dislocation Activity
Job losses due to firm closures or workforce consolidation in the past 18
months were dominated by workforce reductions at Boeing. The King County
Reemployment Center recorded an additional 2,980 workers laid off in the
fourth quarter of 1999, bringing to 14,322 the number of dislocated workers
attributed to the aerospace giant in all of 1999. Apart from Boeing,
reductions in the manufacturing workforce during the final quarter of 1999
included 150 jobs at K2 of Vashon Island and 96 jobs at Interpoint Corp.
of Redmond. In the services sector, there were a number of jobs lost in
warehouse and distribution: 85 at CSK Auto in Auburn, and an additional
80 jobs at the Seattle Times in Seattle. A total of 130 customer service
positions were eliminated at QualMed in Bellevue. KeyCorp of Auburn cut
its credit and collections staff by 175. Adobe Systems, Inc. of Seattle
and Keane, Inc. of Kirkland reduced their computer support staff by 63
and 51, respectively. There were a number of layoffs of backoffice staff
among some of the area's retail giants: Eagle Hardware of Renton eliminated
300 jobs in accounting, marketing, human resources, purchasing and MIS;
Nordstrom cut 190 information technology positions. Among health care
providers, Monarch Care Center of Des Moines reduced its staff by 84,
and the Yesler Terrace Clinic by 12. King County Public Health eliminated
15 positions.
Boeing and Airline Industry Data
The largest job losses in the central Puget Sound region continue to come
from layoffs at Boeing. Workforce reductions have averaged about 1,300 per
month since mid-1998. In early March, Boeing announced it might cut 5,000
more jobs than planned this year company-wide. Currently, approximately 40
percent of the company's U.S.-based workforce is located in Washington
state. Locally, in the twelve-month period ending in March 2000, Boeing
employment declined by 13.8%. While reducing the size of its workforce,
Boeing appears to be doing more with less-contractual backlogs continued
to decline during the first three months of the new year, down by 10.3%
from the same period one year earlier. Backlogs in the commercial airplane
division were down by 10%.
Wages
With employment and payroll data now available for the first half of 1999,
overall monthly wages can be seen to have risen slightly in the first
quarter (3.3%) only to fall again in the following quarter (-4.4%). However,
total wage levels in the second quarter of 1999 were higher than in the same
quarter one year earlier, by 6.2%. The major sectors with the highest
average monthly wage were services and manufacturing.
Real Estate
Construction
Although it may be too soon to tell, the first quarter 2000 figures indicate
a possible slackening in the local housing market. Compared to one year ago,
King County sales volumes were down slightly and average time on market
increased by a few days. However, it remains a seller's market, as prices
on both new and existing homes continue to edge upwards.
The number of commercial and industrial permits issued in the first quarter
of 2000 was up 3.1% from one year earlier, while the total dollar value of
non-residential construction was less than half of that recorded in the
first quarter of 1999. The number of residential permits issued for existing
units was up 13.8% while those for new construction were down 3.7%. The
dollar value of residential construction declined by 10%, although the
number of new units built nearly doubled.
Office Market
The proliferation of high-tech firms and their seemingly insatiable demand
for new office space continues to drive one of the hottest office markets
in the nation. In the first quarter of 2000, the office vacancy rate in the
Puget Sound region fell to an astonishing 3.5%, surpassing even the record
low of 4.1% set last quarter. In downtown Seattle, the office vacancy rate
was a scant 1.6%. Regionwide, the pace of absorption slackened somewhat.
Compared with the record 2.2 million square feet of new office space
absorbed last quarter, only 800,000 square feet was added in the first
quarter of the new year, about half of which was in Seattle. With vacancy
rates at historic lows, developers continue to bring new projects to market.
More than 8 million square feet is currently under construction, with more
than 70% of it preleased. The tightening market for Class A office space is
finally being felt in the form of rising rents, with lease rates across the
region up more than two dollars per square foot according to CB Richard
Ellis' quarterly market report. In downtown Seattle, in the first quarter
of 2000 alone, average lease rates rose 8.9%, compared with an increase of
12.8% for all of last year.
Industrial Market
In the first quarter of 2000, the vacancy rate for industrial space in the
Puget Sound region remained essentially unchanged at 4.7%, only slightly
higher than last quarter's 4.5%. In Seattle, the vacancy rate was up
slightly from last quarter, but still a mere 2.1%. On the Eastside, the
vacancy rate dropped a full point to 3.7%. Regionwide, net absorption was
up sharply, with over a million square feet of new space added. The pace of
new construction slowed to its lowest level in two years with only 1.6
million square feet planned for the first quarter, down from 2.8 million in
the final quarter of 1999. Continued strong demand, coupled with a limited
supply of available land, has pushed development southward into Pierce
County and led to the redevelopment of older buildings in the traditional
industrial core. In Seattle, high-tech companies continue to convert
existing industrial space to suit their needs, often incorporating office
space with a variety of other uses, including research & development,
manufacturing, or warehouse & distribution. While lease rates remained
relatively flat last year, the tight real estate market is forcing rents
upward in some areas. While rents in Seattle were unchanged in the first
quarter, lease rates were up 9.1% on the Eastside and 9.4% in the Kent
Valley.
Retail Market
Spurred on by a healthy regional economy and robust consumer spending,
the market for retail space in the Puget Sound region remained strong
throughout the second half of 1999. The retail vacancy rate region-wide
declined slightly to 5.5% from 5.6% in the first half of the year. While
more than one million square feet of new retail space was added, absorption
slowed somewhat from preceding periods. Gains in the Downtown and Northend
submarkets were offset by a negative absorption rate on the Eastside of
141,470 square feet, due mostly to recently completed construction.
Continued demand for new space has driven up average asking lease rates
by 8% overall. In downtown Seattle, lease rates for the most desirable
sites have risen by as much as 50 percent in the latter half of 1999.
Apartment Market
Following three years of rapid growth characterized by rising rents and
diminishing vacancy rates, the apartment market at last appears to be
softening. A combination of overdevelopment and declining demand has led
to a general increase in vacancy rates across the region. In one or two
submarkets in the downtown Seattle area, rents actually declined slightly
in the latter half of 1999. According to the City of Seattle's Department
of Design, Construction and Land Use, 1999 saw something of a building
boom in multifamily units-plans for new Seattle apartments and condominiums
hit their highest levels in 16 years, with more than half of the new units
located downtown. In spite of the construction of a record number of large,
multi-unit apartment buildings, however, demand for single-family rentals
remains strong. According to a just-released report by Dupre & Scott
Apartment Advisors Inc., low vacancy rates and strong demand for rental
houses has driven up rents an average of 6% per year. The report also
found that in King County, the vacancy rate for apartments in smaller
buildings (fewer than 19 units) has fallen from 2.8% to 1.8% in the past
year. During that same period, rents have risen an average of 6.5%.
Return to Top
Updated: January 29, 2004
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