Quarterly Economic Measures Report
Third 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 third quarter, 2000 report. Please contact us for more information about the QEM reports.
I. The Nation
Economic Measures
Advance reports of the gross domestic product for third quarter 2000
show a slight cooling of the national economy. Restrained by a drop in
government spending and slower growth in new home construction and
business investment, GDP grew at an annualized rate of 2.7%, the lowest
in more than a year. While demand remains strong, it appears not to
have kept pace in the past three months with the highs of the last few
years. Consumer spending rose by 4.5% in the third quarter, better than
the 3.1% growth seen in the previous quarter, but not the equal of the
7.6% annual rate of increase in the first three months of the year.
Business investment in equipment and software grew by 8.5% in the third
quarter, quite strong by historical standards, but not when compared
with rates near 20% for much of the past two years.
The second quarter GDP growth rate has been revised upward from 5.2% to
5.6%. While consumer spending slowed during the period, it was not
as weak as originally estimated.
The implicit price deflator for the second quarter was revised
downward slightly to 2.4%. Advance third quarter estimates indicate
the threat of inflation receding further, with the GDP price deflator
at an annualized rate of 2.0%.
Volatile energy prices led to a roller coaster ride for the consumer
price index during the third quarter of this year. In July, the
inflation rate rose 0.2%. In August, falling fuel costs led to the
first decline in the CPI in 14 years, dropping 0.1%. A dramatic
jump in energy prices a few weeks later resulted in a September
increase in the CPI of 0.5%. If energy and food costs are excluded,
the core rate of inflation has remained relatively stable, rising 0.3% in
September after five consecutive months of 0.2% gains. On an annual
basis, the CPI rose at a rate of 3.8% through September, compared with
a 2.7% increase for all of last year.
The Federal Reserve raised short-term interest rates six times between
mid-1999 and May of 2000 to slow economic growth and stave off
inflation. At its last three meetings, the central bank has declined
to raise rates further.
Since January of this year, 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. In mid-September, the yield on the 30-year bond rose
above that of the 10-year note for the first time since January.
With inflation fears somewhat calmer, and no immediate sign from the
Fed of further interest rate increases, mortgage rates have moved
lower during the third quarter, dropping below eight percent for the
first time in about a year.
Industrial/Manufacturing Measures
In the third quarter, producers' durable equipment grew by $23.6 billion, for an annualized rate of 8.5%. This represents a slowdown in the rate of growth, which has averaged fifteen to twenty percent over the past year and a half. Purchases of information processing equipment and software continue to dominate business investment. Nonfarm inventories rose by $74.9 billion, a slight increase over revised second quarter figures.
New orders for durable goods dropped 13.1% in July, the largest
one-month decline on record. A fall in new orders for transportation
equipment accounted for about two-thirds of the decline. In August and
September, durable goods orders recovered slightly, up 3.5% and
1.8%, respectively. Volatility in aircraft industry sales masks a
gradual slowdown in industrial demand. Non-defense capital goods
orders, excluding aircraft, an indication of business investment,
rose 1.8 percent in September after falling 1.3 percent in August and
3.7 percent in July.
A trend toward slower growth is also evident in the industrial
production numbers. The pace of production of consumer durables such as
household appliances and automobiles slackened in the third quarter
compared with the first half of the year. High tech equipment,
particularly computers, semiconductors, and communications equipment,
continues to show the strongest growth. The capacity utilization rate
remained steady at just over 82%.
Income Measures
Income growth averaged 0.4% per month for the quarter. Moderate
growth in personal income during the third quarter further reflects
a cooling economy, in line with the slower pace of job creation. Per
capita disposable personal income continued to rise at a moderate pace
in the third quarter, up 2.3% over the same period one year earlier.
I. The Region
Economic Activity
Price levels in the region rose incrementally in the third 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 also rose 1.1% in the third quarter of
2000, for an annual rate of 4.3%.
The number of bankruptcies recorded in King County declined further in
the third quarter of 2000, down 6.3% from the previous quarter and
6.2% from the same quarter twelve months earlier.
New business starts within Seattle fell somewhat during the third
quarter of 2000. Licenses issued in the months July to September were
only about two-thirds the volume of the same period last year.
Air traffic at SeaTac continues to follow a long run trend of steady,
year to year growth, with pronounced seasonal variations. Air passenger
and air cargo traffic volume in the third quarter of 2000 was largely
unchanged from the same period last year. Expected revisions in the
August figures will likely result in a slight increase over last year's
numbers. Container traffic at the Port of Seattle was remarkably
robust, up 10.3% from third quarter 1999.
Convention Information
The number of conventions and events held in King County during the
third quarter of 2000 rose 55% over the same period last year.
Total room nights, a measure of the volume of tourist and business
traffic, increased 22%.
Local room taxes collected during the second quarter of 2000 were up
4.8% from the same period last year. Local room tax per event, a
proxy measure for delegate expenses, rose 8.2% from the same period
twelve months earlier.
Taxable Retail Sales
Taxable retail sales in King County rose 9.9% overall in the second
quarter of 2000. Among the major sectors, construction once again grew
most rapidly, up 20.5%. Transportation, communications and
utilities (15.8%) and manufacturing (11.3%) realized above
average gains. Retail trade (8.9%), services (8.5%), and finance,
insurance and real estate (8.3%) also did well. Taxable retail sales in
the City of Seattle were up 8.1% in the second quarter of 2000. As
in the county as a whole, construction activity led the way with a
growth rate of 21.9%. Transportation, communications and utilities
(11.8%) and services (11.4%) ranked second and third. Most
noteworthy was computer services, a sub-component of business services,
which grew by 41% in the second quarter.
Employment
With its booming economy and tight labor market, King County continues
to enjoy record low unemployment. The unemployment rate for King County
rose slightly in the third quarter to 3.4%. Unemployment rates at
the state and national levels were also higher, at 4.6% and 4.0%,
respectively. The slight increase in unemployment rates in all areas
was primarily due to layoffs of government workers hired to complete
the 2000 census.
Countywide, average monthly initial unemployment claims in the second
quarter of 2000 were down by 3.9% compared with the same period
last year. The number of unemployment beneficiaries declined by 16.6%.
In the Seattle metro area, the number of nonagricultural wage and
salary workers grew by 2.0% in the third quarter of 2000.
Employment in goods-producing industries declined by 3.1%.
Employment in services-producing industries increased by 4.5%. In
line with the ongoing shift in the economic base of the Puget Sound
region, manufacturing employment declined by 4.8%, led by job losses
in transportation equipment: aircraft and parts (down 33.7%).
Services employment increased by 5.5%, led by growth in business
services: computer & data processing (up 27.2%).
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
After nearly two years of steady declines, the number of Boeing workers
in Washington State appears to have stabilized at slightly more than
77,000 employees. Contractual backlogs overall at Boeing were up 10%
over the same period last year. Backlogs in the commercial airplane
division rose 9.4%, and in the space and communications division
increased by 5.7%.
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
A slight cooling in the housing market in the third quarter of 2000
brought slower sales and higher prices. In King County, sales of new
and existing homes in the third quarter of 2000 were down 0.9% from
third quarter 1999. At the same time, both the mean and median sales
prices rose by over 4%.
In the city of Seattle, the number of commercial and industrial permits
issued in the third quarter of 2000 increased 6.2% from the same
period one-year earlier. The value of non-residential construction,
however, was down by nearly 50%. The number of residential permits
issued for existing units grew by 12.5%, while those for new
construction declined by 10.1%. The dollar value of residential
construction increased by more than 27% and the number of new units
built increased by half over the same period twelve months earlier.
Office Market
Following the second quarter correction in technology stock prices,
layoffs and closures among new economy firms have led to a slackening
of demand in the regional office market. According to Colliers
International, sublease vacancies in downtown Seattle in the third
quarter jumped to six times their level in the previous quarter, with
subleases accounting for just under a third of vacancies overall. In
downtown Seattle, vacancy rates rose from 1.0% to 1.4%, according
to CB Richard Ellis. Nearly 1.2 million square feet of new office space
was added to the downtown market in the past quarter, with another 2.4
million square feet under construction. A softening of demand by high
tech firms has yet to make itself felt in terms of declining rents.
Average lease rates downtown rose 9% to $38.68 per square foot.
Lease rates for prime office space remain above $50 per square
foot. According to a recently released report by the real estate
research division of John Hancock Financial Services, Inc. of
Boston, the current office vacancy rate in the Seattle metro area is
expected to double over the next 12 months, rising as high as 7% by
October of 2001. The report attributes this expected increase to the
substantial acceleration in office construction combined with a cooling
economy. Last month, the Federal Deposit Insurance Corporation added
Seattle to its list of areas in danger of commercial overbuilding,
warning that slower economic growth on top of the current boom in
office building could force some developers to default on loans.
Locally, real estate experts are skeptical, noting that almost 80%
of current construction is already preleased, and that, given the
historically low vacancy rates, a slight softening in demand might
actually be good for the market, perhaps heading off rising lease
rates.
Industrial Market
More than a million square feet new space was added to the Puget Sound
industrial market in the third quarter, about 2/3 of it in the Kent
Valley. In spite of this, continued strong demand drove vacancy rates
lower to 3.8% regionwide. In Seattle, vacancy rates fell from 3.3%
to 3.1%. Regionwide, the pace of building activity slowed
slightly, with 2.5 million square feet of new industrial space under
construction compared with 3 million the previous quarter. Lease rates
remained unchanged, but strong demand combined with a slowdown in new
construction may soon lead to higher rates throughout the Puget Sound
region.
Retail Market
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 submarket in the region. Meanwhile, demand for rental housing has
driven vacancy rates downward regionwide, 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.
Return to Top
Updated: January 29, 2004
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