Quarterly Economic Measures Report
First Quarter, 2001
Executive Summary
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As part of its year 2001 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, 2001 report.
Please contact us for more
information about the QEM reports.
I. The Nation
Economic Measures
Although the weakness in the U.S. economy is now apparent, it is
showing surprising resilience, and the possibility of a recession
remains in doubt. With GDP still in positive territory, this quarter
marked the tenth consecutive year of economic growth, the longest
expansion on record. Advance estimates of real gross domestic product
for the first quarter of 2001 show output growing at an annual rate of
2.0%. Final estimates for fourth quarter 2000 were revised downward to
a 1.0% annual rate. The acceleration in GDPgrowth in the first three
months of the year reflects an increase in consumer spending. Personal
consumption expenditures grew by 3.1%, compared with 2.8% last quarter.
Business investment, which fueled much of the record growth in GDP last
year, declined for the second straight quarter. Spending on equipment
and software fell by 2.1% in the first quarter of 2001 following a 3.3%
decline in the final months of last year.
While inflation remains subdued, the GDP deflator accelerated slightly
in the first quarter, growing at an annual rate of 3.3% compared with
1.9% last quarter. Restrained by slower demand, the consumer price
index advanced at a 4.0% annual rate in the first quarter of 2001,
compared with a 5.6% pace in the same quarter one year earlier.
In response to slowing economic growth, the Federal Reserve moved
aggressively in the first quarter of 2001, lowering rates on three
separate occasions. Each time, the Fed reduced the federal funds rate
by half a percentage point, from 6.5% at the start of the year to 5.0%
by the end of the first quarter of 2001. Although interest rates are at
their lowest level since August 1999, further rate cuts are anticipated.
Mortgage rates, which are largely unaffected by cuts in short-term interest
rates, remained stable throughout the quarter. According to Freddie
Mac, average rates for a fixed rate 30-year mortgage hovered around
7.0% over the past three months, down from last year's peak of 8.64%.
Yields on treasury bonds continued to decline throughout the first quarter
of 2001. Bond prices, which move inversely to yields, rose in response
to increasing demand in the face of worsening economic conditions and
continued uncertainty in the stock market.
Industrial/Manufacturing Measures
The current economic downturn is most evident in the manufacturing
sector. In the first quarter of 2001, investment in producers' durable
equipment (equipment and software) declined by $6 billion, following a
revised $9.7 billion drop in the final quarter of last year. Nonfarm
inventories fell by $13.1 billion, the first outright decline in
inventories since the third quarter of 1991.
New orders for manufactured goods in the first quarter of 2001 were
down 2.8% from the previous quarter, and 3.2% below levels one year
earlier. Weaker demand was evident in all major industrial sectors.
Orders for non-defense capital goods, excluding aircraft, a measure of
business investment, declined in five out of the past six months.
After falling for five straight months, the index of industrial
production rose slightly (0.4%) in March. For the first quarter as a
whole, total industrial production contracted at an annual rate of
4.7%, the biggest quarterly decline since the first quarter of 1991.
Production in the fourth quarter fell at a revised 0.9% pace. The last
time output fell for two straight quarters was during the last
recession some ten years ago. The rate of capacity utilization also
rose in March to 79.4% but remains at a level more than 2.5 percentage
points below its 1967-2000 average. The March increase ends seven
straight months of declines.
Income Measures
Personal income has increased steadily for the past four months,
averaging half a percentage point of growth month to month. Income
growth has remained remarkably steady over a period otherwise
characterized by falling business investment and rising unemployment.
Per capita disposable income rose 1.7% over the previous twelve months
to $23,871.
II. The Region
Economic Activity
In the western United States, overall prices increased 1.7% compared to
1.8% in the first quarter of 2000. In the Seattle CMSA, consumer prices
jumped 1.4% from December to February. Rising housing costs provided
the strongest upward pressure on the regional consumer price indexes.
The number of bankruptcies recorded in King County rose sharply in the
first quarter of 2001, up 18% over the same quarter one year earlier.
Higher than average figures for March were responsible for much of the
increase over last year. New business starts in the first quarter of
2001 grew by 3.8% over first quarter 2000.
The number of air passengers recorded at SeaTac in the first quarter of
2001 fell slightly, down by 0.9% from first quarter 2000. Air cargo
traffic grew by 5.8%. At the Port of Seattle, traffic declined by 2.9%
from the same period last year.
Convention Information
The number of conventions and events held in King County during the
first quarter of 2001 declined by about 10% from the level set in the
first quarter of last year. The number of room nights, a measure of the
volume of tourist and business traffic, rose slightly, up 3.0%. Local
room taxes collected during the fourth quarter of 2000 remained flat,
down 0.9% from the final quarter of 1999. Local room tax per event, a
proxy measure for delegate expenses, fell by nearly one-fourth from the
same period twelve months earlier. The completion of Seattle's expanded
convention center in mid-July, and an increase in the number of cruise
ship departures from the Port of Seattle are expected to result in
strong growth in the tourism sector in the latter half of the year.
Taxable Retail Sales
Taxable retail sales in King County rose 4.6% overall in the fourth
quarter of 2001 compared to the same period one year earlier. Once
again, construction grew most rapidly at 12.8%. Services (7.8%),
manufacturing (6.1%), and finance, insurance and real estate (5.1%)
all experienced above average gains. Retail trade, which accounts for
more than forty percent of overall sales, slightly outpaced the growth
of total sales at 4.9%. Wholesale trade experienced the only real
decline, down 9.4%. In the city of Seattle, taxable retail sales rose
3.5% overall. Finance, insurance and real estate experienced the
greatest gains at 11.3%. Services grew by 7.3%. The fastest growing
component of services continues to be computer services, which matched
last quarter's gains, increasing by more than 40% from fourth quarter
1999 levels. Construction (5.0%), retail trade (4.7%), and
manufacturing (2.2%) all grew at a slightly slower pace.
Transportation, communications and utilities (-1.5%) and wholesale
trade (-6.0%) both declined in the fourth quarter of 2000.
Employment
figures for the first time in the first quarter of 2001. In the United
States as a whole, the unemployment rate rose to 4.6%. In Washington
State, the unemployment rate climbed to 6.1%. In King County, the
percentage of the labor force unemployed grew to 4.1% after remaining
at slightly more than 3.0% for the past year. Countywide, average
monthly initial unemployment claims in the fourth quarter of 2000 were
up 16.7%, while the number of unemployment beneficiaries rose 8.9%.
In the Seattle metro area, the number of nonagricultural wage and
salary workers grew by 3.3% in the first quarter of 2001. Jobs in
both goods and services-producing industries increased, by 1.8% and
3.6%, respectively. The construction (7.9%) and services sectors (7.3%)
experienced the strongest gains. Employment in manufacturing fell
slightly, down 0.8%.
Job Dislocation Activity
Staff reductions by dot-com companies as well as outright firm closures
dominated the job dislocation statistics for first quarter 2001.
Amazon.com laid off nearly 800 employees locally as it consolidated
its customer service and support functions. Similar reductions occurred
at Convergys (350), Ticketmaster (270), Spiegel Group (194), and
Verizon Wireless (174).
Boeing and Airline Industry Data
The number of Boeing workers in Washington State rose slightly in the
first quarter of 2001 to 78,400. The increase was overshadowed by the
sudden announcement by Boeing in March that it planned to move its
headquarters operations out of the region by the end of the summer.
With the total number of jobs lost a relatively modest 500, the impact
on the local economy is expected to be negligible. Boeing insisted
that it has no plans to reduce the size of its local manufacturing
workforce. Currently, the outlook for Boeing remains positive.
Contractual backlogs in the commercial airplane division were up 17%
in the first quarter of 2001 over the same period one year earlier.
Total backlogs rose 21.5%.
Wages
Average monthly wages in King County increased by 8.8% overall from
second quarter 1999 to second quarter 2000. The monthly average wage
in services, which was the highest of any sector, increased by 10.9%.
Wages in transportation and public utilities grew fastest, at 11.7%.
The only sector that showed a decline in the monthly average wage in
the second quarter of 2000 was agriculture, forestry and fishing, which
fell by 0.6%.
Real Estate
Construction
Sales of new and existing homes in King County in the first quarter of
2001 increased by 7.3% over the same period one year earlier. While the
average number of days on market increased slightly, prices continued
to rise, albeit at a much slower pace than in previous quarters. The
average sales price for new and existing homes was up 1.0%; the median
sales price grew by 3.4%.
In the City of Seattle, the number of commercial and industrial permits
issued in the first quarter of 2001 fell by 2.0% following a 2.7%
decline in the fourth quarter of 2000. The value of non-residential
construction declined by nearly 10% after remaining relatively flat in
the final three months of last year. The number of residential permits
issued for existing units decreased 11.6%, while those for new
construction increased by 10.3%. The value of residential construction
declined by 23% from the level set one year earlier, while the number
of new units added to the existing housing stock increased only
slightly, by 0.8%.
Office Market
The big story in the Puget Sound office market continues to be the
rapid growth in the amount of sublease space returned to the market by
failed dot-coms. According to CB Richard Ellis, the vacancy rate in
Seattle jumped to 6.0% in the first quarter of 2001, up from 4.3% the
previous quarter. On the Eastside, the vacancy rate rose to 5.1% from
3.9%. Cushman and Wakefield estimated that sublease vacancies accounted
for half of the total vacancy rate in both of these major sub-markets.
More than 1.9 million square feet of new office space was absorbed
region-wide in the first three months of the year, due to extensive
pre-leasing. Average class "A" lease rates reflected this increasing
supply, falling in both Seattle and on the Eastside for the first time
in five years. The expansion of the sublease market has made many
developers cautious, with a number of projects on hold for now.
However, approximately 5.4 million square feet of new office space
remains under construction throughout the Puget Sound region. Seattle
alone has more than 2 million square feet under construction, about
80% of which has been pre-leased.
Industrial Market
In the industrial market, demand appears to have peaked. Vacancy rates
across the region rose moderately to 4.5% from 3.0% last quarter. The
Kent Valley and Eastside sub-markets- where vacancy rates more than
doubled-experienced the largest increases. Net absorption in the region
as a whole declined significantly, with only 150,000 square feet added
compared to the nearly 2.5 million square feet in the previous quarter.
Average asking lease rates were unchanged across all markets.
Retail Market
Vacancy rates for retail space, already at low levels in the first half
of 2000, continue to fall across the region, with overall rates
dropping to 2.7% in the second half of the year. Due to the tight
market, average asking lease rates rose just over $3.00 per square foot
region-wide. At 592,865 square feet, net absorption in the second half
of 2000 was barely a third of the volume added to the market in the
first half of the year. An additional 1.4 million square feet is
currently under construction, nearly half of it on the Eastside.
Apartment Market
Apartment sales volumes in the Puget Sound region totaled $379 million
in the second half of 2000, the highest level in two years. The
increase was fueled by a surge in activity in the Southend market
($186 million). Rising rents in the downtown core and on the Eastside
have driven up demand for more affordable units to the south. Average
price per unit region-wide declined slightly in the second half of the
year, largely due to a slowdown in sales on the Eastside where average
price per unit is highest. Vacancy rates in the Puget Sound region rose
slightly in the second half of 2000, to 3.8% from 2.6% in the first
half of the year. Demand remains strong, however, and rents continue to
move upward, 2.1% in the past six months. Downtown Seattle experienced
the highest rate of increase at 7.6%, while rents on the Eastside rose
4.5% on average.
Return to Top
Updated: January 29, 2004
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