Executive Summary
Quarterly Economic Measures Report
First Quarter, 1997
For more information about the QEM reports, please contact us.
I. National
Economic Measures/Interest Rates/AA Bond Rates
The real gross domestic product (GDP) grew at a rapid pace in the first
quarter, growing at a 5.6% annual pace, and 4.0% since 1Q/96. Revised
figures show real GDP rose 2.4% in 1996, slightly higher than the 2.0%
growth of 1995. Annual real GDP growth has ranged between 2.0 and 3.5%
the past five years.
The Federal Reserve Board raised its target rate for the federal funds
rate 0.25 to 5.50% in late March. The prime rate rose to 8.5% as a
result, though the Fed did not raise the discount rate (5.0%). The Fed
feared that economic growth was too strong and would lead to increased
inflation. Inflation remains low, however, with the first quarter
Consumer Price Index rising at an annual rate of 2.7%. It is unknown
if the Fed will raise rates at their May meeting. The economy continues
to be strong, but inflation remains low.
Interest rates for treasury bills and bonds rose somewhat in the first
quarter. Thirty year home mortgage rates in Washington state rose
slightly in the first quarter, averaging just above 8.0%, and rising to
8.2% by the end of March. In the past five years, mortgage rates have
ranged from 7.0% (October 1993) to over 9.4% (late 1994).
AA bond rates in late April were the highest in about two years, with
various tax exempt rates rising either .15 or .20 of a percentage point.
Industrial/Manufacturing Measures
Non-farm inventories were up $46.5 billion in 1Q/97. This is 21/2 times
greater than fourth quarter changes, and is an indicator of a slowing
economy.
Other indicators show a heating economy. Capacity utilization rates rose
in the first quarter; by March, manufacturing was over 83% capacity, while
total industry capacity edged above 84%. This is the highest capacity
utilization has been in almost two years. It is approaching 85%, a level
that many economists consider a sign that the economy is overheating and
rising inflation is imminent. Industrial production rose at a 5.6% annual
rate in the first quarter; it rose 4.9% over 1Q/96.
Income Measures
Per capita disposable personal income rose at a 5.7% annual rate in the
first quarter; it rose 2.9% from 1Q/96 to 1Q/97. This was up from a 1.7%
rise from 1Q/95 to 1Q/96.
II. KIng County
Economic Activity
The West-C CPI rose 3.0% in the twelve months ending first quarter of
1997. Bankruptcy filings in both King County and the Central Puget Sound
region have significantly risen over 1Q/96 numbers, with 23% increases in
both areas. Looser bankruptcy laws and easier credit may be the reason
for large increases in filings over the past year.
King County taxable retail sales rose 6.4% in the third quarter of 1996
over third quarter 1995. (Third quarter 1996 is the most recent quarter
for which data is available.) Wholesale trade sales rose 9.2%, with very
strong gains in Kent (up 39%). Finance, insurance and real estate (FIRE)
sales rose 12.4%. Retail trade taxable sales rose 8%; notable retail
sales changes took place in lumber and building materials (up 21%),
variety stores (up 30%) and electronics and music stores (up 12.4%).
Services remained flat, but business services sank 10.5%, while computer
services rose sharply (up 23.6%) and auto dealers also rose (up 10.5%).
Seattle taxable retail sales rose 5.5% in 3Q/96 over 3Q/95. Contracting
sales rose 13.8%. Services rose 4.6%, led by computer services (up 12.7%),
hotels and motels (up 12.3%) and auto repair and services (up 8.4%).
Manufacturing sales in Seattle fell almost 5%.
Employment
King County first quarter unemployment dropped to 4.0%, the lowest
unemployment rate since fourth quarter 1990, when it was 3.5%.
Unemployment sank slightly in the Central Puget Sound region, from
4.6% to 4.5%. The region's unemployment rate is still lower than the
national rate, which was 5.3% in the first quarter, the lowest first
quarter rate since 1990. U.S. unemployment has been dropping consistently
since averaging 7.5% in 1992.
In the King-Snohomish-Island County region, durable manufacturing
employment rose for the fifth straight quarter after falling five
consecutive quarters, with employment 14% over the same time last year.
This is primarily due to hiring at Boeing. Aircraft and parts
manufacturing is by far the fastest growing sector, with employment
growing 21% over the same time period Construction continued its
strong growth, with 6.0% employment growth over the first quarter of 1996.
In King County, data through the end of 1996 (the latest available) shows
4.5% employment growth in the year ending 12/96. Notable employment
changes during that period were in aircraft and parts (up 17%),
construction (up 9.6%), computer services (up 15%), nursing and personal
care (up 9.5%) and educational services (up 11.9%).
Construction
Closed home sales in King County dropped slightly from the previous
quarter, though it rose 15% from 1Q/96 to 1Q/97. Median prices rose
4.6% over the same period. Many expect King County housing prices to rise
steadily the next few years.
Seattle permit values for non-residential construction were 73% higher
than 1Q/96, while Residential Construction rose slightly. New residential
unit permits were 11% higher than 1Q/96, and higher than any first quarter
since 1992. CB Commercial does not expect this to notably affect the high
demand for apartments, as the market continues to be very tight.
Office Market
Vacancy rates declined in all King County areas. In Downtown Seattle,
vacancies continued their 3 year decline. Vacancies are now at a 5.9%
rate, with Class A vacancies at 4.5%. Absorption, the change in the
amount of leased space, rose to 187,733 square feet for the quarter.
Although no downtown office space is currently under construction, there
is over 4,600,000 square feet of planned office construction. Most of
the planned construction is in Pioneer Square, Denny Regrade and the
Central Business District.
North King County vacancy rates fell for the second straight quarter,
dropping to 9.9%. South King County vacancy rates also fell for the
second straight quarter, dropping to 24.6%.
Bellevue/Eastside had positive absorption of nearly 99,000 square feet,
a bit higher than the previous quarter. Space continues to tighten, with
the vacancy rate at 3.6%. Class A space is even tighter (2.5%), with
median rates at $23.00. This is the most active area, with over 825,000
square feet of office space under construction, and nearly 5.0 million
square feet of planned office construction.
Even though office vacancies are high in South King County and substantial
in North King County, demand for Downtown Seattle office space remains
high.
Industrial Market
The King County industrial market saw absorption slow but remain healthy
in the first quarter, while vacancy rates slightly declined. Absorption
slowed in the Kent Valley (almost 245,000 square feet) and Seattle
Close-In (over 225,000) after each had over 1.2 million square feet in
the fourth quarter. Industrial vacancy rates dropped to 3.3% in Seattle
Close-In, while Seattle high tech vacancy rates dropped to 7.1%. Kent
Valley vacancy rates dropped a notch to 5.4%. The Eastside market had
little absorption, with industrial vacancy rates dropping a notch to 6.0%
and high-tech rates dropping to 5.5%.
CB Commercial forecasts that industrial space will tighten even further
in King County. They expect Seattle Close-In to have 300,000 square feet
available sometime during 1997. Kent Valley remains busy, with 2.6
million square feet under construction, and nearly 4 million square feet
planned. The Eastside market is also hot, with nearly 800,000 square
feet under construction and over 2.75 million square feet planned.
Convention Information
The number of Conventions and Events for 1Q/97 was down 24% from 1Q/96,
while room nights fell slightly, down 1%. Local room tax collections for
4Q/96 was 14% higher than for 4Q/95. (Fourth quarter 1996 is the most
recent quarter data is available.)
Job Dislocation Activity
In the first quarter of 1997, there were 1,873 job losses reported
through the Worker Adjustment and Retraining Notification Act (WARN).
This is 47% of total WARN reported job losses for all of 1996. This
indicates that King County is experiencing significant worker dislocation
even as job growth remains strong. The largest job losses took place at
GNA (300 jobs), Incredible Universe (270 retail jobs), King County
(approximately 250 jobs), Providence Health Plans (200 customer service
and claims administration jobs) and Key Bank (195 bank operation jobs).
Boeing and Airline Industry Data
Boeing employment in Washington state rose 25% in the year ending in April
1997, to 92,629 jobs. Boeing contractual backlogs rose 11% the past 12
months, ending at $89.2 billion by the end of the first quarter. While
most of this backlog consisted of commercial aircraft orders, defense and
space backlogs did rise nearly 68% in the past twelve months.
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