Quarterly Economic Measures Report
Second Quarter, 1997
Executive Summary
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Executive summary
I. National
Economic Measures/Interest Rates/AA Bond Rates
The real gross domestic product (GDP) slowed in the second quarter, growing at a 2.2% annual pace, and 3.1% since 2Q/96. This is down from a revised 4.9% annual rate in the first quarter. Growth slowed due to a sharp drop in consumer spending, from a 5.3% annual rate in the first quarter to 0.8% in the second. Many analysts believe GDP growth will increase in the current quarter. Annual real GDP growth has ranged between 2.0 and 3.5% the past five years, growing at a revised 2.8% rate last year.
The Federal Reserve Board has not raised its target rate for the federal funds rate since late March, when it when rose 0.25 to 5.50%. The prime rate (8.5%) and discount rate (5.0%) did not change in the second quarter. The Fed reportedly believes that inflation (for now) is under control. Since GDP growth has slowed, it is unlikely they will raise rates in the immediate future. The second quarter Consumer Price Index rose at an annual rate of 1.5%, rising 2.3% during the previous twelve months.
Interest rates for treasury bills and bonds rose for the second straight quarter, with rates peaking in April, then dropping in May and June. Thirty year home mortgage rates in Washington state rose slightly for the second straight quarter, averaging just above 8.1%, but falling to 7.8% by the end of June. 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 July had dropped sharply from April rates, from .60 to .85 of a percentage point..
Industrial/Manufacturing Measures
Non-farm inventories were up $60.7 billion in 2Q/97, slightly higher than in the first quarter.
Capacity utilization rates fell slightly in the second quarter, at 83.5% overall and 82.6% for manufacturing. It is backing off slightly from the 85% level, which many economists consider a significant indicator that economy is overheating and rising inflation is imminent. Since 1Q/94, capacity utilization has usually ranged between 83% and 85%, yet inflation has not increased. Some are beginning to question how useful the 85% standard is.
Industrial production slowed to a 3.2% annual rate in the first quarter; it rose 4.2% over 2Q/96.
Income Measures
Per capita disposable personal income growth slowed to a 2.2% annual rate in the second quarter from a revised 3.8% annual growth rate in the first quarter; it rose 1.9% from 2Q/96 to 2Q/97. This was up from a 1.5% rise from 2Q/95 to 2Q/96.
I. King County
Economic Activity
The West-C CPI rose 2.5% in the twelve months ending second quarter of 1997. Bankruptcy filings in both King County (13%) and the Central Puget Sound region (15%) have risen over 2Q/96 numbers. 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 7.6% in 4Q/96 over 4Q/95. (Fourth quarter 1996 is the most recent quarter for which data is available.) Wholesale trade sales rose 17%, with dramatic gains in Kent (up 74%). Finance, insurance and real estate (FIRE) sales rose 12%. Retail trade taxable sales rose 6%. Notable retail sales changes took place in lumber and building materials (up 16%) and electronics and music stores (up 14.5%). Services growth remained flat. Business services sank 9%, while computer services rose sharply (up 24%).
Seattle taxable retail sales rose 7.0% in 4Q/96 over 4Q/95. Services rose 4.7%, led by a sharp rise in computer services (up 23%) and hotels and motels (up 7.6%). Wholesaling sales rose almost 18%. Building Materials and Hardware sales rose 15%. Contracting sales rose 12.9%.
Employment
King County first quarter unemployment dropped to 3.4%, the lowest unemployment rate since third quarter 1990, when it was 3.5%. Unemployment sank significantly in the Central Puget Sound region, from 4.6% to 3.7%. The region's unemployment rate is still lower than the seasonally adjusted national rate, which was 4.9% in the second quarter, the lowest second quarter rate since 1970. 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 sixth straight quarter after falling five consecutive quarters, with employment almost 15% over the 2Q/96. This is primarily due to hiring at Boeing. Aircraft and parts manufacturing continues to grow rapidly, with employment increasing 22% over the same time period. Transportation by Air grew even more rapidly, with employment up nearly 32% over the second quarter of 1997. Business services employment grew 14% over the same period.
Construction
Closed home sales in King County rose significantly (31%) from first quarter totals, reflecting usual seasonal increases. Closed home sales rose 4% from 2Q/96 to 2Q/97. Average prices rose 8.2% over the same period, indicating that the market is heating up. Many expect King County housing prices to rise steadily the next few years.
Seattle permit values for non-residential construction were over double (107.1%) higher than 2Q/96. Much of the increase is due to the new Mariners' stadium. New residential unit permits increased slightly over first quarter (4%), but were down 47% from a year earlier, as a large apartment complex permit was filed in 2Q/96. The market for apartments continues to tighten, and this level of building activity will not come close to meeting increased demand.
Office Market
Vacancy rates changed little in King County. In Downtown Seattle, the vacancy rate rose for the first time in 3 years. Vacancies rose slightly to 6.0%, though Class A vacancies continued to fall (3.8%). Absorption, the change in the amount of leased space, rose to 235,912 square feet for the quarter. Almost 300,000 square feet of downtown office space is now under construction, with over 4,650,000 square feet of office construction planned. Most of the planned construction is in Pioneer Square, Denny Regrade and the Central Business District.
North King County vacancy rates fell for the third straight quarter, dropping to 7.6%. South King County vacancy rates rose to 28.2%, due to the addition of new office space in the Southcenter area.
Bellevue/Eastside had positive absorption of over 180,000 square feet, about double the previous quarter. Space continues to tighten, with the vacancy rate at 2.5%. Class A space is extremely tight (1.5%), with median rates at $23.00. This area continues to have the most activity, with over 730,000 square feet of office space under construction, and over 4.8 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 and Bellevue/Eastside office space remains high.
Industrial Market
The King County industrial market slowed in the second quarter, as several large spaces became vacant. Absorption changed little, while overall vacancy rates rose slightly. Bellevue/Eastside absorption rose to 180,000 square feet, while Kent Valley (32,940 sf) and Seattle (-3,051 sf) changed little. Industrial vacancy rates rose slightly in Seattle Close-In (3.4%), while Seattle high tech vacancy rates rose to 10.7%. Kent Valley vacancy rates also rose (6.7%). The Eastside industrial market did better, with vacancy rates dropping to 5.3% and high-tech rates dropping to 4.9%.
CB Commercial forecasts that the industrial market will remain strong in King County. Space remains tight in Seattle Close-In, with little space planned or under construction. Kent Valley will continue to expand, with 800,000 square feet under construction, and over 5.5 million square feet planned. The Eastside market is also expanding, with over 450,000 square feet under construction and over 2.75 million square feet planned.
Retail Market
The Puget Sound Retail Market heated up markedly in the first half of 1997, with absorption of about 1.4 million square feet. This is nearly ten times the absorption for all of 1996. Half of the region's absorption was in the Southend market, and was due partly to two new movie complexes, one a 17 screen complex at the Auburn Super Mall. (The Southend retail market runs from the West Seattle Bridge through south King County, as well as Pierce and Thurston Counties.)
Most of the remaining absorption was in the Northend (320,000 sf). Vacancies rose slightly (5.4%) because of new space available, with several Ernst, Best Products and Silo spaces becoming available. (The Northend retail market extends north from the Ship Canal through north King County, Snohomish County and the northern counties.)
Downtown Seattle still has the lowest vacancy rate of any Puget Sound market, though it rose to 2.3%, with over 60,000 square feet of absorption during the first half of 1997. There is almost 700,000 square feet under construction downtown and about 500,000 square feet planned.
Bellevue/Eastside is also strong; though vacancies rose (4.8%), absorption also rose (111,466 sf), and there is nearly 900,000 square feet under construction.
CB Commercial forecasts a continued strong retail market, with people moving to the region and earning above average wages.
Apartment Market
The Puget Sound apartment market tightened further in the first half of 1997, with vacancy rates dropping from 2.5% to 2.1%, while rents rose 4.3%. The Seattle market vacancy rate rose a notch but remained low (1.3%). Seattle rents rose an average of 4.1%.
Vacancy rates fell in South King County (1.9%) and Pierce County (4.8%). Pierce County is the only major area with a vacancy rate over 2.0%. Although the East King County vacancy rate rose a notch to 1.1%, rents rose an average of 5.5%.
CB Commercial forecasts demand to continue rising, as growth at Boeing, Microsoft, Intel and other companies draws people to the region. Apartment building will continue to lose pace with demand, pushing rents higher.
Convention Information
The number of room nights for 2Q/97 rose 64% from 2Q/96, while Conventions and Events rose 4%.
Job Dislocation Activity
There were 881 job losses reported through the Worker Adjustment and Retraining Notification Act (WARN) for 2Q/97. This is under half of WARN reported job losses for 1Q/97. Job losses for the first half of 1997 total 2,754, 69% of reported job losses for all of 1996. The largest job losses took place at Bristol-Myers Squibb (approximately 240 pharmaceutical research jobs), BNSF Railroad (150 railway clerks), MIDCOM Communications (127 telephone service and sales jobs) and Snoqualmie Valley Hospital (100 health care jobs).
Boeing and Airline Industry Data
Boeing employment in Washington state rose about 28% in the year ending in June 1997, to 95,892 jobs. Boeing contractual backlogs dropped 2.7% the past quarter, ending at $86.8 billion by the end of the first quarter. Backlogs have risen 6.5% the past 12 months, however. While most of the backlog consisted of commercial aircraft orders, defense and space backlogs have risen 73% in the past twelve months.
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Updated: January 29, 2004
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