Quarterly Economic Measures Report
Third Quarter, 1997
Executive Summary
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Executive summary
I. National
Economic Measures/Interest Rates/AA Bond Rates
National economic growth continued at a steady pace in the third quarter, with little sign of inflation. Real gross domestic product (GDP) expanded at a slightly faster clip in the third quarter, growing at a 3.5% annual rate, and at 4.0% since 3Q/96. This is up from a revised 3.3% annual rate in the second quarter. GDP growth was mainly due to a sharp rise in consumer spending, which increased from a 0.9% annual growth rate in the second quarter to 5.7% in the third. Annual real GDP growth has ranged between 2.0% and 3.5% over the past five years and was 2.8% last year.
The Federal Reserve Board has not raised its target rate for the federal funds rate since late March, when it increased by 0.25 percentage points to 5.50%. The prime rate (8.5%) and discount rate (5.0%) did not change in the third quarter. The third quarter Consumer Price Index rose at an annual rate of 1.6%, increasing by 2.2% during the previous twelve months. Due to the lack of inflationary pressures, it seems unlikely that the Fed will raise rates in the near future.
Interest rates for treasury bills and bonds fell in the third quarter. Thirty year home mortgage rates in Washington state declined in the third quarter to an average of nearly 7.7%. This was the lowest quarterly average rate since the first quarter of 1996. 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 October remained stable, changing very little from late July levels.
Industrial/Manufacturing Measures
Third quarter industrial activity was quite robust. Industrial production increased at a 7.0% annual rate in the third quarter, expanding by 5.0% over 3Q/96. Capacity utilization rates rose in the third quarter for total industry (84.1%) as well as manufacturing (83.2%). This is the highest capacity utilization has been since the first quarter of 1995. Utilization rates are approaching 85%, raising fears that the economy is overheating and inflation is imminent. When capacity is too high, production becomes strained due to limited plant capacity and the need to hire and train new workers, who tend to be less productive than existing employees. These inefficiencies raise producer prices and in the past have usually led to inflation. Recently, however, competitive pressures on wholesale and retail prices due in large part to the globalization of the US economy have tended to restrain price increases in spite of low unemployment and high capacity utilization.
Non-farm inventories were up $42.6 billion in 3Q/97. This was a much smaller increase than the previous quarter, when inventories rose $70.1 billion.
Income Measures
Per capita disposable personal income rose at a 1.9% annual rate in the third quarter and grew by 1.9% from 3Q/96 to 3Q/97. This was up from a 1.5% rise between 3Q/95 and 3Q/96.
I. King County
Economic Activity
The West-C CPI rose at 1.2% annual rate in the third quarter and 2.5% for the twelve month period. Bankruptcy filings increased over 3Q/96 in both King County (4.0%) and the Central Puget Sound region (6.5%), but actually declined from second quarter levels. Less restrictive bankruptcy laws and easier credit are the most likely causes of the growth in filings over the previous year.
King County taxable retail sales were a robust 10.7% higher in the second quarter of 1997 compared to second quarter 1996. Finance, insurance and real estate (FIRE) sales rose sharply (28.7%). Wholesale trade sales increased by 7.9%, with very strong gains in Kent (up 43%). Retail trade taxable sales rose 9%; notable positive retail sales changes took place in lumber and building materials (up 21%), electronics and music stores (up 21%), furniture (up 12%), miscellaneous retail stores (up 12%), while dairy products sales were down 22%. Services growth was strong (up 10%), as computer services rose sharply (up 46.6%) and hotels and motels (up 13%) and other services (up 24%) also gained. (Other services include amusement and recreation, miscellaneous repair and motion pictures). Manufacturing rose 6.5%, with rapid growth in Kent (up 79%).
Seattle taxable retail sales were also strong, rising 10.8% in 2Q/97 over 2Q/96. (Second quarter 1997 is the most recent quarter for which data is available.) Most of the major industry groups had sales increases in excess of 10% over a year earlier, including wholesaling (up 16.5%), contract construction (13%), FIRE (16%) and transportation, communications and utilities (10%). Services rose 16.5%, led by computer services (up 37.5%), hotels and motels (up 15%) and other services (up 41%). Retail trade grew slower (up 6.5%), but there were noticeable gains in building materials and hardware (up 23%), variety stores (up 41%), furniture (up 16%) and miscellaneous retail stores (up 13%).
Employment
Area unemployment continued to decline in the third quarter. King County third quarter unemployment fell to 3.2% of the labor force, the lowest unemployment rate since 3.1% in the third quarter of 1990. Unemployment sank slightly in the Central Puget Sound region, falling from 3.7% to 3.5%. The region's third quarter unemployment rate remains below the national rate of 4.9% (seasonally adjusted). In the third quarter the US experienced its lowest rate of unemployment since fourth quarter 1993. National unemployment has been subsiding consistently since averaging 7.5% in 1992.
The reason for declining unemployment is the continued strong growth in jobs. In the King-Snohomish-Island County region, employment rose at a 4.8% annual rate and was 5.2% above third quarter 1996. Durable manufacturing employment expanded for the seventh straight quarter after previously falling for five consecutive quarters; jobs in this sector have increased by 15.1% over the same time last year. This is primarily due to hiring at Boeing - aircraft and parts is by far the fastest growing manufacturing sector, with employment expanding by 21.9% over third quarter 1996.
Job Dislocation Activity
Reported layoffs in King County continued to decline significantly. There were 295 job losses reported through the Worker Adjustment and Retraining Notification Act (WARN) for the third quarter. This is about a third of WARN reported job losses for 2Q/97. Job losses for the first three quarters of 1997 total 3,049, 77% of reported job losses for all of 1996, though most of this year's layoffs took place in the first quarter. The largest job losses took place at the Seattle Tennis Club (95 kitchen, maintenance workers & instructors), Key Bank in Auburn (60 workers in loan operations and 20 loan officers) and Issaquah Market (53 grocery workers).
Construction
The single-family housing market continued to strengthen, with closed home sales in King County 17.2% higher in 3Q/97 than in 3Q/96. Average prices (8.5%) and median prices (5.8%) rose over the same period. The average time a house was on the market dropped to 39 days, a 7% drop from the second quarter (42 days) and a 17% drop from 3Q/96 (47 days).
Construction activity in Seattle was especially strong. Seattle permit values for non-residential construction were almost 21/2 times higher (147%) than 3Q/96. Much of the increase is due to the new Mariners' stadium and a $60 million theater/retail/restaurant complex at Sixth and Pine. Residential construction permit values increased dramatically over the second quarter totals (127%) and 3Q/96 (106%), largely due to three large apartment complexes totaling $51 million. These three multi-family buildings make up 62% of the 1,120 new residential units permitted in the third quarter. This should help ease the rental unit shortage somewhat, though demand for units is still higher than supply.
Office Market
The Downtown Seattle market remained brisk, with vacancies falling slightly to 5.9%. Class A space was especially tight (3.0% vacancy), while the Class B market remains soft (14.2% vacancy). Absorption, the change in the amount of leased space, was 75,401 square feet for the quarter. Absorption should increase significantly, as demand is strong, and there is over half a million square feet of downtown office space currently under construction. Over 4.5 million square feet of office space is planned.
Demand in Bellevue/Eastside also grew, with absorption of over 140,000 square feet. Space continues to be tight, with a vacancy rate of 2.6%. Class A space is even tighter (1.7%), with median rates at $24.00 per square foot. Along with Seattle, the Eastside has the County's most active office market, with almost 700,000 square feet of office space under construction and 4.8 million square feet of planned.
Vacancy rates also declined in other King County areas, which will put more pressure on the Downtown Seattle and Bellevue/Eastside markets. North King County vacancy rates fell for the fourth straight quarter, dropping sharply to 4.9%. South King County vacancy rates dropped dramatically, from 28.2% to 12.4%. This was mostly due to the return of the Boeing Commercial Airplane Group to the area.
Industrial Market
The King County industrial market continued to experience steady growth, with absorption at about 500,000 square feet for the third straight quarter. Vacancy rates changed little. Although third quarter absorption was much lower than last year in Seattle Close-In (over 180,000) and the Kent Valley (about 90,000 square feet), industrial vacancy rates dropped to 3.3% in Seattle Close-In and vacancy rates fell a notch to 6.5% in the Kent Valley over second quarter 1997 levels. However, vacancy rates rose a bit to 11% in Seattle's high tech sub-market. The Eastside market had absorption of over 135,000 square feet, with industrial vacancy rates rising to 5.7% and high-tech rates dropping to a low 2.5%.
CB Commercial forecasts that demand for industrial space will remain strong in King County. Most of the current and planned construction is taking place outside of Seattle, though the Seattle market remains tight. Kent Valley remains busy, with 1.2 million square feet under construction, and nearly 5.8 million square feet planned. The Eastside market is also strong, with nearly 670,000 square feet under construction and over 3.3 million square feet planned.
Boeing and Airline Industry Data
Boeing employment in Washington state continued to increase rapidly, rising to 100,200 jobs. This was a 26% increase in the 13 months ending in September 1997 and a 4.5% increase from June 1997. Boeing contractual backlogs fell for the second straight quarter, ending the third quarter at $108.8 billion. (Backlog figures have been revised due to the merger with McDonnell Douglas). Over three-quarters of this backlog consisted of commercial aircraft orders ($83.5 billion). The new Information, Defense and Space division, made up of elements from the former Boeing Defense & Space Group and McDonnell Douglas Corporation, had backlogs of $25.3 billion.
US airlines had a net profit in 1996 of $2.8 billion, a 22% increase over 1995. This was the second straight year of airline profits; it followed five years of losses totaling over $13 billion.
Convention Information
The number of Conventions and Events for 3Q/97 was down 23% from 3Q/96, though room nights rose 8.6%. Local room tax collections for 2Q/97 were 11% higher than for 2Q/96. (Second quarter 1997 is the most recent quarter data is available.)
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Updated: January 29, 2004
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