Quarterly Economic Measures Report
Fourth Quarter, 1998
Executive Summary
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I. National
Economic Measures/Interest Rates/AA Bond Rates
National economic growth was quite robust in the fourth quarter. Real gross
domestic product (GDP) increased at a 5.6% annual rate, the fastest
quarterly growth rate of the year, up from the third quarter revised
annualized gain of 3.7%. For the most recent twelve months, GDP grew
4.1%, down somewhat from the 4.9% pace during the year ending fourth
quarter 1997. Annual real GDP growth has ranged between 1.6% and 5.3%
over the past five years.
The Federal Reserve Board acted to ease monetary policy twice in the fourth
quarter, lowering the discount rate (the interest rate charged by the Fed
on loans to depository institutions) from 5% to 4.5%. The prime rate
dropped to 7.75% during the fourth quarter, a four-year low. Inflation
continues to remain dormant. The implicit price deflator increased at a
scant 0.8% annual rate and rose only slightly in the twelve months ending
fourth quarter 1998 (0.9%). The fourth quarter Consumer Price Index (CPI)
was up by an annualized rate of only 1.5%. Between the fourth quarter of
1997 and the fourth quarter of 1998,the CPI increased by 1.6%.
Interest rates for treasury bills and bonds dropped across the board during
the fourth quarter. One-year treasury bills dropped 13.2% while 3-year
treasury bonds dropped 13.7%. Thirty-year home mortgage rates in Washington
State reached their lowest point in years (6.81%). National home mortgage
rates for new homes during the fourth quarter averaged slightly higher
(6.84%).
Industrial/Manufacturing Measures
Producer investment in durables was up nearly 10% in the fourth quarter
after experiencing substantial increases during the first half of the year.
Preliminary reports indicate that non-farm inventories were up $41.7
billion during fourth quarter 1998, down slightly from a revised $47
billion increase the previous quarter. The fourth quarter has seen two
consecutive months of inventory decline, largely in transportation
equipment and industrial machinery. Potentially conflicting indicators,
such as the low cost of capital, consumer uncertainty, and fear of
shrinking foreign markets for domestic goods have been likely contributors
to large fluctuations in inventory investment.
Other indicators showed mixed results. Industrial production increased
by 3.4% in the fourth quarter (an annualized rate of over 14%) after not
changing in the third quarter. The increase is partly due to the end of
strikes that limited the output of motor vehicles and parts during the
second and third quarters. Capacity utilization rates fell again in the
fourth quarter for total industry (81.0%), but increased a fraction for
manufacturing industries (80.1%). Overall, this indicator continues a
downward trend, with the result that it is further under 85%, a level that
many economists consider a sign that the economy is overheating and rising
inflation is imminent. Worker productivity was up 4% during the fourth
quarter, offsetting increases in the hourly costs of labor. Among
economists, the general feeling, however, is that manufacturing production
has temporarily peaked with inventories more than near term consumer demand.
Income Measures
National per capita disposable income increased at a 3.3% annual rate
during the fourth quarter. For the twelve-month period ending in the
fourth quarter 1998, personal income rose 1.4% as well, the lowest
twelve-month gain since the period ending December 1996 (1.1%).
I. King County
Economic Activity
The West CPI-U rose at a 2.5% annual rate in the fourth quarter and 1.8%
during the twelve months ending 4Q/98. This was somewhat higher than the
1.6% rise in the previous twelve months. Bankruptcy filings fell from
fourth quarter 1997 in both King County (12.7%) and the Central Puget
Sound region (8.6%). Bankruptcy filings have been falling steadily over
the past two years after rising dramatically in 1995 and 1996.
King County taxable retail sales during the third quarter 1998 rose 10.4%
over the third quarter 1997. (Third quarter 1998 is the most recent
quarter for which data is available.) At the national level retail sales
decreased by 0.4% over third quarter 1997.
Manufacturing retail sales rose a strong 6.3%. Contracting sales rose
sharply (29.2%), with $308 million more in sales during third quarter 1998
than third quarter 1997. Retail trade taxable sales rose 7.4%; notable
retail sales changes took place in lumber (16%), marine and aircraft sales
which increased by $10 million (18%), auto sales (9.7% or $57 million),
furniture (up 17%). Services growth was notably (up 11%), as business
services (up 21%) increased by $76 million.
Seattle taxable retail sales increased somewhat, up 10.6% in third quarter
1998 over third quarter 1997. Contracting sales again rose sharply (30%)
manufacturing increased (7.9%). Services rose considerably (13%), while
sales of business services increased by over 23% led by a 66% increase in
computer services sales. Retail trade rose (up 6%), with noticeable gains
in nurseries and gardens (up 14%), marine and airplane sales (up 16%),
furniture (21,8%), lumber and building materials (22%).
Employment
King County unemployment stayed relatively low in the fourth quarter.
King County fourth quarter unemployment increased slightly to 3.0%, last
quarter's rate of 2.8% was the lowest unemployment rate this decade.
Unemployment remained unchanged in the Central Puget Sound region, from
at 3.4%. The region's unemployment rate was considerably lower than the
national rate (4.5% seasonally adjusted).
Regional employment growth continued to be strong. In the central Puget
Sound region, employment rose 3.0% over fourth quarter 1997. During this
quarter, however, durable manufacturing employment rose at a smaller rate,
gaining for the eleventh straight quarter after falling five consecutive
previous quarters. Regional construction employment increased by 6.8% over
fourth quarter 1997. Regional services employment increased by 3.5% over a
year ago, with a nearly 7% job growth in business services and computer and
data processing services industries. A majority of the regional business
services job growth (up 15% over 4Q 1887) occurred in King County, leading
a 6.6% increase in service industry employment within the county over the
past twelve months. King County construction employment also increased at
a greater annual rate (5.4%) than total county employment for all
industries (3.2%).
While manufacturing growth occurred at the same rate (0.3%) both within
King County and the region, these areas experienced different growth
patterns within the manufacturing sector. Even with Boeing layoffs,
durable goods manufacturing employment in King County increased at a
greater rate (0.9%) than the region as a whole (0.2%). While direct
employment at Boeing declined, the airplane manufacturer's full production
schedule contributed to high job growth in King County primary metals
manufacturing (13.5%) and electronic equipment manufacturing (18.3).
King County non-durable equipment employment declined 14%, primarily due
to a decline in textile manufacturing, as the region experienced modest
gains (0.4%). Trends over the last few years indicate that this is
consistent with a general decentralization of non-durable manufacturing
away from the higher rent urbanized areas, including Seattle. Service
industries, and business and producer services in particular, continue
to concentrate in the urban office cores of Seattle and Bellevue and
along the high tech corridor in north King County.
Nationally, employment was 2.3% higher in the twelve months ending fourth
quarter 1998, a net increase of 2.9 million jobs.
Construction
The single-family housing market remained strong, with housing prices
continuing to rise and houses selling quickly. Total home sales in King
County were up 4.2% from the fourth quarter of 1997, while total U. S.
homes sold during this period increased by over 16 percent. New home
sales in King County during fourth quarter 1998 were 24% higher than for
the third quarter of 1997, nationally new home sales were up over 18
percent. Median prices for all King County homes sold increased a
substantial 11.4% over fourth quarter 1997. This sales price increase
compares with a national and western states regional median home sales
price increase of just under 3%, during the same period. The average
time a house in King County remained on the market continued to be quite
low (37 days). This figure is up slightly since last quarter but in
keeping with the previous five quarters, which averaged between 34 and
42 days.
Other construction activity was also up over a year ago. The total value
of Seattle permits for non-residential construction was a substantial,
58% higher than fourth quarter 1997. Seattle residential construction
permit values increased during the fourth quarter to $120.9 million, up
only slightly from the third quarter but up 72% over fourth quarter 1997.
This included permits for 1,032 new residential units.
Office Market
The Downtown Seattle market remained strong despite tightening credit, as
the vacancy rate decreased to 3.8%. The market for Class A space tightened
slightly (3.4% vacancy), while the Class B market tightened again (5.8%
vacancy) for the fourth consecutive quarter. Absorption, the net change
in the amount of leased space, was sizable (over 600,000 square feet).
Major contributors to the positive absorption were the preleasing of
150,000 sq. ft. in the Seattle Trade and Technology Center, Washington
Mutual's conversion of the Newmark tower, and a lease of a second building
at the World Trade Center by Visio. Median Class A lease rates remained
steady at just over $27 per square foot, with some top floor space going
for as much as $40 per square foot. Office space still remains in short
supply, but fear of an economic slowdown and uncertainty in real estate
capital markets made completion of several large development projects in
the City and the Eastside questionable. Even so, CB Commercial reports
there is nearly 2.4 million square feet of office space under construction
in the downtown market, with 3.9 million square feet planned.
Demand in Bellevue/Eastside increased substantially from the previous
quarter, with positive absorption of over 700,000 square feet. Bellevue,
Redmond, Issaquah, and Bothell all added new office space during this
quarter. Space tightened again to 1.7% after relaxing slightly for the
first time in a year during the third quarter. Class A space vacancies
increased slightly (1.9%), with median rates increasing ($26 per square
foot). The Eastside market remains very strong, with over 2.5 million
square feet of office space under construction and an enormous 10 million
square feet of planned office construction.
North King County vacancy rates dropped to 1.1% with absorption totaling
over 20,000 square feet. South King County vacancy rates decreased a
percentage point to 6.8%, from the previous quarter. Fairly tight markets
in these areas will continue to pressure the Downtown Seattle and
Bellevue/Eastside markets.
Industrial Market
Overall the King County industrial market witnessed considerable activity
in the fourth quarter, while vacancy rates remained fairly stable.
Developers are currently working to complete nearly 3.5 million square
feet of industrial space region-wide. Boeing, however, has announced
intentions of selling and eventually vacating over 1 million sq. ft. of
industrial and office space in the Kent Valley. Vacancy rates declined
again in Seattle Close-In (to 1.6%), although Seattle high tech vacancy
rates remained unchanged ( 3.6%). Absorption increased to just over
300,000 square feet. Kent Valley vacancy rates were unchanged at 5.7%,
as only 50,000 square feet of additional industrial and distribution space
was leased. Last quarter this market witnessed the absorption of over
850,000 square feet. This represents more industrial space absorption
during the third quarter 1998 than occurred during all of 1997. The
Eastside market saw a second quarter absorption of 288,000 square feet.
Eastside industrial vacancy rates dropped slightly (3.7%) and high-tech
rates tightened considerably from 5.2% to 2.5%.
Although it is expected that the industrial market will remain strong in
King County, there is growing concern over a general economic slowdown that
will particularly impact exports to Asia and other markets abroad. Boeing
has already begun a first round of layoffs. Most of the current and
planned construction is taking place outside of Seattle. Kent Valley
remains busy, with 1.8 million square feet under construction, and over
1.8 million square feet planned. The Eastside market is also strong, with
nearly 650,00 square feet under construction and over 1.5 million square
feet planned.
Retail Market
A continued influx of new population and a strong holiday season resulted
in a healthy retail quarter. King County retail sales were up 10% over the
fourth quarter 1997. In response to increased purchases, developers have
completed building over 6 million square feet of retail space region-wide
during 1998, with another 1.5 million on the way. Projects completed over
the last six months included downtown Seattle's Pacific Place and
Nordstrom's Flagship department store. Vacancy rates remain tightened
somewhat from the middle of 1998 and range from 2.5% in the downtown
Seattle market, 4% in the Bellevue/Eastside market, to 4.9% in the
Southend market (South King, Pierce, and Thurston Counties).
Convention Information
The number of Conventions and Events for fourth quarter 1998 was down over
11% from a year earlier, while room nights decreased by almost 2%. Local
room tax collections, however, for the third quarter of 1998 were 30%
higher than for the third quarter of 1997. (Third Quarter 1998 is the most
recent data available for local room tax collections).
Boeing and Airline Industry Data
Boeing employment in Washington state remained steady at around 101,000,
the second quarter total of 104,000, was the highest level since 1991.
Significant Boeing layoffs are still expected in the future as Boeing
streamlines its production process. Boeing plans to layoff as many as
48,000 workers company-wide through 2001. Boeing contractual backlogs
declined, ending the quarter at $112.9 billion. Commercial aircraft orders
backlog dropped this quarter ($86.1 billion). Backlogs for Information,
Defense and Space division, made up of elements from the former Boeing
Defense & Space Group and McDonnell Douglas Corporation, decreased slightly
to a $26.8 billion total.
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Updated: January 29, 2004
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