Quarterly Economic Measures Report
First Quarter, 1999
Executive Summary
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As part of its year 1999 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,
1999 report. Please contact us for more information about the QEM reports.
I. National
Economic Measures/Interest Rates
Following record growth in the fourth quarter of 1998, the U.S. economy
demonstrated continued vitality in the opening months of the new year.
Real gross domestic product (GDP) was very strong in the first quarter,
growing at a 4.5% annual rate. This was down from the fourth quarter of
1998 (6.0%), but slightly ahead of the overall growth rate for 1998
(3.9%). With consumer spending at its highest level in over a decade,
much of the increase in output was due to a 6.7 percent first quarter
rise in personal consumption. Disposable personal income rose at an annual
rate of nearly 4 percent in the first quarter of 1999, consistent with
similar gains made in 1998. In response to record gains in the stock
market and historically low interest rates, consumers are spending
everything they earn and then some. The personal savings rate declined
from 0 percent at the end of 1998 to a negative 0.5 percent in the
first quarter of 1999. Continued low home mortgage rates (6.91%) kept
demand for housing strong, with sales of new and existing homes in 1998
rising 10 to 13 percent above the previous year's totals.
Growth was also fueled by continued strong gains in nonresidential fixed
investment, including producer purchases of durable equipment.
Spending on office and computing equipment, which rose an average of
30 percent annually from 1991 through 1997, increased in 1998 at a rate
of about 65 percent. Changes in business inventories were consistent
with trends over the past two years, showing an increase in real terms
of 4 to 5 percent. The low cost of capital, and optimism about the
prospects for long-term growth has resulted in uniformly high levels of
business investment.
While the increase in output has been propelled by the expenditures of
both households and businesses, GDP growth has been tempered somewhat by
the ongoing U.S. trade deficit. The first quarter retreat from the high
growth rates of late last year was largely due to a decline in exports
coupled with continued strong domestic demand for foreign goods and
services.
Economic troubles abroad-the Asian economic crisis, the devaluation of
the Russian ruble, and the later devaluation and float of the Brazilian
real-led the Federal Reserve to ease monetary policy in the fall of 1998.
By the end of the year, the federal funds rate had been reduced by 3/4 of a
percentage point, and the discount rate had been reduced by 1/2 of a
percentage point, resulting in an attendant reduction in the prime rate
by major banks. Instability in international financial markets led to a
sharp fall in yields on Treasury securities in the third and fourth
quarters of 1998. Yields recovered slightly in the first quarter of 1999,
as fears of a global financial meltdown abated.
Inflation remained low in the first quarter, with the Consumer Price
Index rising at a 1.6% annual rate. This matches the 1.6% gain in 1998.
One of the positive sides of the U.S. trade deficit is that consumers
benefit directly from the lower prices of finished goods imported from
abroad. Low cost imports further work to keep prices low, either directly
through competitive pressures on domestic manufacturers, or indirectly
through their use as inputs in domestic production. Low prices for
foreign commodities, especially oil, helped to keep prices low throughout
all of 1998.
Industrial/Manufacturing Measures
National manufacturing activity was mixed in the first quarter. In March,
overall capacity utilization fell to 80.1%, continuing its decline from
81.5% a year earlier. The first quarter decline reflected both additions
to the stock of capital and slower production growth. Industrial
production in March inched upward by 0.1 percent, up only 1.6 percent
from a year earlier. Levels of production of both durable and non-durable
goods remained unchanged since December. New orders for manufactured goods
rose markedly (3.2% for the quarter), led by renewed orders for
transportation equipment and electronic equipment.
I. King County
Economic Activity
The CPI-U for the western United States rose at a 2.8% annual rate in the
first quarter and 2.3% during the twelve months ending March 31, 1999.
This was somewhat higher than the 1.9% rise in the previous twelve months.
Bankruptcy filings fell from first quarter 1998 in both King County (17.5%) and
the Central Puget Sound region as a whole (12.3%). Bankruptcy filings have
been falling steadily over the past two years after rising dramatically in
1995 and 1996.
King County taxable retail sales during fourth quarter 1998 rose 6.5% over
fourth quarter 1997. (Fourth quarter 1998 is the most recent quarter for
which data is available.) Construction sales rose sharply (20%), as did
finance, insurance, and real estate (11%), reflecting continued strong
real estate activity in late 1998. Retail trade, which accounts for about
half of all taxable retail sales, fell just behind the overall pace with
an increase of 5.6%. Services fared similarly, rising at a rate of 6.1%
over the same period last year. Sales of computer services were up a
startling 20.8%. Manufacturing was down by 5.9%, and transportation,
communications and utilities declined by 13.8% from fourth quarter 1997.
Taxable retail sales in the city of Seattle increased slightly, up 5.5% in
fourth quarter 1998 over fourth quarter 1997. As in King County overall,
construction sales led, up 14%, with finance, insurance, and real estate
up 11%. Retail trade was up 4.6%, buoyed by strong auto sales (up 13%).
Services growth (up 7.8%) was driven by a strong sales increase in
computer services (up 19%).
Employment
King County's first quarter unemployment rate rose slightly to 3.3%.
Unemployment in the Central Puget Sound region as a whole also rose
(to 3.8%). In spite of the increases over last year's record low
unemployment, King County and Puget Sound continue to outperform both
the state and the national economy. In March, Washington's jobless rate
stood at 5.0% while the comparable U.S. unemployment rate was 4.4%.
Employment growth continued to moderate. In the central Puget Sound
region, employment rose 2.7% over first quarter 1998. Real estate activity
spurred this growth, with construction (up 9.6%) and finance, insurance
and real estate (4.5%) employment up from first quarter 1998. Employment
in King County increased by 2.6% over its first quarter 1998 totals.
Construction jobs increased by 10.4%. FIRE and wholesale and retail trade
demonstrated above average growth at 3.7% and 3.5%, respectively. While
services employment exhibited marginal growth of only 1.8%, employment in
computer services and data processing increased by almost 10% from a year
earlier. Manufacturing employment actually declined by 0.3% in the first
quarter, due primarily to layoffs at Boeing.
Construction
The single-family housing market remained brisk due to the healthy
regional economy and continued low interest rates. Housing prices
continued to increase and selling times remained short. Home sales in
King County were up just 1.8% from the first quarter of 1998. Sales of
new homes rose over 40 percent in the same period. Median sales prices
increased a substantial 11.6% over first quarter 1998. The average time
a house in King County remained on the market continued to be quite low
(42 days). Although this is slightly longer than the fourth quarter,
average selling time has been quick the past eight quarters, averaging
between 34 and 42 days.
First quarter construction trends were mixed in the City of Seattle.
Building permit values for non-residential construction rose over first
quarter 1998 (22%), while building permit values for residential
construction declined by 5%. Permits were issued for 810 new residential
units, down from the 1,041 units permitted in first quarter 1998.
Office Market
Following an exceptional fourth quarter 1998, the first quarter of 1999
brings some signs of a slowdown in the regional office market. Vacancy
rates are up overall, and absorption, the change in the amount of leased
space, was negative. However, demand remains strong in downtown Seattle
and on the Eastside. While vacancy rates rose to 4.6% in Seattle and to
2.4% in Bellevue, absorption rates in both areas remained strongly
positive, with between two to three hundred thousand square feet of
leased space added in each market. Prices remain high, with net lease
rates averaging $28.50 per square foot per month in Seattle and $25.37
per square foot per month on the Eastside. The supply of office space rose
8.3 percent over the past year, and more construction is planned. CB
Commercial reports that Trammel Crow recently broke ground on the
308,000-square-foot One Convention Place project in Seattle, and Wright
Runstad began work on a new office tower in Bellevue. In the remainder
of King County, demand has slackened, with negative absorption rates for
the first quarter of 1999 both north and south of downtown. While vacancy
rates remain low in North King County (1.2%), the South King County
vacancy rate almost doubled, rising to 12.3%.
Industrial Market
While concern remains over the long-term effects of the recent Boeing
layoffs, as well as the downturn in Asia, the market for industrial
properties remains strong. Demand for traditional industrial space has
softened somewhat in the first quarter of 1999. Increasing demand for
high tech space has led to low vacancy rates and increasing rents.
Vacancy rates for industrial properties in Seattle remained steady (1.6%)
while vacancy rates for high tech properties fell sharply (1.3%). With no
new construction and low vacancy rates, absorption slowed (73,587 square
feet). Activity was much more robust in the Kent Valley, with more than
1.5 million square feet of construction planned. Absorption there, and
on the Eastside, was significant, with over one quarter of a million
square feet of industrial space taken up in each area. Vacancy rates in
the Kent Valley market remain a steady 5.7%. On the Eastside, rates for
industrial space rose slightly in the first quarter to 5.4%, while the
vacancy rate for high tech properties continued to fall to 2.2%.
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 the construction of over 6 million square feet of retail space
region-wide during 1998, with another 1.5 million on the way. Projects
completed through the end of the year 1998 include downtown Seattle's
Pacific Place and Nordstrom's flagship department store. Vacancy rates
remain low and range from 2.5% in the downtown Seattle market to 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 first quarter 1999 was up over
30 percent from a year earlier. Total room nights increased by almost 17
percent. Local room tax collections for the fourth quarter of 1998 were
11% higher than for the fourth quarter of 1997. (First quarter 1999 local
room tax data is not yet available).
Job Dislocation Activity
Layoffs rose sharply in the fourth quarter of 1998 and the first four
months of 1999, due to staff reductions at Boeing. The number of
dislocated workers jumped to 4,210 in fourth quarter 1998, up from only
799 in fourth quarter 1997. In the first four months of 1999, that figure
more than doubled to 9,544, up from 825 the previous year. 782 seafood
processing jobs were lost at American Seafoods. 290 jobs were lost when
the Bogle & Gates law firm closed its doors. Other major losses included
300 jobs at Praegitzer Industries, a computer chip manufacturer in
Redmond, 250 aerospace manufacturing jobs at Hexcel Corp. in Kent, and
250 production jobs at the former Rainier Brewing Co. in Seattle.
Boeing and Airline Industry Data
The largest job losses in the Central Puget Sound Region continue to come
from ongoing layoffs at Boeing. Boeing employment in the first quarter of
1999 was down almost 13% from the first quarter of 1998. More layoffs are
still expected as Boeing streamlines its production process. The company
plans to layoff as many as 48,000 workers company-wide through 2001. Boeing
contractual backlogs rose slightly to $113.8 billion. Commercial aircraft
orders backlog fell slightly in the first quarter ($84.1 billion).
Backlogs for the Information, Space and Defense Systems division, made up
of elements from the former Boeing Defense & Space Group and McDonnell
Douglas Corporation, increased to $29.7 billion.
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Updated: January 29, 2004
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