Quarterly Economic Measures Report
Third 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 third quarter,
1999 report. Please contact us for more information about the QEM reports.
I. The Nation
U.S. Economic Measures
U.S. economic growth strengthened in the third quarter, as the gross
domestic product (GDP) increased at a 4.8% annual pace. This is up from
a revised 1.9% annual rate in the second quarter. Growth increased due
to a sharp increase in business investment; consumer growth declined
slightly but remained strong. For the most recent twelve months, GDP
grew 4.1%, up slightly from the 3.9% pace of growth in the year ending
third quarter 1998. Annual real GDP growth has ranged between 2.7 and
4.5% the past five years.
The Federal Reserve Board raised interest rates in August after raising
them at the end of June. The Board raised the federal funds rate, the
rate at which banks borrow from each other, to 5.25% in August after
raising them at the end of June (5.0%). Also rising were the prime rate
to 8.25% (averaging 8.1% for the quarter) and discount rate to 4.75%
(averaging 4.6% for the quarter). With the perceived threat of the
economy overheating, the Fed reportedly is leaning towards raising
interest rates again in November.
Despite the continued economic expansion, there appears to be little
sign of price inflation. The implicit price deflator rose slightly in
the third quarter (0.9% annual rate) and in the twelve months ending
third quarter 1998 (1.3%). The third quarter Consumer Price Index rose
at an annual rate of 2.5%, due primarily to rising oil prices. The CPI
has risen rising 2.3% during the previous twelve months. This was higher
than the previous 12-month period (1.6%). The CPI core rate, which
excludes volatile food and energy prices, rose at a low 1.3% annual rate
in the third quarter.
A strong economy and rising interest rates have led to higher mortgage
rates. Rates reached their peak for the quarter in late July and early
August, when the national average effective interest rate for new homes
rose to just above 7.25%. According to Freddie Mac, average rates on a
30-year fixed rate mortgage rose to nearly 8.0% in the third quarter.
This represents the high water mark for the year to date, although still
well below historic highs. Mortgages on homes in the Puget Sound region
continue to parallel national trends, albeit at slightly higher rates on
average.
Industrial/Manufacturing Measures
U.S. manufacturing continued strong growth in the third quarter.
Investment in businesses in producers' durable equipment (equipment and
software) grew strongly in the third quarter (21.7% annual rate).
Non-farm inventories grew $32.3 billion, more than double the second
quarter increase, though still below the highs of the past two years.
Industrial production remained strong in the third quarter (3.6% annual
growth rate) even with the slowdowns caused by Hurricane Floyd. Capacity
utilization showed little sign of inflation, growing slightly (to 80.5%),
though this was also muted due to Hurricane Floyd.
Income Measures
Income growth has declined for three straight quarters, indicating a
slowing economy. Per capita disposable personal income increased at a
1.4% annual rate in the third quarter, down from 2.3% in the second
quarter. For the twelve-month period ending in third quarter 1999,
personal income rose 2.7%, down from the 3.3% gain the previous twelve
months.
II. The Region
Economic Activity
Price levels in the region rose only slightly in the third quarter of
1999. The consumer price index (CPI) for the western U.S rose at a low
1.9% annual rate in the third quarter and 2.9% in the twelve month
period. This was than slightly less than the 2.8% rise in the previous
twelve months. The estimated CPI for the Seattle metro area rose at a
2.8% annual rate; up 2.9% over the twelve-month period. The area CPI
has risen between 2.9% (1998) and 3.5% (1997) in the past five years.
Area bankruptcy filings fell to their lowest levels in over three years.
King County bankruptcies were down both from second quarter (-9.7%) and
third quarter 1998 (-12.9%). Bankruptcies in the four-county region
were down 9.0% both from the previous quarter and from 3rd Quarter
1998.
New business starts within Seattle rose sharply in the third quarter of
1999, up nearly 60% over the previous quarter and by 36.4% over the third
quarter of 1998. The total number of new business starts per quarter is
the highest since first quarter 1998.
Electrical power consumption remained essentially flat in the third
quarter at 2.08 billion kilowatt hours billed, down 0.9% from 12 months
earlier.
Air traffic at SeaTac continues to follow a long run trend of steady
growth. The total number of passengers passing through the airport in
the third quarter of 1999 was up 7.0% from the same period one year
earlier, while air cargo volumes rose 7.9%. Container traffic at the
Port of Seattle has fallen off the pace set earlier in the year, chiefly
due to the loss of Hyundai Merchant Marine Co. to the Port of Tacoma in
May. Compared to the same period last year, waterborne trade was down
12% in July, 17% in August, and 15.7% in September. Year-to-date, total
volume is down 1.5%.
Convention Information
The number of conventions and events held in King County during the third
quarter of 1999 was down 23% from the third quarter of 1998. Total room
nights, a measure of the volume of tourist and business traffic, declined
by over 30% from the same period last year. Rebounding from a first
quarter decline, local room taxes collected during the second quarter of
1999 were up 6.7% from the same period last year. Local room tax per
event, a proxy measure for delegate expenses, was down 4.9% from the
same period twelve months earlier.
Taxable Retail Sales
Taxable retail sales in King County rose 8.0% overall in the second
quarter of 1999. Among the major sectors, construction led the way for
the fifth consecutive quarter with an increase of 16.3%. Transportation,
communications, and utilities followed closely with gains of 12.7%.
Computer services, consistently a strong component of business services,
was up 14.5% over the same quarter one year earlier. Retail trade
increased by 7.8%, driven by strong growth in sales of furniture,
appliances and electronics (19.7%). Finance, insurance and real estate
fell behind the overall average at 6.9%, and manufacturing declined for
a third straight quarter, down by 5.3%.
Taxable retail sales in the City of Seattle rose slightly higher than
the county overall, up 11.8% in the second quarter of 1999. Sales in
construction led, up 19.1%. In contrast to King County, manufacturing
actually increased by 13.4%. Growth was otherwise spread evenly, with
all major sectors paralleling the overall average. Within the retail
trade sector, two areas of note were apparel, which was up 25.1% over
the same period last year, and furniture, which grew by 19.4%.
Employment
The unemployment rate in King County rose slightly, from 3.1% to 3.2%,
in the third quarter. Since March 1997, the unemployment rate has been
remarkably stable, ranging from 2.8% to 3.4%. The unemployment rate for
all of Washington State was unchanged at 4.5% in the third quarter,
slightly above the quarterly average for the U.S. as a whole (4.2%).
Average monthly initial unemployment claims in the second quarter of 1999
were up 14.7% over the same period last year; the number of unemployment
beneficiaries rose 16.4%. About half of those previously employed in
manufacturing held aerospace industry jobs. Within the nonmanufacturing
sector, wholesale and retail trade and services accounted for the
majority of new beneficiaries. The number of nonagricultural wage and
salary workers grew by 1.9% in the third quarter of 1999.
Goods-producing industries were down by 2.6%; services-producing
industries up by 2.1%. Manufacturing employment declined by 7.3%, led
by job losses in transportation equipment (down 13.9%). Nonmanufacturing
employment was marked by continued growth in construction (6.2%) and in
the computer and data processing component of business services (up by
10% over the same quarter last year).
Job Dislocation Activity
Job losses due to firm closures or workforce consolidation during the
past year continue to be dominated Boeing layoffs. The King County
Reemployment Center recorded an additional 3,409 workers laid off from
the end of May to the end of September; bringing to 14,315 the number
of dislocated workers attributed to the aerospace giant since mid-1998.
Job losses year-to-date have already exceeded twice the number of
dislocated workers recorded in all of last year.
Reductions in the manufacturing workforce during the third quarter of
1999 include 250 jobs at Thomas & Betts in Kent, 127 jobs at
Crescent/U.S. Mat in Woodinville, 100 aerospace manufacturing jobs at
Eldec in Lynnwood, 94 jobs at the Kendall Company in Bothell, and an
additional 85 jobs in Redmond, 70 at Metawave Communications and 15 at
ElectroImpact. A number of jobs were lost in warehouse and distribution:
117 at WOSCA Transportation in Kent, 100 at K&N Meats in Renton and
Kent, and 38 at the Seattle Times in Seattle. A total of 62 customer
service positions were eliminated at Reliance Insurance Co. of Kent,
First Union Mortgage in Bellevue, and Budget Rent A Car in SeaTac.
Boeing and Airline Industry Data
The largest job losses in the central Puget Sound region continue to
come from ongoing layoffs at Boeing. Workforce reductions have averaged
about 1300 per month since mid-1998. Boeing employment in the third
quarter of 1999 declined by 17.9% compared to the third quarter of 1998.
However, Boeing contractual backlogs also declined during the third
quarter, down by 16.3% from the same period one year earlier. Backlogs
in the commercial airplane division significantly declined, down by
18.5%. The market outlook for new airplanes remains positive. Although
net earnings for domestic carriers may have peaked last year, U.S.
airlines continue to enjoy record profits.
Wages
King County had strong wage growth in the fourth quarter of 1998.
(Fourth quarter 1998 data is the most recent available). The monthly
average wage in King County grew 6.7% from the previous quarter.
Monthly wages were highest in finance, insurance and real estate, which
rose 10.8%. Fourth quarter wage levels in services and in mining were
almost as high. The monthly average wage in agriculture, forestry and
fishing showed the most improvement over the previous quarter, up by
29.1%. According to a report by the Puget Sound Regional Council, total
wages in the region increased nearly three times faster than the total
number of jobs from 1995 to 1998. Wages grew most rapidly in the
services sector, which includes the software industry. As of third
quarter 1999, software surpassed aerospace as the largest source of
personal income in the region. Over the three-year period 1995-1998,
average wages in services jobs increased 14.9% compared to 2.1% for
manufacturing jobs.
Real Estate
Construction
In spite of higher interest rates, new home sales in King County
continued to surge in the third quarter of 1999, up 63.7% over the
same period last year. When sales of existing homes are included,
total home sales rose a more modest 2.5%. Strong demand means higher
prices-the average sales price of new and existing homes rose 14.1% from
the same period one year earlier. Considered separately, the average
sales price for new homes increased by 26.2%.
The number of commercial and industrial permits issued in the third
quarter declined by 12.1%, although the dollar value of non-residential
construction rose almost 50% from the same period last year. In contrast,
although the value of residential construction was down by 23.4% from
the third quarter of 1998, the number of building permits issued for
existing units was up by 7.4%, and for new residential construction by
31.1%. At the same time, the total number of new units built, which
includes both apartments and single-family homes, remained largely
unchanged from one year earlier.
Office Market
The office market in the Puget Sound region continues to be one of the
most active in the nation, characterized by strong demand and aggressive
development. Demand for office space-especially high tech-is greatest in
downtown Seattle, where the vacancy rate has fallen to an historic low
of 2.6%. With so few vacancies, average lease rates for Class A space
have now risen above $29 per square foot. The market is expected to ease
somewhat as some of the more than 2.9 million square feet of office
space currently under construction becomes available. On the Eastside,
the vacancy rate rose in the third quarter to 4.3%. However, this was
not due to any slackening of demand, but to the addition of another
500,000 square feet of new office space, with 4.7 million more square
feet proposed or under construction.
Industrial Market
The vacancy rate for industrial space in the Puget Sound region in the
third quarter of 1999 was 4.1%, its lowest level since 1990. While 1.8
million square feet of new space was added, the pace of new construction
has leveled off. According to CB Richard Ellis, there was a slackening
of demand for high tech space in the third quarter. Much of the new
demand was instead for warehouse and distribution space, driven in part
by the growth of online retailers. Kent Valley and the Eastside both had
vacancy rates of 4.9%; in Seattle the vacancy rate for industrial space
was a mere 1.7%. As the market tightens, lease rates in some markets are
finally beginning to edge upward. In the Kent Valley market, the average
monthly lease rate is now just over 35 cents per square foot; on the
Eastside, the average rate is now just above 60 cents. Average lease
rates in Seattle remain unchanged at 45 cents per square foot.
Retail Market
The retail market in the first half of 1999 has remained relatively quiet
after a flurry of construction late last year. Much of the recent retail
development has focused on the redevelopment of existing buildings. Net
absorption was way down in comparison with recent quarters, virtually
flat in downtown Seattle and north of the ship canal, slightly higher in
the Southend and on the Eastside. Vacancy rates edged slightly higher
overall, with Bellevue the one exception. New, up-market venues in
Bellevue and Seattle have driven average lease rates slightly higher in
those areas, as much as $2.50 more per square foot on the Eastside.
Apartment Market
The three-year trend in rising apartment rents and diminishing vacancy
rates may be at last be coming to an end. Demand is slowing, as
migration to the Puget Sound region is slowing, and many former renters
have taken advantage of low interest rates and become homeowners. At the
same time, the supply of housing has grown as long-planned property
developments reach completion. According to Dupre & Scott's Apartment
Development Report, more new apartment units will open in the Puget
Sound region in 1999 than at any time since 1991. The result has been
rising vacancy rates. Rents, meanwhile, have remained relatively flat so
far in 1999, after rising sharply in the previous two years.
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Updated: January 29, 2004
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