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Quarterly Economic Measures Report
Fourth 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 fourth quarter,
1999 report. Please contact us for more information about the QEM reports.
I. The Nation
U.S. Economic Measures
The U.S. economy continued its strong growth in the fourth quarter of
1999, fueled by consumer spending and an increase in business inventories
in advance of anticipated Y2K disruptions. GDP growth in the third
quarter has been revised upward to 5.7% from an initial estimate of 4.8%.
Early fourth quarter results show GDP growing at an annual rate of 5.8%,
the best performance since the 5.9% result in the final quarter of 1998.
Strong year-end growth helped to make 1999 the third consecutive year in
which the U.S. economy grew at or above a rate of 4.0%. The last time
the economy exceeded 4% growth for three years running was 1976-1978.
After raising interest rates twice in the third quarter, the Federal
Reserve remained concerned over the U.S. economy's ability to resist
inflation in the face of continued high growth. Consequently, the Fed
took the opportunity on November 16 to raise the federal funds rate a
further quarter point to 5.5%. With these three successive rate
increases-in June, August, and November-the Federal Reserve restored
interest rates to levels held in advance of the Asian crisis some 14
months earlier. Inflation concerns were bolstered in the fourth quarter
by a 2.0% annualized rise in the GDP price deflator, the highest increase
since the first quarter of 1997. As measured by the Consumer Price Index
the prospects for renewed inflation appear less likely. An increase in
the CPI of only 0.2% in December followed back to back 0.1% increases in
October and November. End of the year figures showed inflation rising at
a rate of 2.7% compared to 1.6% in 1998. However, the difference was due
mostly to rising oil prices. The core rate of inflation, which excludes
volatile food and energy prices, rose only 1.9%, the lowest annual rate
recorded since 1965. Rising interest rates have led to higher mortgage
rates. Immediately prior to the Nov. 16 Fed increase, the 30-year fixed
rate mortgage fell to a fourth quarter low of 7.67%, the lowest level
since late July. However, since the November increase, mortgage rates
have resumed their upward trend, rising to 8.06% by the end of December.
Inflation fears have also driven bond yields higher. The 30-year
benchmark reached its highest level in over two years by the end of
December 1999.
Industrial/Manufacturing Measures
The manufacturing sector provides further evidence of the robust economy.
Investment in producers' durable equipment (equipment and software),
although more restrained in the final quarter than earlier in the year,
defied predictions of a Y2K meltdown and grew at a respectable 4.9%
annualized rate. Some influence of the millennial turnover was felt,
however, in the unusually high $71.4 billion dollar increase in non-farm
inventories, assumed by most to reflect a hedge against any potential
Y2K-related disruptions in supply. New factory orders rose sharply
(3.3%) in December after uneven performances in October (-0.04%) and
November (1.4%). Orders for aircraft made up approximately 40% of the
increase in December as Boeing sought to boost its year-end sales
figures. Industrial production advanced steadily throughout the quarter,
up 1.0% in October and showing successive 0.4% gains in November and
December. Capacity utilization rates remain low by historical standards
despite the prolonged period of economic growth, due to renewed capital
investment and expanding industrial capacity.
Income Measures
In October, personal income grew by 1.3%, the largest monthly gain in
five and a half years. The unusually strong result was skewed by large
payments such as agricultural subsidies and union contract signing
bonuses. More in keeping with recent trends was the 0.4% rise in November
followed by a 0.3% December increase. For all of 1999, incomes rose
5.9%, the same as in 1998. Wage and salary growth remains healthy,
actually accelerating in recent months. II. The Region
Economic Activity
Prospects appear good for another year of strong economic growth in the
Puget Sound region, although most local experts seem to agree that it
will be at a markedly slower pace than in recent years.
Price levels in the region rose only slightly in the fourth quarter of
1999. The consumer price index (CPI) for the western U.S was up 0.6%
from the previous quarter, for an annual rate of 2.3%. The estimated CPI
for the Seattle metro area rose 0.7% in the fourth quarter of 1999, for
an annual rate of 2.7%. The area CPI has risen between 2.9% (1998) and
3.5% (1997) in the past five years.
Bankruptcy filings in King County fell to their lowest levels since
fourth quarter 1995. Bankruptcies declined 0.4% from the previous quarter
and 9.8% from the same quarter twelve months earlier.
New business starts within Seattle plummeted in the fourth quarter of
1999 with only 863 new business licenses recorded. This represents a 58%
decline from fourth quarter 1998.
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
fourth quarter of 1999 was up 1.4% from the same period one year earlier,
while air cargo volumes rose 6.1%. Container traffic at the Port of
Seattle improved over its third quarter performance, but still fell
short of fourth quarter 1998 levels by 10.6%. Compared with 1998, total
waterborne trade for 1999 was down by 3%.
Convention Information
The number of conventions and events held in King County during the
fourth quarter of 1999 was down 20% from the fourth quarter of 1998.
Total room nights, a measure of the volume of tourist and business
traffic, declined by just 1% from the same period last year. Local room
taxes collected during the fourth quarter of 1999 were up 17% from the
same period last year. Local room tax per event, a proxy measure for
delegate expenses, rose an astounding 52% from the same period twelve
months earlier. According to the Seattle-King County Convention and
Visitors Bureau, for all of 1999 visitors to the city spent a total of
about $350 million, with roughly half of that going to area hotels, and
the remainder to restaurants, retailers and other area businesses.
Taxable Retail Sales
Taxable retail sales in King County rose 8.9% overall in the twelve
months leading up to the third quarter of 1999. Among the major sectors,
transportation, communications, and utilities demonstrated the highest
growth with an increase over third quarter 1998 of 20.3%. Construction
activity, which has been very strong over the past 18 months, followed
closely with gains of 18.2%. Retail trade, which accounts for 45 percent
of all retail sales, rose 8.1%. FIRE and services trailed the overall
rate slightly with gains of 7.1% and 5.0%, respectively. The only major
sector that failed to show improvement was manufacturing, which declined
for the fourth straight quarter, down 2.7%.
Taxable retail sales in the City of Seattle rose slightly higher than
the county overall, up 9.4% in the third quarter of 1999. Sales in
construction outpaced all other major sectors, up 21.8%. Sales in
transportation, communications and utilities were up by 12.6%, followed
by services (7.5%), retail trade (7.4%), and wholesale trade (3.8%).
Manufacturing showed slight gains, up by 2.6%, trailed finally by FIRE,
up a mere 0.2% over third quarter 1998.
Employment
The unemployment rate in King County dipped slightly at year's end. The
2.9% result recorded in the final quarter of 1999 marks the first time
in 18 months that the unemployment rate has fallen below 3.0%. The
unemployment rate for all of Washington State also showed improvement
(down to 4.3% in the fourth quarter), although it still exceeds the
quarterly average for the U.S. as a whole (3.8%). Average monthly initial
unemployment claims in the third quarter of 1999 declined by 4.9% over
the same period last year; the number of unemployment beneficiaries rose
7.5%. (Statistics on the number of beneficiaries by industry remain
temporarily unavailable as of August 1999.) The number of nonagricultural
wage and salary workers grew by 2.1% in the fourth quarter of 1999.
Goods-producing industries were down by 4.5%; while services-producing
industries increased by 3.9%. Manufacturing employment declined by 8.2%,
led by job losses in transportation equipment (down 16.4%).
Non-manufacturing employment was marked by continued growth in
construction (6.9%) as well as transportation, communications and
utilities (4.5%). Other sectors, notably services (4.6%) and finance,
insurance and real estate (4.0%), also outpaced the overall rate of
growth for non-manufacturing employment. Within the broad services
sector, two standouts were engineering and management consulting (7.2%)
and business services (7.1%), especially the computer and data processing
component, which grew by 15.1% 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 by workforce reductions at Boeing.
The King County Reemployment Center recorded an additional 2,980 workers
laid off in the fourth quarter of 1999, bringing to 14,322 the number of
dislocated workers attributed to the aerospace giant in all of 1999.
Apart from Boeing, reductions in the manufacturing workforce during the
final quarter of 1999 include 150 jobs at K2 of Vashon Island and 96
jobs at Interpoint Corp. of Redmond. In the services sector, there were
a number of jobs lost in warehouse and distribution: 85 at CSK Auto in
Auburn, and an additional 80 jobs at the Seattle Times in Seattle. A
total of 130 customer service positions were eliminated at QualMed in
Bellevue. KeyCorp of Auburn cut its credit and collections staff by 175.
Adobe Systems, Inc. of Seattle and Keane, Inc. of Kirkland reduced their
computer support staff by 63 and 51, respectively. There were a number
of layoffs of backoffice staff among some of the area's retail giants:
Eagle Hardware of Renton eliminated 300 jobs in accounting, marketing,
human resources, purchasing and MIS; Nordstrom cut 190 information
technology positions. Among health care providers, Monarch Care Center of
Des Moines reduced its staff by 84, and the Yesler Terrace Clinic by 12.
King County Public Health eliminated 15 positions.
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 fourth
quarter of 1999 declined by 17.8% compared to the fourth quarter of 1998.
However, Boeing contractual backlogs also declined during the fourth
quarter, down by 12.1% from the same period one year earlier. Backlogs
in the commercial airplane division continue to decline, down by 15.2%.
Moreover, 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
With employment and payroll data now available for the first half of
1999, overall monthly wages can be seen to have risen slightly in the
first quarter (3.3%) only to fall again in the following quarter (-4.4%).
However, total wage levels in the second quarter of 1999 were higher
than in the same quarter one year earlier, by 6.2%. The major sectors
with the highest average monthly wage were services and manufacturing.
Real Estate
Construction
The housing market in the region remains very strong, and although
rising interest rates and fewer in-migrants may gradually lead to a
slackening in the current torrid pace of real estate development, there
are no signs of a slowdown as yet. New home sales in King County eased
only slightly in the fourth quarter of 1999, up nearly 23% over the same
period last year. When sales of existing homes are included, total home
sales rose a more modest 1.5%. Strong demand means continued higher
prices-the average sales price of new and existing homes rose 12% from
the same period one year earlier. Considered separately, the average
sales price for new homes increased by 18%.
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. According to the City of Seattle's Department of Design,
Construction and Land Use, the value of building permits issued in
1999-$1.64 billion-represents a new record, even when compared with the
boom years of the late 1980s and early 1990s. The largest increases were
in existing and new commercial building permits. In addition, while
single family construction appeared to peak, multifamily construction was
up for the third consecutive year.
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, especially
from the burgeoning high-tech sector, the ongoing boom in the development
of new office buildings is being driven by rising rents and low vacancy
rates. According to a report by ONCOR International, a real estate
services firm, in 1999 Seattle's office vacancy rate was the lowest in
North America. For the Puget Sound region as a whole, the vacancy rate
fell to a record low 4.1% as area firms absorbed 2.2 million square feet
of new office space, a record in its own right. An additional 7.4
million square feet is currently under construction, up 44% from one year
earlier, and much of it already spoken for. In response to the
tightening market, rents are up slightly over the year, particularly in
downtown Seattle (12.9 percent) and Bellevue (5.7 percent).
Industrial Market
The vacancy rate for industrial space in the Puget Sound region rose
slightly in the final three months of 1999 to 4.45%. Net absorption
slowed to a trickle (26,934 square feet) compared with the 1.8 million
square feet of new industrial space added in the previous quarter. The
number of new projects planned, however, grew by 38% over the same
period, with 2.8 million square feet under construction in the fourth
quarter. The market for industrial space in Seattle remains extremely
tight, with vacancy rates barely exceeding 2%. Due to the limited supply
of available land, more and more high-tech companies are converting
traditional industrial space to suit their needs, often incorporating
office space with a variety of other uses, including research &
development, manufacturing, or warehouse & distribution. Given the
pressures created by increasing demand, lease rates across the region
have remained remarkably stable.
Retail Market
Spurred on by a healthy regional economy and robust consumer spending,
the market for retail space in the Puget Sound region remained strong
throughout the second half of 1999. The retail vacancy rate region-wide
declined slightly to 5.45% from 5.59% in the first half of the year.
While more than one million square feet of new retail space was added,
absorption slowed somewhat from preceding periods. Gains in the Downtown
and Northend submarkets were offset by a negative absorption rate on the
Eastside of 141,470 square feet, due mostly to recently completed
construction. Continued demand for new space has driven up average
asking lease rates by 8% overall. In downtown Seattle, lease rates for
the most desirable sites have risen by as much as 50 percent in the
latter half of 1999.
Apartment Market
Following three years of rapid growth characterized by rising rents and
diminishing vacancy rates, the apartment market at last appears to be
softening. A combination of overdevelopment and declining demand has led
to a general increase in vacancy rates across the region. In one or two
submarkets in the downtown Seattle area, rents actually declined slightly
in the latter half of 1999. According to the City of Seattle's Department
of Design, Construction and Land Use, 1999 saw something of a building
boom in multifamily units-plans for new Seattle apartments and
condominiums hit their highest levels in 16 years, with more than half
of the new units located downtown. While the overall market appears to
be softening, the high-end market for luxury apartments seems to be
still going strong. In December of 1999, a decade old record for per-unit
price paid for an apartment complex was broken when Clarion Partners, a
national real estate investment group, bought the 272-unit Avignon for
$176,470 per unit from Trammel Crow Residential. The new record was
almost immediately broken the following week with the sale of Le Chateau
Apartments at Richards Creek in Bellevue, which sold for a per-unit
price of $188,000. According to Dupre & Scott Apartment Advisors Inc.
demand in the upper end of the apartment market should remain strong in
the coming year, especially in downtown Seattle and on the Eastside. Return to Top
Updated: January 29, 2004
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