Treading Water Spokane’s Economy Is Stagnant, But The Stage Has Been Set For Future Growth

Despite a continuing decline in the local unemployment rate, Spokane’s economy was still treading water through the second quarter of 1997.

The Spokane metropolitan statistical area (MSA) enjoyed an average unemployment rate of 4.4 percent during April, May and June. That contrasts nicely with a 5.1 percent unemployment rate for the same period during 1996, and a 5 percent rate during 1995’s second quarter.

But economists say the figure is misleading. They’d rather measure real job growth with statistics that track nonagricultural salaried workers instead of relying on the unemployment rate.

And while low unemployment rates in many parts of the country do reflect tight labor markets that translate into real growth in the number of jobs, Spokane’s real job growth from the first quarter of 1996 through the first quarter of 1997 has been negligible.

By contrast, in the Puget Sound region - where the first quarter unemployment rate was slightly over 3 percent - year-over-year real job growth is about 5 percent.

So while the two areas have unemployment rates only a percentage point apart, the Puget Sound area is undergoing a rapid expansion while the Spokane area has a stagnant economy at this point.

But, the economists say, the Puget Sound activity has reached the point of acceleration where companies are beginning to flee tight labor markets and higher business costs. And that’s the phenomenon that sparked Spokane’s expansion during the late 1980s and early 1990s.

So why doesn’t a low unemployment rate in Spokane mean the same thing as a low unemployment rate in Seattle?

Technically speaking, it does. But the unemployment rate as a raw figure is not nearly as good a reflection of economic realities as the nonagricultural salaried worker figure. That’s because, according to Dennis Fusco, chief economist for the state’s Employment Security Department, the unemployment rate does not include people who work for themselves.

“During a period in which the economy is expanding very rapidly,” Fusco says, “the two figures tend to move fairly much in tandem. But there are other times when self-employment can be doing something entirely different.”

In a slow economy, such as Spokane’s, “discouraged workers” make up a higher segment of the job force. These are people who have given up actively looking for work. And the raw unemployment rate excludes them from the jobs picture.

The unemployment rate is a ratio between the number of people who are employed and the number of people unemployed and actively seeking work.

Spokane’s unemployment rate is significantly lower than it was at this time a year ago. And indeed, during that time period, Fusco says, about 2,000 workers here have come off unemployment rolls and found jobs.

But, at this time last year, 202,500 people were employed or actively seeking work in Spokane. At the end of June this year, that number had declined to 200,700 people.

We’ve added almost 2,000 people to the work force, but at the same time, almost 2,000 people have given up the search for a job.

Spokane’s growth spurt during the late ‘80s and early ‘90s was fueled by significant population growth. In 1995, at the tail end of that expansion, net inmigration was 7,000 people. Many of those folks were from California or the Puget Sound area - slow or declining economies that weren’t providing job opportunities.

By contrast, according to the state Office of Financial Management, net inmigration for Spokane last year was 1,480.

The bad news, Fusco says, is the stagnation. There is good news as well, though.

“I don’t want to be too negative about your area,” Fusco says, “because your economy is doing a fine job to be able to retain that very strong growth surge you experienced a few years ago.”

In other words, we haven’t slipped into a recession. We are maintaining the broader base that was built through the economic expansion that slowed during the early part of this decade.

We just aren’t growing it much bigger at this point.

But several economists feel that another growth cycle is imminent. Puget Sound and Portland have been filled to the brim, he says. Another wave of spillover should be coming our way.

“I think you will see, in the next year or two, companies starting to check out their alternatives and move other places,” says Paul Sommers, executive director of the Northwest Policy Center in Seattle.

“I suspect it’s already happening,” says John Mitchell, chief economist for U.S. Bancorp.

Sommers says the Puget Sound economy is beginning to drive out companies “at the lower end of the food chain.”

The giants like Boeing, Microsoft and Intel are hiring like crazy. Many of their hires in such a tight job market, Sommers says, come from their subcontractors and suppliers as their employees jump at the chance to join a bigger company with higher salaries and benefits.

So the subcontractors look to the work forces of smaller companies and so on down the line.

“For smaller companies right now,” Sommers says, “it is very difficult to find new hires, or even retain their existing work force.”

Sommers wondered why those companies aren’t already showing up over here.

But if the experience of the last phase of this growth-spillover cycle holds true, Puget Sound companies tend to look first to the I-5 corridor as an alternative to relocation. Only after the options dwindle there do they tend to look east.

Sommers says the current Puget Sound boom already reaches as far north as Mount Vernon and as far south as Olympia.

The question now is how long this Puget Sound expansion will last. Sommers says the main thrust is already ending.

The big Boeing hiring thrust has peaked.

“They intend to slow down the pace of hiring the rest of this year,” Sommers says. “They are still going to be hiring, but much more slowly. That will take some of the steam out of our expansion.”

Spokane and Kootenai County’s numbers during the second quarter don’t show much evidence of any steam.

Kootenai County’s home sales are higher significantly than for the second quarter of last year, but that may be more a reflection of a change in the way the statistical data is grouped and reported this year over last than an actual significant increase in buying activity.

For both the Spokane MSA and the Kootenai County area, the only other number that significantly exceed those of comparable periods a year ago are retail sales.

One other number that is higher for the Spokane MSA is the number of drivers licenses issued to people moving here from out of state. During the second quarter of 1996, 1,937 such licenses were issued. This year, the figure was 2,263.

That is one signal that population inmigration may be picking up some momentum.

, DataTimes ILLUSTRATION: 2 Graphics: 1. Inland Northwest first quarter economic review; 2. Economic review