Stuck In Low Gear Asian Crisis Could Delay Local Economic Rebound
Spokane’s economy ended 1997 the way the year began: frustrated with another year spent treading water, and anticipating that the Northwest’s broader economic prosperity must surely soon begin to spill over into Eastern Washington.
But the start of 1998 threw a big question mark into the mix. Will the affects of the Asian economic crisis cool the region’s growth to the extent that the spillover will not come?
John Mitchell, U.S. Bank’s chief economist, feels the forces remain in place to crank Spokane’s weak growth into a higher gear.
But others, including Portland economist and investment advisor Bill Conerly, are not so sure.
“Six months ago, I would have been anticipating Spokane seeing that spillover in 1998 and 1999,” Conerly says. “But there is less reason to expect that will happen right now.”
The year and its fourth quarter were a restatement of a three-year old theme for Spokane and the Inland Northwest. The economy continues to grow. But that growth is lackluster.
And Spokane will not escape the shadows that the Asian crisis is casting throughout the economically robust Northwest.
“We are going to see, without a doubt, a sharp decline in U.S. exports to Asia,” says Conerly, president of Conerly Whelan Inc., a Portland-based investment management firm.
“And Washington state exports more to Asia than anyone else,” he adds.
Both Mitchell and Conerly agree that the Asian crisis will not threaten the national economy’s run this year at a record for the longest economic expansion in U.S. history.
“A lot of us felt the U.S. economy needed to be cooled off anyway,” Conerly says. “If the Asian problems hadn’t come along, then it would probably be (Federal Reserve Chairman Alan) Greenspan doing the same thing.”
“Remember,” says Mitchell, “you’re dumping this slowdown on top of a U.S. system that’s extraordinarily strong, and some would argue it needed to be slowed down anyway.”
But the Northwest - Washington in particular - has a much more direct link to the Asian economy than the rest of the nation. For a decade, the Pacific Rim’s booming growth has fed expansion rates in the Northwest that easily outpaced those of the nation as a whole.
Now, we will likely feel the decline a little harder as well.
“I think you have to sharply downsize expectations for the Washington state economy,” Conerly says, but adds those expectations were pretty high to begin with.
“The state isn’t going into a recession,” he says, “but you’re not going to look a lot better than the national averages in 1998 and 1999.”
Both Mitchell and Conerly say the length of the Asian crisis will have a lot to do with how much the region’s growth ultimately will be affected.
Mitchell is optimistic that the time frame will not be an extended one.
“We’ve got to fix some financial and political systems,” he says, “but these aren’t countries that are running huge deficits and that have massive inflation.”
Conerly, on the other hand, says, “We expect most of the Asian difficulties to take place in 1998 with some spillover into 1999. I tend to be more of a pessimist on the duration issue. I think it will last longer than the consensus opinion of six to 12 months.”
Spokane is more insulated from the direct effects of the Asian downturn than the Puget Sound area, but the direct links do exist. Big engineering and manufacturing firms here have Asian customers and contracts, for example.
A decline of agricultural exports is clearly one area in which the economists say the inland economy will see a pinch. Wheat exports, because wheat is a staple, will be minimally affected, they suggest. But growers of specialty crops like apples, frozen potatoes and beef, will have to significantly reduce prices for Asian consumers to afford them.
The broader effects on the region, along with a slowing of exports, will be an influx of cheap Asian imports. They will put pressure on U.S. goods, ultimately, perhaps, leading to hiring slowdowns. That could provide some easing of job shortages that are now pressuring the region’s hot economies.
Spokane’s last economic spurt - in the late 1980s and early 1990s - was largely the result of individual and corporate relocations, as people and companies fled the high costs and declining quality of life of the booming Puget Sound and California economies.
The Spokane economy became dormant again as those trends reversed themselves. As the pressures eased, California began to hold onto its companies and the Puget Sound area began to ramp up to its current boom.
But now that those economies are flourishing again, many experts expect the cycle to repeat itself. Labor is scarce in Puget Sound. Houses are expensive.
Freeways are crowded. The cost of doing business there is going up.
But the dampening effect of the Asian crisis could ease those conditions. And if that happens, will the rejuvenation of a spillover effect fail to materialize here?
Mitchell believes the spillover is still coming.
He cited Boeing’s order backlog. While Asian aircraft orders are being canceled, that means backlogged domestic orders might simply be moved up in line.
The software business is going to continue to expand, Mitchell says. Microchip companies like Intel and Micron will continue to expand, particularly with the advent of the lowend personal computer.
The tight labor markets in the strongest economies will ease somewhat, he expects, but not enough to offset the upward pressure on wages.
“Assuming that the national economy continues to grow,” Mitchell says, “the forces are still in place.
“You sit there in Spokane with universities nearby, relatively low-cost housing and a very desirable place to live.
“That’s a mix that ought to sell.”
It didn’t, however, appear to be selling in the fourth quarter.
Spokane building permit volume and building permit valuation did rebound in the fourth quarter, slightly exceeding the figures for the fourth quarter of 1996.
But the recovery wasn’t enough to offset declines earlier in the year. Spokane finished the year with almost 200 fewer building permits issued than 1996, valued at $86.5 million less.
Unemployment was down a full percentage point over fourth quarter 1996, and .65 percent year over year.
Home sales were up slightly for the quarter and year, as were the average prices of those homes.
Retail sales were slightly higher for the quarter and the year, and interest rates slightly lower.
, DataTimes ILLUSTRATION: 2 Graphics: 1. Inland Northwest year-end economic review 2. Inland Northwest fourth quarter economic review