Regional economy may float, not soar, in ‘06

Don’t expect the regional and local economies to soar like they did in 2005, three economists agreed Tuesday during a forecast session presented by the Spokane Regional Chamber of Commerce.

The economists predicted 2006 will be a milder, more challenged version of 2005, which produced strong job gains, solid income growth and huge increases in home values compared with the year before.

The forecast breakfast featured Wells Fargo & Co. economist Kelly Matthews, U.S. Bancorp economist John Mitchell and Eastern Washington University associate economics professor Grant Forsyth.

Mitchell, a regular forecaster for area groups, recited 2005’s honor-roll achievements, led by impressive job growth regionwide. Idaho ranked 5th nationwide in terms of job growth this year, Oregon ranked 7th and Washington 12th, he said.

While Kootenai County and Idaho will end up with about 3 percent job growth in 2005, Mitchell sees a drop to about 2 percent next year. Washington’s job growth will also slow to just below 2 percent in 2006, compared to about 2.5 percent this year, he said.

Home values regionally went through the roof, Mitchell continued. Compared with the year before, Coeur d’Alene’s average residence grew in value by close to 30 percent in 2005. That’s the highest in the entire West, he said.

In that period, Spokane residences grew in value by 16 percent and Seattle’s by 15 percent, Mitchell said.

The coming year shows no signs of a downturn, said Matthews, who watches the regional economy for Wells Fargo from the bank’s Salt Lake City office.

Key business dampeners will be rising energy prices and ongoing interest increases expected by the Federal Reserve, he said.

Those two factors have already zapped consumer spending during the final months of 2005, he said. Personal spending increased 4 percent nationwide in the third quarter of 2005, but fourth-quarter spending is predicted to grow by just 2 percent compared with the same period in 2004, Matthews said.

Matthews, like Forsyth and Mitchell, warned that any pop in the West Coast housing bubble would further hinder consumer spending. While all three mentioned inflated housing prices, none of them saw the bubble bursting during 2006.

Mitchell, for his part, hoped it would be more a “feathering decline” rather than a sharp drop.

Forsyth drilled down on the energy issue, highlighting the faster inflation in natural gas prices facing consumers and businesses compared with oil price hikes.

His research found that, based on the number of hours of work needed to pay for average consumption of oil and gasoline, Spokane and Kootenai County residents are still below the previous high points of the early 1980s. That research takes current prices and adjusts them for inflation over the last 30 years.

The same research shows Spokane and Kootenai County residents work harder than ever before to pay for their natural gas consumption, Forsyth said.

“The real danger is we’ve exceeded the previous peak in paying for natural gas. It’s a much larger threat than oil prices,” he said.

Agreeing with Matthews that consumer spending will slow down, Forsyth predicted the city of Spokane’s retail sales will grow about 2.3 percent in 2006, compared with growth of about 4.4 percent in 2005. In Spokane County, minus the city of Spokane, retail sales will grow by 5.2 percent next year, compared with an increase of 8.4 percent in 2005. As an added caution to Spokane Valley officials and businesses, Forsyth’s research shows sales of autos and automotive parts account for 23 percent of that community’s retail sales. In Spokane, they account for just 10 percent, he said.

If vehicle sales continue to slump, as they have nationwide in the past four months, the impact on Spokane Valley could be unfortunate, Forsyth warned.

“That’s clearly something we should keep our eye on,” he said.