State is an island of economic bliss
OLYMPIA _ As lenders nationwide fret over the blowback from years of risky mortgages, Washington’s economy is an island of pretty good news, the state’s top revenue forecaster said Friday.
State coffers will unexpectedly grow by more than $281 million by mid-2009, economist Chang Mook Sohn told state officials Friday.
More importantly, several factors are so far insulating Washington from the national woes, according to Sohn.
Job growth here — 90,000 new jobs in the past year — is more than double the national average. Exports, including both airplanes and crops, are surging. And the state has far lower rates of sub-prime — i.e. risky — mortgage loans than most of the nation.
“We believe Washington’s economy will remain relatively healthy for the rest of the biennium,” Sohn said, meaning through mid-2009.
Still, he cautioned that it remains unclear whether Washington will be “completely insulated” from the national housing slowdown and mortgage woes or whether it will just take longer for those ripples to reach Washington.
“It is still unfolding,” Sohn said.
The upbeat-but-cautious revenue forecast was the latest in a nearly two-year run of economic good news from Sohn, a man once famous in Olympia for his gloomy predictions.
“I think at one point in your career, Dr. Sohn, you earned the moniker of `Dr. Doom,’” state budget director Victor Moore told the economist at a meeting Friday. “It might be time to put that to bed.”
Even if the national economy dips into recession for a quarter or two, Sohn told the state’s revenue forecast council, Washington’s economy is likely to fare better.
Why? Aerospace and the software industry are both going strong, for one thing. (Boeing alone added 700 more jobs last month, and statewide unemployment, Sohn said, is at “an all-time low.”) A slowdown in residential construction is “largely offset” by strong commercial construction, Sohn said.
Also, international trade is very strong in Washington — and it’s not just Boeing’s good year. Agricultural exports are growing at about the same rate as airplanes.
Lastly, housing has remained strong here, unlike in states like California and Arizona. It helps that Washington has a much lower percentage of subprime loans than the nation as a whole. We have half the national rate in delinquent mortgages, Sohn said, and one-third the mortgage default rate.
“By any measure, Washington’s housing problem…compared to the U.S. experience, is much milder,” Sohn said.
Sohn also predicts two, or maybe three quarter-percent rate cuts by the fed by the end of the year, to offset a slowing economy.
The biggest growth – about 3.6 percent over last year – is in the Seattle metro area, Sohn said. Spokane and Pierce counties each grew about 2.9 percent.
He said, however, saying that a slowdown in growth is “inevitable” here — and that state coffers will see that, likely the state’s next biennial 2009-2011 budget cycle.
“We are expecting a much slower increase in revenue for the next biennium,” Sohn said.
Members of the state’s economic forecast council, which Sohn reports to, were pleased. But they also cautioned that the long term outlook may be markedly less sunny. Gov. Chris Gregeoire has long been concerned about the roller-coaster nature of the state’s economy and budget, Moore said. And the obvious way to avoid sharp budget cuts in lean times, he said, is to build up the state’s savings. Lawmakers and Gregoire this spring approved a constitutional amendment – which voters will have the final word on in November – to automatically steer hundreds of millions of state dollars into an emergency savings fund.
Accordingly, people shouldn’t expect to see a flurry of new state programs with that extra $281 million, he said. He suggested that most of it should go to savings.
“We’re looking at a very small agenda for this,” he said.
Rep. Ed Orcutt, R-Kalama, also said the state should be very cautious about expanding new programs with the money, which is less than 1 percent of the state’s general-fund budget.
“It looks big because it’s so much huger than anybody’s household budget,” said Orcutt. “…$281 million looks like a lot, until you put it in context.”