Trade may protect Northwest economy

SEATTLE – Around the region, in boardrooms and at lunch tables, on conference calls and on corporate jets, the “R” word is creeping into conversations among Seattle’s business elite.

The last time the national economy slowed to a recession, Seattle got hit hard. The double whammy of a terrorist-attack-induced aerospace slowdown combined with the tech bomb left the region picking up the pieces for nearly three years, long after the rest of the country had dusted itself off and the recession was declared over. Indeed, Washington and Oregon were the two hardest-hit states in the nation, followed by Michigan.

Though some sectors still have yet to restore their pre-2001 luster, since 2003 the region has mostly built itself back up. By mid-2007, real estate was booming, companies were hiring and Seattle’s business community was fat and happy.

Then the real estate bubble burst. That this season’s economic slowdown will continue this year is not in question – stocks are losing value, Seattle’s Washington Mutual has laid off 3,000 people, and former Federal Reserve Chairman Alan Greenspan has put the chance of a national recession at 50 percent. Such news tidbits are creeping into Seattle businesses’ collective psyche.

So what will happen to us?

Among a handful of varying business leaders and economists, the consensus seems to be cautious optimism for now. Luckily for Seattle, the economy is different – more global and more diverse – this time around. Business leaders hope that the new economy, plus a weak dollar that makes airplanes and software more attractive to customers abroad, will save us from a three-year funk like the one that struck in 2001.

“We won’t see anything like the nation is seeing,” predicted Jim Warjone, chairman and chief executive of Port Blakely Cos. “Seattle is in a wonderful position because it is truly at the edge of the global market.”

The Pacific Northwest economy is increasingly tied to growth in Asia, including China, which has shown no signs of stopping, said Warjone, whose portfolio of businesses includes real estate, timber and international trade.

If anyone wins in the shakeout, economists have said, it will be the companies that have embraced globalism – those whose health is least subject to domestic ups and downs.

So far, companies in this region are still hiring, and the average wage increases are outpacing inflation, said Steve Leahy, Greater Seattle Chamber of Commerce president.

“There’s a more cautious feeling looking into 2008 than there probably has been for the last three years, since we dragged ourselves out of that ugly recession,” Leahy said. “There’s just this tightening up, apprehension and wondering is-there-another-shoe-that’s-going-to-drop anecdotal conversation that I’m beginning to hear.”

Trade deficit, trade gains, free trade – Washington business leaders’ ears perk up on news about international commerce. It matters a lot here, the nation’s most trade-dependent state.

In Wells Fargo’s most recent economic report, chief investment strategist Jim Paulsen said that for the first time in about 15 years, export growth is adding to real GDP growth. “The big story here is that while housing spending has taken a full percentage point off real GDP growth, it’s been totally offset by a percentage point gained in trade.”

Growth in trade is a secondary story to the housing fallout in 2007, and the gains are partly because of the declining value of the U.S. dollar relative to foreign currencies. Though it may be a blow to American ego, a falling dollar helps many Washington firms by making U.S. goods cheaper abroad.

“One of the things that is helping us right now is that the dollar is not worth much,” said Evelina Tainer, chief economist for the state’s Department of Employment Security.

Tainer said that a recession is “not a done deal.”

If the recession were severe and global, “then we are right in the middle of it,” Tainer said. But if it hit the U.S. only, then Washington would feel modest effects, she said.

Also, just because a recession hasn’t been formally declared doesn’t mean that individuals won’t suffer, she said. When economists say recession, they are talking about myriad factors, including employment, income and sales, she said.

“Things have to go backwards,” Tainer said. “When it goes to almost nil, that’s a growth recession.”

She said the nation is more likely to see a growth recession – meaning that the economy grows, but not fast enough to absorb new job seekers.

The odds of a regional recession in the next two years stand at 30 percent, according to economists cited in an economic report issued recently by the city of Seattle.

But even economists admit that there are no crystal balls, and business leaders are not apt to panic out loud.

As Leahy put it, “If the consumer psyche in the U.S. starts to get too hunkered down, then that to some degree can become a self-fulfilling prophecy.”

“You people, you need to stop writing about this,” Leahy joked to the Seattle P-I.

In other words, if fear causes one person to start saving his pennies, and everyone else follows suit, then businesses have less money to invest, which could mean slow growth and perhaps layoffs, which means fewer people buying things, and downward things would spiral.

Thus, perception matters, too. To fuel optimism here, the Washington business set seems to be clinging to good news about Boeing’s order backlog, continued hiring at Microsoft, Amazon.com’s headquarters relocation to South Lake Union and anything else that shows that this region is doing all right, even as home sales decline.

“I just came from a lunch where we talked about this,” Sodo Business Association President Mike Peringer said a few weeks ago. “As long as we’ve got a positive outlook for the big guys, then all the little guys are going to take advantage of it.”

The 1,800 businesses in Sodo employ about 50,000 people, according to the association. Those businesses may act more cautiously this year – deciding not to do upgrades and saving capital, not laying anyone off, but not hiring either, he said.

“With the news and everything the way it is, people are afraid long before they should be,” Peringer said, adding that he’s optimistic that Seattle would weather an economic downturn with ease.

Seattle has a lot more going for it than just optimistic leaders, said Don Fosseen, senior vice president of investment properties at CB Richard Ellis.

Investor interest in the local office market remains strong. The region saw a record $5.7 billion in office deals in 2007, he said, placing the region among the top five strongest nationally.

Seattle is lucky to be a small city with a lot of corporate headquarters in it or nearby, Fosseen said.

“And all of those corporate headquarters are industry leaders doing well and fueling the rest of our economy.”