Forecasting better times
Economic downturns, while painful, can oftentimes lead to a stronger economy down the road, says Avista’s economic sage
Randy Barcus, chief economist for Avista, is known for delivering economic forecasts in language everyone can understand.
He’s worked for Avista since 1979, studying the economy’s booms and busts and translating what it means for the utility company, as well as for Inland Northwest residents.
In a recent Wise Words interview, Barcus explained how recessions can sometimes be good for a community – in the long run. And how 10 years from now, a big worry might be the low unemployment rate.
Here’s an excerpt:
• My mother’s story was quite interesting. Her dad was the only one in his family who didn’t lose a job during the Depression. My maternal grandfather and grandmother were the patriarch and matriarch, and people would come live at their home.
My mother, who is now 86, said: “I would always have to sleep on the enclosed porch, because a family member would come and take my bedroom.”
• Will the people impacted by the recession someday tell similar stories? I doubt it. In comparison to the Depression, this is a nonevent. It just happens to be the longest and most severe recession we’ve had since the Great Depression, but because of our social delivery system safety net, it’s not nearly as dramatic.
• This recession had the potential to turn really super ugly. But I think some really smart people made some good choices and compromises to mitigate a lot that could have happened. We could have gone into a depression had the intervention, both by the Fed and the Congress, not occurred.
• Will we have a double dip recession? Probable but not likely. When you are a forecaster like I am, you are almost always wrong. You are always too high or too low. I’ve been chasing this recession downward as the economy has slowed faster than I expected, and it continued to slow after I expected things to turn around.
• The boom times of the 1970s – one of the catalysts was the World’s Fair in 1974 – transformed the community, which led to a fairly nice boom here. HP (Hewlett Packard) located one of their satellite factories here. They were having trouble recruiting engineers, so they said we’ll put a facility every place someone could possibly want to be. So if you want to hunt and fish, come to Spokane.
We had HP, and we had American Sign & Indicator, a big employer really taking off because of the technological advances. People in the late 1970s got comfortable. But you can’t stop doing economic development. If you slow down, your competitors will eat your lunch.
• So we had a recession in 1981 that dragged into 1982. Then 1984 to 1985, there was another bump in the road. And then another recession popped up in 1987. We had a couple of years in the ’80s where more people were leaving than moving here. So business leaders formed Momentum. They said gee-whiz-golly, we need to do something, because the community is basically exporting all of its talents.
• Did Momentum work? I think the payoff from Momentum was the boom we had in the last decade.
• Are recessions ever good? Some businesses are inefficient, and when times get tough, they go out of business. Then when times get better, the efficient businesses expand. A recession can lead to higher levels of efficiency and higher profits and the potential for better quality services to customers and better prices. It’s a dynamic thing.
• Recessions provide opportunities, but it’s painful for an awful lot of people, because often it requires a different way of thinking. Which is why I’m a big fan of education and retraining.
• What will get us out of this? It’s like my dad used to say, “Son, when you find yourself in a hole, the first thing you do is stop digging.” If we do nothing, we’ll come out of it. If we need to do something, it’s do no harm, and also if you do something and it makes you feel good but has no effect, that’s probably OK.
• When will we get back to 5 percent unemployment? Ten years. It will be gradual. We’ll knock off 1 percent a year for a couple of years, and then it will slow down and it will be about half a percent for the rest of the decade.
• The Northwest’s unemployment rate will go down because we are going to run out of workers. We have a whole big group of folks that are going to be turning 65 in the next 10 years. Right now in Spokane County there are 30,000 households that are headed by people over the age of 65. It’s going to be 70,000 in 10 years.
• This recession will end sooner than the local business climate will improve. Right now it looks like 2012 will be a very good year for Spokane and Coeur d’Alene. We will muddle along in 2011 because there are a lot of things in the regional and state economy that will need to be “fixed” before we can see healthy growth again.
State and local government are big contributors to growth, and because of revenue declines they necessarily will be spending less money on infrastructure. And they need to replenish the trust accounts they’ve borrowed from to support spending, plus they’ll need to replenish their “rainy day funds” to keep their borrowing costs as low as possible.
This will take time, probably not until 2014, which is why the private economy growth will both lead us out of this trough in 2012 and the spending on taxable sales will help improve government cash flow.
• Folks in the East don’t have that wanderlust attitude like we do. It makes us different because we process information differently. Perhaps we are more inventive, more entrepreneurial.
Think about Microsoft, Google, Amazon, and Apple. Where are they? In the West.
• In 1995 Washington Water Power was planning to merge with Sierra Pacific Power in Reno and my new job location was going to be Reno. Not a place you’d want to move with young children. I elected severance. I had no hope of finding a comparable job here, and expected I’d be moving someplace else. I said I’d go for a similar job in a nicer place or a better job in a similar place.
I’m sure many people have made these choices. It’s often more difficult for an economist because we tend to over-analyze the tradeoffs.
Needless to say, the merger didn’t happen. The new combined company name of Avista was adopted by Washington Water Power, and here we are today. During the six months between electing severance and the canceled merger, I went home every night after work and saddled up my horse and went for a ride in the hills. Life always looks better from the back of a tall horse.