Slowdown In Economy Jolts Region Consumers Turn Wary As Boom Times Come To End

Fueled by the hot coals of the housing market, the Inland Northwest’s economic locomotive has steamed ahead since 1990.

Then came the brakeman.

Since the beginning of the year, the squeals of a braking economy have resounded from the South Hill to Tubbs Hill.

On both sides of the state line, home sales are down. Retail sales, for years a juggernaut of double-digit growth, have fallen as well.

Much of this was predicted by regional economic analysts, and the economy remains strong compared with virtually any year since the ‘70s, except 1994.

However, the slowdown has jolted residents like train passengers tossed about when the brakes spark the wheels against the rails.

“I’m pretty worried,” said Debbie Wehrri of the Spokane Valley while shopping at the Factory Outlet Mall in Post Falls. “One week the economy seems to be doing good, the next week it’s awful.”

While she and her husband both work, they’ve been saving money and cutting back on luxuries like vacations and the purchase of big ticket items, the type of buying that often drives the economy forward.

“I’d like to not have to work,” she said. “I can’t afford to have kids right now - they’d just be too expensive.”

While no one tracks consumer confidence locally, attitudes of consumers interviewed seem to parallel those shown in national surveys. Pessimism is at a higher level than economic numbers would seem to justify.

Home sales in Spokane are a languid 27 percent down from the 1994 first half pace. North Idaho’s market is off a cool 15 percent.

But 1994 was a record year.

“You know, in the late ‘80s we all did about $80 million dollars worth of business in the county,” said Shawn McMahon, a broker with Acuff Realty in Coeur d’Alene. “Last year we did $320 million, and we’ll do about $280 million this year, and people are saying ‘Gee, isn’t that too bad? Sales are down …”’

In fact, commercial real estate remains a bright spot in North Idaho. Demand for prime retail space has not slaked much, with plenty of businesses looking for new and better square footage, McMahon said.

A half-dozen commercial buildings are sprouting in Post Falls, soon to be homes of restaurants and other service establishments.

While visible signs of growth like new buildings may suggest a healthy economy, plenty of telling statistics suggest otherwise.

Taxable sales, the broadest measure of economic activity, have tumbled on both sides of the state line.

Excluding wholesale purchases, trade-in allowances and things bought by tax-exempt buyers like government agencies, taxable sales reflect exactly how much of 200 different product groups changed hands in a given quarter.

From 1990 through 1994, taxable sales have soared in North Idaho counties as much as 25 percent compared with the previous year, according to the state Tax Commission.

The sales are flat this year in Kootenai County, catching the eye of Kathryn Tacke, labor analyst for the Idaho Department of Employment.

“The numbers were a little surprising,” she said.

The caveat when looking at the first half of the year’s sales is that the second half always outpaces it. Sales could wind up even with last year if the tourist-filled third quarter and holiday-filled fourth quarter rebound.

The sales figures show the sectors where the economy has slacked off: lumber, building products and some home furnishings. Big sales contributors like groceries and automobiles are marginally lower as well.

Spokane’s monthly sales tax figures also reflect the slowdown. Revenues from the sale of goods are down every month this year compared with 1994.

While both sides of the state line have caught a case of retail flu, North Idaho may take longer to recuperate.

With proportionately fewer highpaying manufacturing jobs and proportionately more service jobs than Spokane, North Idaho’s economy appears more vulnerable to economic ups and downs.

Unemployment appears to be on average lower in Kootenai County. But the rate is almost always higher than Spokane’s, the state of Idaho’s and the nation’s rate.

Making the employment picture worse in North Idaho, newcomers to the area often take jobs that they feel they’re overqualified for, leading to what labor analysts call underemployment, Tacke said.

Substantial growth in retail and service employment has provided many of these generally lower-paying jobs, but underemployment occurs across the board, Tacke said.

A drop-off in tourism would send ripples of economic misery throughout North Idaho, whereas Spokane has more of an industrial base to fall back on.

Tacke said there are signs in the North Idaho economy that could lead to a recession. Continued weakness in the wood products and sawmill activity could be one factor that brings growth to a stop.

“There’s certainly some causes for concern,” she said. “But I don’t think it’s a real high probability.”

Regional analysts studying how national trends may influence the regional economy are more optimistic.

The region’s strong performance had to peak sometime, and that sometime is now, said John Mitchell, economist for U.S. Bancorp and coauthor of The Portrait, a widely read economic forecast of the Pacific Northwest.

“You’ve had some extraordinary growth in that area,” he said from the bank’s Portland headquarters. “You’ve seen the rapid growth in retail and tourism sectors, and some of those things are just not going to continue at that pace.”

Historically, economic recoveries last between three and five years. By that measure, the Spokane-Coeur d’Alene area is ripe for a cooling.

In addition to the housing slowdown, Mitchell says the region has been hurt by the sagging Canadian exchange rate, which has kept Canadians at home, and just plain bad weather. Rain and clouds wash out logging activity and nip tourism, Mitchell said.

“But I still believe that from a basic standpoint that smaller metropolitan areas like the Spokane and Coeur d’Alene areas will continue to grow,” he said. “A lower cost of living and high quality of life - the demographics show that more people are moving into your kind of area,” and away from major cities.

But small-business people and consumers interpret the economy differently from economists. Cold, hard numbers don’t necessarily reflect the real world.

“Business is just awful,” said Janet Tarrance of Spokane, who manages a dry-cleaning store and sells real estate on the weekends. “I’ve never seen it quite like this.”

Tarrance blames rising housing costs and the overall increase in the cost of living that eats into paychecks. “Homes are just priced way out of sight.”

With less money to go around, business will suffer across the board, she said.

With her lack of confidence in the economy, Tarrance has been “thinking twice, three, even four times before buying anything that’s more than $100.”

She’s seen real estate colleagues who’ve sold millions of dollars of homes for the past few years quit to become a car salesman.

“I couldn’t get by on just selling real estate,” she said while outside the Factory Outlet Mall in Post Falls. “There’s just no way.”

Other business people, particularly retailers who have ridden out economic swings before, take a more optimistic view.

John and Sandy Beaunaux say business hasn’t let up at their Videonics video, game and card store on Fourth Street and Best Avenue in Coeur d’Alene.

In business for 12 years, the Beaunaux’s have seen the economy explode along Best Avenue. For them, business continues to be up.

In July, they opened a new Showcase Card store on Seltice Way in Post Falls, near one of the most popular retail stretches in the county.

“I think our action with that store opening speaks louder than any words,” Beaunaux said.

Derek Santos, an economist for the state of Idaho in Boise, understands that consumers and business owners interpret the economy at a personal level. But his numbers still paint a positive picture.

While Santos’ forecast calls for somewhat diminishing growth rates in Idaho for the next year, both income growth and housing starts will be well above national averages over the next few years.

The boom in Idaho and the rest of the region will continue, only in a more modest fashion, he predicts.

But Santos and other economists point to a wild card that could change their projections: the Federal Reserve. Since July, the Fed has reversed its tightening policy and begun to lower short-term interest rates.

Most economists think interest rates will continue to drop, and that will stimulate the housing market. More housing starts and construction employment could reinvigorate our region. But, if rates remain the same or rise, bets are off.

“I think there’s a lot of credibility to the argument that the economy could use another cut in rates,” Santos said. “That’s going to help us out here.”

, DataTimes ILLUSTRATION: Color Photo 2 Graphics: 1. An economic drop 2. Bankruptcies on the rise

MEMO: This sidebar appeared with the story: Feeling the chill Both retail sales and home sales have tumbled this year, though they remain above levels from years preceding the recent boom.