Economy Takes A Joy Ride Region Reaps Benefits From Higher Prices For Wheat, Precious Metals

In physics, you can’t defy the law of gravity. But what about economics?

Does everything that goes up necessarily have to come back down?

Maybe the Inland Northwest’s economy can’t escape the pull of gravity forever, but it seems capable of holding off the tug for a while longer.

During the first quarter of 1996, Spokane and Kootenai County appear to have achieved the fabled “soft landing” of economics lore, and are poised for another run with help from some old companions.

A harmonic convergence of wheat and silver prices should provide a local boost to the strengthening economies in both Washington and Idaho.

“Commodities are more important on a local basis in Spokane than they are in the overall scheme of things (in the Northwest),” observes regional economist John Mitchell, who heads the economic department of U.S. Bancorp.

The last time dramatic increases in wheat and metals prices coincided, in the 1970s, they drove the Inland Northwest economy to one of its strongest periods.

In the 20 years since then, the Spokane area economy has undergone a broad diversification. Neither the wheat farms on the Palouse nor the mines in the Silver Valley represent as significant a percentage of the overall economy as they did then. Nor do they employ anywhere near the same number of people.

But that doesn’t mean their periods of strength can’t have a profound effect on a broader-based economy.

The inland economy is, of course, dependent upon the relative health of the overall economies of the Northwestern states. And those states, particularly Washington and Idaho, showed encouraging strength during the year’s initial quarter.

In Washington, the economy has weathered the storm brought on by layoffs and a strike at Boeing. That demonstrates that the state finally has diversified beyond reliance on the aircraft manufacturing giant.

In U.S. Bank’s Economic Barometer report on the first quarter, Mitchell notes that during the past five years, Washington has managed to grow slowly despite a major aerospace downturn, a major Boeing strike, a significant decline in Canadian shoppers and major curtailments at Hanford.

Now, with Boeing anticipating increasing its work force by 7,000 during the next 12 months, Mitchell says, “Washington seems poised to accelerate.”

Idaho has gone through similar economic disruptions while managing to maintain growth. Big technology companies in the Boise area have suffered setbacks; the timber industry has suffered; activity at the Idaho National Engineering Laboratory has been curtailed.

“Much as Washington seems to have weathered the Boeing downsizing, Idaho has weathered some different types of shocks while avoiding a decline,” Mitchell says in the U.S. Bancorp report. “The popular analogy of the soft landing, which is often used to describe the hope that the national economy can slow without dropping off into a recession … might be used to describe Idaho’s experience during this cycle.”

The Spokane region’s relationship to mining and agriculture is analogous to Washington’s relationship to Boeing. Twenty years ago, the local economy was a captive of mining and agriculture. But economic diversification - borne largely of necessity as those two economic staples hit extended low points in their cycles - has enabled the inland economy to grow even when those traditional economic pillars suffer.

So when mining and agriculture hit their periods of strength, that’s real economic gravy.

Silver prices that were at $4.85 an ounce during the first quarter of 1995, averaged $5.68 an ounce during the first quarter of this year.

Largely as a result of those increases, the Coeur and Galena silver mines are being reopened, Sunshine Mine has doubled its output and Royal Silver Mines will spend $40 million over the next four years at Bunker Hill.

Analysts say depleted worldwide stockpiles of silver could drive the price to $6 an ounce this year. They also warn, though, that rapid increases in production to meet demand could drive the price back down.

Silver prices would have to take a long ride upward to return the Silver Valley to its heyday. But business people are optimistic for the first time in years.

Already, the return of miners to the Valley has produced a spike in Shoshone County rental activity, said Ted Reynolds, a broker and former owner of Miners Hat Realty.

The mines have been adding people, but incrementally, he said. The recent sale of Silver Mountain ski resort is another reason for hope.

“I do expect it to get a little busier,” Reynolds said. “Now that they’ve got the gondola situation taken care of, things should improve.”

The agriculture-dominated Palouse traditionally has had a comparatively stable economy. But the outlook rarely has been as bright as it is this year.

Various factors have driven wheat prices to their highest levels in 20 years. Wheat that sold for $3.91 a bushel during the first quarter of 1995 sold for $5.09 a bushel during the first quarter this year.

On top of that record price, farmers will get an additional 92 cents a bushel for wheat under terms of the Federal Agricultural Improvement Reform Act. The act, aimed at phasing out farm subsidies over the next seven years, will pay farmers regardless of wheat prices and whether they grow anything or not over that time.

“This run-up in grain prices, combined with the (federal) payments made independent of what’s happening to price should leave the grain people in a pretty good situation over there,” Mitchell says.

“But there’s a longer-term question,” he adds. “With China swinging from a grain exporter to an importer, that may represent long-term strength for farm income in the Inland Northwest region.”

And when farmers have more money to spend, that directly benefits many Spokane businesses.

Equipment dealers and farm supply outlets say a new wave of customers has been washed in by the high tide of wheat prices.

At Western State Equipment Co. in Spokane, sales manager Dave Troyke says farmers are snapping up $100,000 to $150,000 Caterpillar Challenger tractors at twice the rate they did in 1994.

Tractors that have yet to sell have all been leased as farmers rush to finish spring planting.

“Farmers over the years told me that when wheat hits $5 a bushel, they’d come in and buy and they weren’t lying,” says an elated Troyke. “Unless the weather does something strange, we expect a better year in 1996 than in 1995. Things are looking real good for Northwest farmers for many months ahead.”

Beyond the bonuses represented by wheat and silver, most other local economic indicators also showed strength for Spokane and Kootenai counties during the first quarter of 1996.

During the quarter, 871 homes were sold in Spokane at an average price of $111,999 and an average market time of 80 days. That compares with 765 sales at an average price of $107,354 and an average market time of 78 days during the first quarter of 1995.

Mortgage rates in Spokane averaged 8.886 percent during the first quarter of 1995. This year, the average was 7.426 percent. That contributed to the strong quarter for home sales, but the pace may be hard to sustain in the second quarter because mortgage rates are rising again.

Retail sales for the first quarter of 1996 hit $665.5 million, compared with $636 million during the first three months of 1995. That’s particularly encouraging because the weather was much worse this winter than a year earlier.

Hotel/motel tax revenues were $220,000 during the first quarter of this year compared with $202,000 in the first quarter of 1995, reflecting continued growth in the winter convention trade.

One significant indicator for the inland economy showing a decline was aluminum prices. In the first quarter of 1995, aluminum sold on the world market at 95 cents a pound. The average price during the first quarter of this year was 76 cents a pound. That’s still well above the 50-cent threshold at which Kaiser Aluminum and other Northwest aluminum plants say they can break even or show a profit with reasonable electricity rates.

, DataTimes ILLUSTRATION: 2 Graphics: Inland Northwest first quarter economic review; Economic review

The following fields overflowed: BYLINE = Michael Murphey Staff writer Staff writers Eric Torbenson and Grayden Jones contributed to this report.