Bert Caldwell: Region’s economic success reminiscent of Expo ‘74 boom

The last time Spokane enjoyed the kind of prosperity that has prevailed the last few years, Expo ‘74 was drawing thousands of visitors to the area, residential construction was booming, and Kaiser Aluminum Corp. was still a manufacturing mainstay. Local high-tech companies like Key Tronic Corp. and ISC Systems Inc. were emerging as major employers.

Within a few years, all that momentum was gone.

Spokane sank into more than a decade of stagnation that crystallized with the closure of The Davenport Hotel in 1985.Two local economists with memories long enough to recall those times do not expect a repeat.

Phil Kuharski was at Fidelity Mutual Savings Bank then, and he remembers the post-Expo implosion. Patrick Jones, director of the Institute for Public Policy and Economic Analysis at Eastern Washington University, was not living in Spokane at the time, but his family owned Harvey’s, a local chain of men’s clothiers.

Kuharski, a longtime tracker of Spokane’s economy, says the activity generated by Expo insulated Spokane from the national economic turmoil of the mid- and late-1970s, when the term “stagflation” was born.

“We were impervious because of the big influx of primary dollars,” Kuharski says.

Spokane all too soon found stagflation at its door.

After Expo, the tourists stopped coming. Interest rates rocketed as the Federal Reserve under Chairman Paul Volcker got serious about fighting inflation. By 1980, the prime rate was 20 percent.

For an economy dependent on construction, that was a killer.

Single-family permits for Spokane County crested at 3,409 in 1977. Activity plunged heading into the 1980s, a decade when permit numbers never reached 1,000 per year. Lumber demand, and employment, dried up. Other commodities suffered, as well.

Jones says sales at the Harvey’s Coeur d’Alene store sank 30 percent when the price of silver collapsed in 1980. Wheat hit $6 a bushel in 1974. By 1980, the price was around $4.

It was not a good time to be a resource-dependent economy, and the shocks rippled through the area’s financial institutions. Fidelity closed, and Old National Bancorporation was acquired by U.S. Bancorporation.

“That environment was extremely negative for a market like Spokane,” Kuharski says.

Contrary to an often-repeated saw that the area’s economy tends to be somewhat counter-cyclical, Kuharski says “The overriding factor for the Spokane area is the macro-economic issues.”

Fortunately, what was once extremely negative has been extremely positive.

Construction is again at the top of its cycle. Single-family home permits have tailed off in the last year, but large private and public projects have picked up the slack.

And construction is no longer the area’s only economic pillar.

Health care has become the region’s largest employer. Manufacturing, including a downsized Kaiser, has rebounded thanks in part to Boeing Co. Retail sales and employment are up. Even mining and agriculture are enjoying better days.

Spokane may not add another 10,000 jobs this year, as it did in 2006, but it will add jobs. Kootenai County last year added 2,900 — every Panhandle county reported job growth — with only uncertain prospects for the timber industry clouding expectations for 2007.

Jones points to other signs of the area’s revival.

Many Spokane companies died out or were merged out of existence during the lean years. Banks are one example, the shrinkage of some once-major high-tech employers another. But Sterling Savings, AmericanWest and others have taken the place of bygone banks. Inland Northwest Health Services, founded in 1994, now employs 1,000.

A new index of the market value of area companies shows a 50 percent increase just since 2002.

An enlarged Sirti harbors a full house of start-up businesses.

With the interest rate environment not expected to change much, Kuharski and Jones say education and training may be the keys to future economic expansion. More employers say they must look outside the area for the skilled workers they need.

If that manpower can be found or developed, the region should be in for another good year. Spokane started 2007 with perhaps its biggest show since Expo, the U.S. Figure Skating Championships. A second Davenport Hotel opened. Groundbreaking for Kendall Yards, the proposed development on the Spokane River’s north bank, holds the promise for transforming 80 acres of barren dirt into an urban centerpiece.

Not one that, a la Expo, will be folded up after a six-month run.