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Michael J. Parks
The outlook for the Pacific Northwest economy? As is always true, much depends on how things play out globally and nationally. The outlook seems much brighter than a few months ago, when it looked like much of Europe was headed for the rocks and when the question on everyone’s lips was whether the U.S. economy was slipping back in to recession.
Never say “Never,” but based on recent employment and output data, I’d say double dip for the U.S. economy is off the table.
Yet anyone in the “outlook” business — my day job as a public speaker — has to acknowledge high levels of uncertainty. It has been five years since the global financial crisis erupted with the failure of two mortgage-related hedge funds in Spring 2007. Despite massive amounts of fiscal stimulus since the crisis climaxed in September 2008, central banks of most rich countries still find it necessary to prop up economies with more money creation. Europe’s central bank the past few months conjured roughly a trillion euros, which it lent to commercial banks for three years at 1% per year, the continental version “quantitative easing” or QE.
The Great Recession has given way to the Great Repression. Central banks keep interest rates low, punishing savers and investors, in part to keep banks and governments afloat. Today’s low interest rates, below inflation rates in most rich countries, are the most dramatic reminder that economic recovery in the globe’s advanced economies remains fragile.
Obvious current threats to global prosperity include high oil prices, recession in Europe (mild so far, but keep your fingers crossed), and a possible hard landing in China. A Black Swan cannot be ruled out — a disruption that can’t be forecast, such as last year’s Japanese earthquake/tsunami/nuclear-power crisis. Tension with Iran over nuclear ambitions could set the Middle East ablaze any time.
China, with the globe’s second-largest economy, deserves a special place on everyone’s economic radar screen. China’s own leaders recognize a need to reform a corrupt, decrepit political system that has failed to keep pace with China’s amazing economic growth. A transition to a new generation of leaders is to take place at the end of this year. The potential for political instability is high.
Of the five states followed closely by Marple’s Northwest Business Letter, I am most optimistic about Washington and Alaska, in part because both are beneficiaries of high oil prices and because I expect energy prices to remain high.
Washington a beneficiary of high oil prices? You bet! Washington’s aerospace sector, including Boeing and primary suppliers, accounts for a third of all manufacturing jobs. Head count has been growing rapidly for almost two years. Employment is up 15% from the cyclical low in mid-2010, and has reached the highest in more than a decade. Over the past year, only North Dakota, growing from a small base, has added manufacturing jobs at a faster pace than Washington.
Boeing’s backlog of more than 4,000 commercial planes amounts to more than eight years of production at current rates. High oil prices under-gird this backlog. Boeing’s newest model, the 787 Dreamliner, promises 20% better fuel efficiency than the planes it will replace. Rising productivity will eventually flatten the level of aerospace employment in Washington. But head count should remain relatively high for the foreseeable future as long as global economic growth remains positive.
Washington also benefits from the strong growth of world-class companies headquartered in the Puget Sound metro area, including Starbucks, Costco and, especially, Amazon, which in recent weeks has unveiled plans for more than three million square feet of new office space at the edge of downtown Seattle.
High energy prices continue to benefit Alaska, even though oil production has fallen to a third of peak level in 1988. High prices boost odds that Alaska can find buyers willing to finance a pipeline to exploit abundant natural gas now stranded on the North Slope.
Montana and Idaho should respond well to global growth and gradual U.S. economic recovery. With strong and productive agricultural sectors, they stand to benefit from rising global standards of living, including more consumption of grain-fed red meat.
I am most concerned about Oregon. Since 1998, Oregon’s manufacturing work force has shrunk by 28%. The loss of jobs in the semiconductor industry in the late 1990s — remember the “Silicon Forest”? — was never made up. The U.S. housing crash accelerated what had been a long decline in forest-related employment. The worst is probably over for the U.S. housing market, but the likelihood of a significant increase in Oregon factory employment, whether in the forest industry or other sectors, seems low.
In thinking about long-term economic trends, keep in mind that the United States has the most favorable demographics of any large rich country. Aging populations mean all rich countries face severe fiscal headaches. Consolation for us Yanks? Demographically, Europe is in much worse shape than the U.S., Japan is a train wreck, and China will grow old before it grows rich. Take comfort where you can find it.
Michael J. Parks is editor emeritus of Marple’s Northwest Business Letter (marples.com). He blogs at michaeljparks.com.