Regional Outlook Retail Sales 4 Two Realities, One Recession Construction 5 There Is an Old Joke That Has Two Economists Walking Down the Street
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VOLUME 28 • ISSUE 3 • SEPTEMBER 2020 CENTER OF ECONOMIC AND BUSINESS RESEARCH • 1 WHAT’S INSIDE Regional Outlook Retail Sales 4 Two Realities, One Recession Construction 5 There is an old joke that has two economists walking down the street. One points Special Topic 6 to a $100 bill on the ground. The other says there is no reason to pick it up – after all, Forecast Detail 7 if it were a real $100 bill, someone else would have already taken it. So off they go. COVID-19 Border Restrictions 8 Our version of that joke today is that one economist points to some data points – including the stock market – and concludes the economy is recovering. The other Washington State Economy 9 economist says it can’t be a real recovery, because real recoveries don’t include 10 Leading Index 12 percent unemployment, a growing number of bankruptcies, and other problems. But here we are. The joke pokes fun at economists for imagining On our minds this quarter: a national election, a pandemic, remote that people are rational working, remote learning, how families and respond to incentives and businesses are impacted by all of in predictable ways. For it and an economy that is operating at example, people would not about 80% of pre-COVID with strong leave $100 just lying on the variances by region. ground. But we do silly things There is a lot to consider. Are we at times. We are not always in recovery? What are the impacts rational. And the economy of less sports? Will wage disparities as a whole can feel a bit create long-lasting issues? What will irrational at times as well the impacts be on residential and (especially the stock market). commercial real estate as people We know all that. Still, change how/where they work and live? conditions today feel truly Economics appear to be getting strange. better for some people and worse for Yet despite that others. Our new normal will not be the strangeness, a lot of what we Summary Forecast same one we had a year ago. Regional see around us makes sense. Annual Percent Change employment, both location and mix, That’s not to say it is good. It 2018 2019 2020 2021 will be different. Commercial space just makes sense. demand and use will shift. Education Many wealthy households Puget Sound Region delivery will change. We will all adapt. are doing just fine – In the meantime, mask up, be kind Employment 2.3 2.3 -6.1 3.0 government statistics are to your neighbors and lend a hand Personal income (cur. $) 6.1 4.5 6.0 -2.8 defining wealthy at incomes where you can. Together is how we get Consumer price index 3.2 2.6 1.6 1.9 exceeding $67,500 per year. to normal. Housing permits -5.7 4.3 -12.1 -3.1 They have been working from home, keeping their Population 1.4 1.3 1.3 1.3 job and income. They are United States* not traveling or eating out GDP ($12) 3.0 2.2 -5.2 3.8 as much, so they aren’t Employment 1.6 1.4 -5.8 4.9 spending as much as they Personal income (cur. $) 5.3 3.9 3.8 -3.0 did pre-COVID. But they are Consumer price index 2.4 1.8 1.0 1.7 fine and the related talk that the recession is over makes Housing starts 3.4 4.0 -6.2 5.8 sense – for them. Meanwhile, *Source: Blue Chip Economic Indicators 2 • THE PUGET SOUND ECONOMIC FORECASTER The data present challenges for us when we run the forecasting model. We have to consider how the large increase in personal income in the second quarter of 2020 affected spending, ask whether a similar stimulus package might be forthcoming, and imagine what spending might be with different scenarios. For this outlook we assume there will be another stimulus package, but not quite as generous as the first. As such, we have spending declining slightly in many sectors compared to the second quarter. We also have income coming back down to more normal levels. We have also assumed that population growth continues to be relatively strong in the Puget Sound region. The model sees slowing population growth due to slowing economic activity and we have to manually alter that expectation in the model. Regional Outlook continued... It is also critical to note that the national economic the recession is far from over for many other households. But outlook (the key input into our model) includes assumptions there’s been lots of stimulus money to be spent. The bump in about when a vaccine might be widely available and widely income and related spending makes it look like the economy used. After all, there will not be a solid economic recovery is doing fine, when people are out of work and businesses are until people are comfortable getting on planes, going to struggling. events, etc. The forecast shown here assumes a vaccine will PUGET SOUND TEN-YEAR FORECAST 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Employment (thous.) 2052.3 2114.4 2216.8 2241.8 2250.1 2264.0 2275.6 2284.7 2294.2 2302.1 Aerospace Employment (thous) 77.6 73.2 78.2 77.2 76.4 75.6 74.8 73.9 73.2 70.6 Unemployment rate (%) 8.8 7.2 4.5 4.1 4.1 3.9 4.0 4.2 4.3 4.4 Personal income (bils. cur. $) 321.1 312.1 330.2 344.5 358.4 372.9 388.7 404.6 421.2 440.0 Consumer price index (82-84=1) 2.825 2.880 2.947 3.013 3.078 3.141 3.202 3.270 3.340 3.412 Housing permits (thous.) 23.9 23.2 24.2 23.3 22.2 22.5 23.4 23.6 23.8 24.2 Population (thous.) 4244.8 4299.1 4349.5 4391.1 4423.9 4459.2 4500.0 4541.4 4584.0 4631.3 Retail sales (bils. $) 93.2 96.2 101.6 106.7 111.0 115.7 120.5 125.1 130.0 135.4 Annual growth (% change) Employment (thous.) -6.1 3.0 4.8 1.1 0.4 0.6 0.5 0.4 0.4 0.3 Personal income (cur. $) 6.0 -2.8 5.8 4.3 4.1 4.0 4.2 4.1 4.1 4.5 Consumer price index 1.6 1.9 2.3 2.3 2.1 2.0 2.0 2.1 2.1 2.2 Housing permits -12.1 -3.1 4.7 -3.8 -4.6 1.1 4.1 1.0 0.6 1.6 Population 1.3 1.3 1.2 1.0 0.7 0.8 0.9 0.9 0.9 1.0 Retail sales -1.6 3.2 5.5 5.0 4.0 4.2 4.1 3.8 3.9 4.2 U.S. Growth (% change) GDP ($12) -5.2 3.8 1.9 1.9 2.0 2.0 2.0 2.0 2.0 2.0 Employment -5.8 4.9 2.5 1.2 0.8 0.9 0.8 0.8 0.8 0.8 Personal income (cur. $) 3.8 -3.0 4.1 4.2 4.3 4.2 4.3 4.2 4.2 4.6 Consumer price index 1.0 1.7 2.2 2.2 2.2 2.2 2.1 2.2 2.2 2.2 Housing starts -6.2 5.8 7.8 1.4 0.7 0.7 0.0 0.0 0.0 0.0 [email protected] • 360-650-3909 CENTER OF ECONOMIC AND BUSINESS RESEARCH • 3 be approved this winter and will be widely available in the second half of 2021. Unemployment will remain elevated into 2022. Of course, unemployment will not feel the same for everyone. The impacts of any given recession fall unevenly on different groups in society. We’ve already mentioned that higher-income households have fared quite well in this recession. They have been inconvenienced, but they have not dealt with job loss or income loss. The impacts have been greater for lower-income households. Moreover, the impacts have been greater for women and minority communities. The job loss has been most severe in industries such as food service, person-to-person retail, and many healthcare sectors. A recent article in the Seattle Times noted that 74% of healthcare workers in the Seattle area were women – just one reason this recession is hitting women harder than men. Historically, most recessions have hit male-dominated industries harder, making this COVID recession unique. Minorities are also prominent in the service sectors hit hardest in this recession, making the impacts also very pronounced for various minority groups. And there’s another layer about to emerge, which further complicates our forecast. Most school districts have kids in primary through high print subscribers (online subscribers can access the 10-year school starting school at home. That means someone has forecast year-round). Stay safe, and we will be back with to be home with the kids to help them during school. Times another forecast in December. have changed, but this burden will fall on women more than men. Accordingly, women have seen significant job loss and things are about to get harder. How can you work and help your fifth grader all day with school at the same time? Many school districts even have time in the daily schedule devoted to ‘family learning’.