National economic indicators really are doom and gloom

Northwest numbers aren’t as bad – are we late to the party?

BY SCOTT BAILEY Washington Employment Security Department

Strap on your seat belts, we may be in for a wild ride.

As we approach the middle of March, it looks as though the U.S. economy is in the beginning stages of what could be a long recession, while employment growth in Clark County has slowed and unemployment is rising.

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Nationally, the bursting of the housing bubble has led to sharp declines in home prices in many areas of the country, along with rising numbers of mortgage delinquencies and foreclosures. Owners of roughly 10 million homes have no equity or negative equity – a number that will surely grow as valuations continue to decline. The trillion-dollar question is how many of them will choose to walk away, leaving their keys in the mail box?

In the fourth quarter of 2007, home equity as a percent of home values fell below 50 percent, the first time on record that banks owned a majority of the housing stock.

The housing crash has led directly to employment losses in construction, finance, and home improvement retail outlets. Nationally, nonfarm employment dropped in January and February, while unemployment has been rising. More importantly, the growing number of bad mortgages has exposed significant problems in the global financial system.

Markets for some securities have seized up, and financial institutions have had to write off billions of dollars in bad loans, with more write-downs expected this year.

The Federal Reserve Bank has lowered its benchmark federal funds rate and tried to inject liquidity into the banking system to little avail: the credit contraction has overwhelmed these policy moves. As a result, interest rates for private sector borrowers are increasing, even for AAA-rated corporations that pose no risk of default. The unraveling has claimed its first investment bank as this column goes to press, with rumors of more to follow.

At the same time, the price of oil and other commodities continues to rise, pushing up the rate of inflation. The only silver lining in today’s economy is that the dollar has depreciated against the Euro and other currencies, boosting sales of U.S. products overseas.

Locally, the Vancouver-Portland metro housing market has had the smallest decline in housing prices of any of the 20 metro areas in the Case-Shiller Home Price Indices – only 2 percent. Seattle is off only by 5 percent. Both cities peaked in July 2007, while most other metro areas have been falling for a year or more. Whether that means there will be less adjustment here, or we’re just late to the party, no one knows.

Employment growth in Clark County was quite strong in 2004 and 2005 – about 4 percent – but has gradually slowed since then. The most recent data for February shows a 1.4 percent gain of 1,900 jobs over the past 12 months. Private sector employment is up only 1.1 percent. Construction has lost 400 jobs in the past year. Retail employment is up only 100 jobs over the year, as retail sales adjusted for inflation flattened out beginning last summer. Unemployment claims are running 22 percent higher this winter compared to a year ago.

Because the Pacific Northwest is so export-dependent, we may not be hit as hard as the rest of the country.

One can only hope for the best.