Region won't be feeling fat any time soon
Seattle Times business columnist
Maybe it's a hunger to leave the bad old year behind. Maybe the worst really is over.
But whatever crumbs of economic hope are being tossed our way, the Puget Sound region won't be feeling fat any time soon. While the nation's economy may improve by early next year, it may be 2003 before this region begins to grow.
That marks a significant turn in the region's historic boom and bust. Unlike earlier downturns, where the Puget Sound area was last in, last out, this one is more like first in, last out.
From business to business, the story is the same. "Our business will get worse over the next six months," said Scott Howell, president of Nicholson Industries, a machinery manufacturer. "We do not believe the worst is over for our customers."
The region last struggled through recession in the early 1980s. Interest rates soared to 21 percent and unemployment neared 13 percent. Most of downtown Seattle's major high-rises were yet to be built, and Microsoft was years from going public.
The gloom gave way to 20 years without a major downturn, one of the longest and strongest runs of prosperity in the country.
That run ended, fast and hard, this year.
For the fifth time in a row, the region is facing a slowdown — or worse — at the dawn of the decade. In the 1960s, 1970s and 1980s, the region opened with a recession. In the 1990s, jobs grew a tepid 1.2 percent a year between 1990 and 1995, one of the slowest periods of growth on record.
While many economists trace this recession back to March, the economy was certainly slammed Sept. 11.
Regionally, that downturn was intensified by the sudden, sharp reductions at Boeing after the terrorist attacks, the continuing dot-com shakeout, contraction among wireless-telecommunication companies and slowing growth at Microsoft.
Boeing will cut more than 22,000 jobs here before it is finished at mid-year 2002. The unemployment rate could top 8 percent by then. The Puget Sound-area jobless rate hit 7 percent this month, lagging behind only Oregon nationwide.
Contrast to 1990s
That's a sharp contrast to the 1990s, when business was never better.
The national economy expanded for an unprecedented 10 years, from March 1991 when the economy reversed nine months of decline after the Gulf War, until last March.
Even so, it was an uncertain period. Early on, it was called a "jobless recovery" because growth was so slow. We grew, but just barely.
In the middle of the decade, the economy here did something it never had done before — weathered a downturn at Boeing without going into a regionwide recession. Here's how:
In the mid-1990s slump, Boeing lost 35,000 jobs. Software — companies such as Microsoft and Amazon.com, McCaw Cellular and Attachmate — added 17,700. Average salaries at Boeing were $45,000 a year, meaning the region lost about $1.57 billion in payroll. But average salaries in software then were $90,000, meaning about $1.59 billion was added to the economy.
Software and high-tech may have covered only half of the jobs but replaced all of the income. Thus, no recession here.
Then, in August 1995, Netscape, a company with a newly emerging product called an Internet browser, sold its first public shares. The stock rose 167 percent to $74.75 from $28 a share in its first day of trading, setting off the Internet Gold Rush.
It was quite a ride. Big telecommunications companies such as AT&T became involved in acquisitions and mergers. By 2000, America Online, a venture synonymous with the Internet and the New Economy, acquired Old Economy communications giant Time Warner in the largest merger ever, a $165 billion deal. Venture-capital funds grew like weeds — $7 of every $10 ever raised for venture capital was spent between 1998 and 2000.
The bubble burst well before Sept. 11. But that sudden shift from possible decline to unquestionable recession hit especially hard and fast in the Northwest, perhaps because the region was falling from such heights.
Tied to riches of nature
Look back for perspective. From the end of World War II until the 1980s, the economy of the Northwest was tied to the riches of nature.
Businesses built mills, creating jobs and products from the forests. Processing plants converted agricultural bounty into food ready for the kitchen and for export to a waiting world. Electrical power from the Columbia and Snake rivers fed growing industries in aluminum, light metals and chemicals. Service and retail companies created a kind of "Seattle-style" of retailing — Nordstrom, Eddie Bauer, QFC and REI made quality and customer service key to business.
Happenstance led to the greatest of the Northwest industries. Bill Boeing, born in Seattle, took to airplanes when they were new and started the company.
Bill Gates and Paul Allen were born here and formed Microsoft, a company that has changed the world. Where industry once relied on nature, Microsoft relied on brain power, bringing to Seattle the software engineers, researchers, managers — and unparalleled wealth.
That set the stage for perhaps one of the most remarkable two-year periods in our history.
Remember 1998-2000, when the economy was running full tilt? When skyrocketing dot-coms lit up the sky with new billionaires? When can't-miss concepts such as Homegrocer.com and InfoSpace were launched to cheering stockholders?
Remember when Boeing could barely keep up with demand for airliners, reversing a reputation for missed opportunities only a few years earlier? When Microsoft was hiring hordes of engineers? When telecom companies surrounded the city with fiber optics? When Costco grew and grew and Starbucks became a signature product of the city around the world?
"Here was a city that had it all," the Economist magazine said. "Old Economy, New Economy, Not-Yet-Invented Economy."
Sweet times turn sour
Then it went sour. Not just some of it, but seemingly all of it. 2001 brought a nonstop succession of disappointments.
Boeing bolted, shifting its headquarters to Chicago. The Internet bubble popped. Once-promising ventures such as Homegrocer.com disappeared in bitter wrangling. Others hang on, diminished, trading at pennies a share where they once soared. At its height, InfoSpace founder Naveen Jain was worth $8.3 billion, a fortune that has slumped to $140 million.
And an already troubled Boeing was hit even harder after Sept. 11, both by a steep drop in airliner orders and by losing a $200 billion Joint Strike Fighter contract to Lockheed Martin.
This month, the region took another symbolic blow. Immunex, the city's premier biotech company, was absorbed by California-based Amgen. Immunex got the capital to grow and prosper, but decisions will be made in California.
Seattle was becoming a branch town again, much as it was in the 1950s when there were few Seattle-based commercial or industrial giants.
How will we bounce back?
Conventional wisdom says low interest rates, big government spending and cheap energy will help the economy recover, perhaps as early as spring.
But in the Northwest, half of the old equation will apply: last out.
With the bulk of Boeing layoffs still ahead, with little prospect for a healthy airline industry, it may be 2005 before Boeing recovers. State government faces two years of budget cuts. Consumer confidence has fallen sharply, despite a gain in December.
And conventional economic wisdom may no longer be so wise.
Said Gary Shilling, a top economist based in New Jersey: "Recall that this has been an odd recession, so its future may also be unconventional."
Stephen H. Dunphy can be reached at 206-464-2365, or at email@example.com.