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Economic Memo: Washington, Oregon lagging recovery- but Montana may grow faster than the national average this year.

The Northwest
continues to trail the national
economy with only one state in the
region — Montana, the smallest in
terms of population — expected to
grow faster than the national average this year.

Things should get a little better by 2003, with most states posting positive
growth, but the aftereffects of the 25,000 job cutbacks at Boeing could keep
Washington state in the doldrums well into next year. If some trends hold up,
Washington’s unemployment rate could continue to rise and pass Oregon with
the dubious honor of having the highest rate in the nation.

That’s the outlook from a group of economists who presented a quick economic tour of the region
at the 36th annual Pacific Northwest Regional Economic Conference in Portland. The meeting
drew more than 150 economists from Washington, Oregon, Idaho, Montana, British Columbia and
Alberta.

"You’ve got a way to go in Washington," said Mark Zandi, chief economist and co-founder of
Economy.com. "Boeing has more production cuts ahead and more layoffs yet to go."

Zandi pointed to the continued rise in aircraft taken out of service and parked in the desert as
contributing to sluggish orders and deliveries from Boeing.

Zandi, who outlined the national economic picture for the conference, said Oregon and
Washington remain in recession as the rest of the country begins to grow.

"A recovery is under way, beginning as early as November last year or as late as January this year,"
Zandi said. Growth in gross domestic product will be less than 2 percent in the second and third
quarters of this year, then rise to as high as 4 percent next year.

As economic growth returns nationally, the experience of states — and two Canadian provinces
represented at the conference — varies. Here is a quick economic tour of the region:

• Oregon: The state has experienced a fundamental change in its workforce over the past decade,
one that made the recession hit the state harder than other areas. Lumber and wood products went
from 9.4 percent of the gross state product in 1989 to 2.2 percent in 1999. The gross state product
is a measure of the total economy, just as gross domestic product measures all goods and services
produced in the national economy.

High tech went from 3 percent of the gross state product to 22 percent.

Tom Potiowsky of the Oregon Office of Economic Analysis said the shift meant Oregon felt the
recession more deeply. The increasing concentration in high-tech jobs, especially the
manufacturing of semiconductor chips, made the state economy more volatile.

"We now make things," he said, "and it was definitely a manufacturing recession."

Potiowsky said Oregon was at the bottom of the recession now. There are signs of improvement in
the semiconductor-chip business, plus some strength in other manufacturing.

"Oregon will be growing faster than the U.S. average in 2003," he said, a significant shift that
could begin to bring the unemployment rate down.

• Idaho: There is good news and bad news for the state. Growth continues to outpace the national
average and remains just barely positive with job growth this year at 0.2 percent, the lowest growth
rate since 1987. Employment growth dropped more than 2 percent that year but has been between
3 and 5.5 percent for more than a decade.

There are signs of improvement with Micron Technology, the state’s largest private employer,
lifting a hiring freeze and restoring a substantial pay cut for its higher-paid employees.

Michael Ferguson of the Idaho Division of Financial Management said a forecast coming out soon
might cut expected growth for this year to near zero. The state experienced a sharp reduction in
manufacturing employment late last year that is beginning to show up in state totals.

Per capita personal income — think of it as fuel for the economy — is also declining, Ferguson
said, further cutting into growth prospects. However, after a slow 2002, the state’s economy is
expected to be back on track by next year.

• Montana: The only state in the region that is still growing earned that distinction by "dodging two
bullets," according to Paul Polzin, a University of Montana economist.

The first bullet was that the state has little exposure to the weakest parts of the economy — no
heavy concentrations in high- tech, autos or telecommunications. The economy of the state was
weak in early 2001 but more because of a spike in energy prices than exposure to the economy.

Tourism is a big part of the Montana economy, but it dodged a bullet as well after the Sept. 11
terrorist attacks. Tourists to the state tend to come there mostly in the summer months, so the
decline in travel that followed the attacks did not affect the state as much as other areas, Polzin
said.

There are a number of uncertainties in the Montana economy, creating a range of growth in the
months ahead between 1 and 2.5 percent. "The lower rate is more likely," Polzin said.

• British Columbia: The province shows some signs of an early recovery this year, but growth still
trails the rest of Canada. Carol Frketich of the B.C. Ministry of Finance said current forecasts show
growth this year at 0.6 percent, behind the 1.2 percent growth for the rest of Canada.

The outlook is improved for 2003, with the forecast rising to 2.8 to 3 percent growth and even
stronger in 2004. The province is benefiting from growth in the high-tech, tourism and film
industries as timber and wood-product employment declines.

The softwood-timber dispute with the U.S. is expected to cut employment in the forest-products
industry in the province by 20,000 jobs.

A sweeping change in government last year is having an impact on the economy, Frketich said. A
new government has cut taxes and costs such that "the government will be a drag on the economy
this year," she said.

• Alberta: No one hears much about the province in this area, but it is counted among the regions
tracked by the economic conference. A good thing, because it has one of the best stories to tell,
according to Bob Fox of Fox Consulting, which tracks the provincial economy.

Growth is driven by the energy business, he said, with the recent rise in oil prices adding millions of
dollars a month to government coffers. The industry gain also will push the growth rate to 3 percent
or higher this year and next.

The province also benefits from high in-migration, Fox said, with an average of 35,000 people a
year moving there. The population is now 3.1 million.

An interesting sidelight: Alberta has one of the largest groups of U.S. citizens living outside the
country, with more than 80,000 Americans in the province.

• Washington: The forecast for Washington state was bleak, with the economy declining 1.5
percent this year before it turns around and grows 1.5 percent in 2003. The decline for this year
was the largest among states at the conference and the prospects for 2003 among the least
expansive.

David Wallace of the state Employment Security Department outlined the familiar theme of the
uneven downturn in the state, ranging from a 4 percent decline in the Seattle area to a 5.7
percent gain in the Tri-Cities area. One surprise: Business services, which includes computers and
many high-tech areas — contributed more to the decline in 2001 than transportation. More than
16,000 jobs were lost in the services area compared with 10,200 in transportation, mostly Boeing.

That is likely to be reversed this year as Boeing’s employment cutbacks ripple through the
Washington economy.

Charts in this month’s Times Watch report tend to reflect that assessment. The state’s leading
indicators index, which looks out three to six months, continues to decline, dropping to 96.7 in
March, 3.1 percentage points below the same month in 2001.

Stephen H. Dunphy’s columns appear Tuesdays-Fridays and Sundays. Phone: 206-464-2365. Fax:
206-382-8879. E-mail: [email protected]. More columns at
http://www.seattletimes.com/columnists.

Copyright © 2002 The Seattle Times Company

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