Economic Memo: The state of the region-Only Montana shows hope

The negatives for the Pacific Northwest economy continue to mount as the end of the year nears, pushing much hope for a rapid recovery from the worst regional recession in 20 years further into next year.

At a regional economic conference earlier this month, only Montana, the least populated and industrialized of the states usually included in the Northwest, posted any good news. The Big Sky country, sagging this summer along with everyone else, might be the only state to technically avoid a recession.

For other states, it is more of the same. October unemployment rates reported earlier this month tell the story. The order changed a bit as Oregon again had the highest unemployment rate in the nation, but Washington, Alaska and Oregon once again made a Northwest trifecta of the worst unemployment rates for the 50 states.

Oregon’s seasonally adjusted rate increased from 6.8 percent in September to 7 percent in October. Washington’s rate dropped from 7.4 percent to 6.7 percent — the experts believe that is a statistical fluke to be reversed in November. Alaska also fell from 7.5 percent to 6.8 percent.

Here’s a look around the region from economists at the Pacific Northwest Regional Economic Conference’s annual fall forecast meeting:

Oregon

In the 1990s, Oregon went on a high-tech binge that fundamentally changed its economy.

In 1990, lumber and wood products represented 7 percent of gross state product, with the electronics industry a mere 3 percent of the total. A decade later electronics had 28.6 percent of the state’s economy, with lumber falling to 2.4 percent.

At the same time, more of its workers were concentrated in manufacturing. That provided good, well-paying jobs when times were good, but made Oregon much more volatile and susceptible to the business cycle, said Tom Potiowsky, state economist with the Department of Economic Analysis.

Durable-goods manufacturing made up 12.4 percent of Oregon’s output in 1990. By 2000, that had risen to 31.5 percent compared with 8.6 percent in Washington and 11.1 percent nationally. Manufacturing employment accounted for 15 percent of nonfarm jobs compared with 12.9 percent in Washington and 13.8 percent nationally. They paid the price when the recession hit the manufacturing sector early in the lifecycle of this downturn.

"We had the highest unemployment rate for nine months running," Potiowsky said, before some improvement surfaced last summer.

Potiowsky forecast employment to fall 0.7 percent for 2002, matching the job loss of 2001. In 2003, growth for the year will be about 1.7 percent, reflecting slow growth early in the year with stronger growth toward the end of the year.

Job growth in 2004 is projected to be 2.2 percent.

Alaska

Alaska is in a funny place — its seasonally adjusted unemployment rate is relatively high. But the high rate masks good growth in the state.

In September, the state was the second fastest-growing state, trailing only Nevada. But that’s not saying much and reflects the weakness in the national economy and the bottom-of-the-barrel Northwest economy.

Alaska is expected to post job growth around 1.1 percent. That’s down from 2.2 percent in 2000 and 2.1 percent in 2001. Construction is the star: The federal government is spending more for missile defense; housing construction is strong because of lower interest rates; and private and public money is paying for a major expansion at the Anchorage International Airport.

Oil is the big player in the state’s economy. Employment has been declining from peaks several years ago, but relatively high oil prices are keeping things even. A war in Iraq could affect the state more dramatically than others because conflict would tend to keep oil prices high.

Tourism is also a big part of the state’s economy and the important summer season was better than many had expected. Manufacturing, particularly seafood processing, is one of the weak points. The salmon season was a disappointment again this year.

Seasonal factors are dramatic in Alaska. In the Denali Borough, the unemployment rate jumped from 6 percent in September to 13.1 percent in October. The area is heavily dependent on the summer visitor industry.

The state has added an estimated 4,200 jobs over the year, an increase of 1.4 percent. Alaska remains one of the few states in the country that has added jobs over the last 12 months. Other strong areas beside construction include the medical-care industry, government and trade.

Idaho

For a while, Idaho looked like it might be another exception to recession. But that was before summer and early fall, when the downturn in the economy hit Idaho hard.

Michael Ferguson of Idaho’s Division of Financial Management has prepared a forecast for the state that keeps getting worse.

By July, the once-positive forecast had slipped to zero growth this year and a slight gain next year. By last month, the forecast was for a 1 percent decline in jobs this year but some gains in the years ahead.

"We keep ratcheting down as more data becomes available," Ferguson said. But "the problems will be limited to 2002 for Idaho."

Idaho has dropped about 8,500 jobs this year with 1,800 disappearing in September alone. Like Oregon and Washington, Idaho has benefited from the high-tech boom with home-grown companies such as Micron Technology adding to a base in manufacturing from outside companies such as Hewlett Packard. Now it feels the pinch from high-tech layoffs, too.

About a third of the Idaho economy now is accounted for in high tech. Construction and agriculture, two other stalwarts for the Gem State, also have slipped in recent months.

Montana

"We dodged the recession bullet," said Paul Polzin, a University of Montana economist. The state is on track to be ranked fourth this year nationally with about 1 percent job growth or 4,000 new positions, according to the Blue Chip Job Growth Update report.

Polzin said the makeup of the Montana economy spared it most of the economy’s recent troubles. Little exposure to manufacturing or technology insulated the economy from the 2001 pre-Sept. 11 slump. There were some declines in early 2001, but those were caused by the spike in electricity prices rather than the national business cycle.

Tourism, one of the big industries in the state, peaked before the September attacks and the state had little exposure to other hard-hit industries such as the airlines, transportation and financial services.

Polzin’s forecast is for anemic job growth around 1.2 percent for 2002 with a slight rebound to 1.7 percent by 2003.

Unknowns

Regional economists agreed there are several factors that are impossible to gauge at this point in the economic cycle.

A possible war with Iraq is one wild card that economists were hard pressed to measure. The impact on Alaska and oil prices was obvious, but less certain was what would happen in other states. "Oregon might be between Iraq and a hard place," quipped Potiowsky.

The results of the recent election could also affect the regional economy. With Republicans in control of both the White House and Congress, a number of measures affecting the Northwest could have a better chance of passing. A proposal to drill for oil in the Alaska National Wildlife Refuge would have impact both in Alaska and Washington, particularly Tacoma, which would become an important staging area for drilling equipment.

And the weather. Parts of the region have been hit with severe drought conditions this year. Recent fall rains have produced some encouragement, but agricultural areas of the Northwest still watch the skies with a leery eye.

Stephen H. Dunphy’s phone: 206-464-2365. Fax: 206-382-8879. E-mail: [email protected].

Copyright © 2002 The Seattle Times Company

http://seattletimes.nwsource.com/html/businesstechnology/134582441_watch24.html