Spokane economy continues to hold us better than U.S.
“This year’s good economic news continues for our region and, in fact, accelerated in the second quarter,” according to Shaun O’L. Higgins, Managing Principal of The Oxalis Group LLC, and a longtime observer of the regional economy. “Our indicators for job growth, building permits, retail sales and, in particular, home sales are all positive.”
“Even though there has been a drop in economic growth for the country as a whole, we are not seeing a big slowdown in our local economy,” says Steve Scranton, Chief Investment Officer for Washington Trust Bank.
Avista Chief Economist Grant Forsyth concurs, saying, “At this point in time, I’m not seeing anything that worries me in terms of Spokane’s economic growth.”
Doug Tweedy, Regional Economist, Washington State Labor Market & Economic Analysis, says, “Second quarter usually has the slowest employment growth because of seasonal variations, so the positive job numbers are particularly encouraging.”
Real Estate demand outpacing supply
“Housing numbers were strong for the quarter, continuing five years of growth and exceeding 2,000 unit sales in the 2nd quarter for the first time in that period,” says Higgins.
The 5.4% increase in units sold, year-over-year for 2nd quarter, compared to the 10.5% increase in median sale price, is a reflection of the continued tightening of the housing inventory in Spokane, according to Scranton, especially for starter homes. Average sales price rose by 9.2%. “There is more inventory of homes above the $250,000 to $300,000 range, which is why unit sales for these homes are up 9.5% and prices are up 15% over a year ago,” says Scranton.
Forsyth notes that the median sales price data in the Business Barometer includes both new and existing homes. “When I look at data that breaks down these numbers, the price appreciation for existing homes is about 5%, compared to the overall increase for both new and existing homes of 10.5%.”
Moreover, the 2nd quarter median sale price of $196,575 is up substantially from the median price of $182,500 for 1st quarter 2016.
“This pattern is likely to continue throughout the year,” says Higgins, “as borrowing costs remain low, general inflation remains contained, and housing appreciation here continues to exceed, at least for now, the return that is available from alternative expenditures.”
“I am still hearing concerns that the housing market is getting too hot in Spokane,” says Forsyth, “but the price increases don’t seem too high, considering our growth in employment and wages. It’s not the same situation as in 2005 and 2006, at least not in Spokane. I’m more concerned about the bigger urban markets like Seattle and Portland.”
Steady, sustainable employment growth continues
Reminder: We use the CES database for employment because it is benchmarked with payroll data that covers a majority of businesses and has very little adjustment over time. However, the LAUS database is used for unemployment figures since this is not included in the CES database.
“Job growth continued in Spokane, posting a solid gain of 4,733 jobs when compared to 2nd quarter 2015 — a 2% increase,” says Higgins. “The 2nd quarter also saw a modest drop, only 1/10th of a percent, in unemployment. As modest as that seems, the continuing pattern of such modest drops has resulted in a marked improvement in our unemployment picture. Looking at 2nd quarters for the past five years, the unemployment rate has dropped from 9.1% to the current 6.3%. We continue, however, to have a higher unemployment rate than the national rate of 4.8% and the Washington statewide rate of 5.6%.”
“Our slow and steady employment increases, where we consistently add jobs at a 2% growth rate, is more sustainable and builds a stronger foundation,” Scranton notes. “It allows us to continue expanding without worrying about a bubble situation.”
Tweedy says he expects a gain of 3,000 jobs in the final two quarters of 2016.
“The unemployment rate in Spokane has not dropped significantly because we continue to have an increase in our labor force,” says Tweedy. “As a regional center, people tend to come here from outlying areas to look for jobs. Much of the country has a diminishing labor force, which is why the national unemployment rate is lower than ours. The fact we have a strong labor pool helps in recruiting businesses to our area, particularly as parts of the country experience growing labor shortages.”
Scranton notes that certain local industries, including building trades, are beginning to experience labor shortages, which could lead to slower growth and higher wages.
“The employment hot spots for the last two quarters have been Health Services and Public & Private Education, and we are now seeing an increase in Transportation and Warehousing jobs as more companies look to Spokane for storage and distribution centers,” says Tweedy.
An employment issue that has not been addressed, Forsyth notes, relates to legalized marijuana sales in Washington and other states. Drug testing for many industries is required by the federal government, which still classifies marijuana as an illegal drug. “There needs to be clarification from the federal government on this issue,” Forsyth says.
Permitting Valuations increase slightly overall
While the number of permits issued in all areas of the county increased significantly, permit valuations were mixed — up slightly in the city of Spokane (1.8%), down in unincorporated Spokane County (-22%) and doubled in the Spokane Valley (102%) for an overall increase of valuations, year-over-year in 2nd quarter, of 3.7% for all of Spokane County.
The number of permits issued increased by 83% in the City of Spokane, 29% in unincorporated Spokane County and 24% in the Spokane Valley, for an overall increase of 46% for all of Spokane County.
This compares to 1st quarter year-over-year increases of 54% in number of permits and 87% in valuations for the entire county.
Forsyth notes that permitting is a leading indicator, so these numbers mean there is still some economic growth left going into the rest of 2016.
“In all three measured entities, remodeling permits in 2nd quarter remained related to fallout from the November 2015 windstorm that destroyed and damaged homes throughout the county,” says Higgins. “That work has largely been permitted and completed, so future remodel numbers are likely to reflect elective remodeling only. I would expect the numbers to remain strong, however, as borrowing costs remain low.”
Scranton also points to the lack of inventory in homes for sale and in Class A office space as reasons for the high number of permits for remodeling. “If you can’t find the home you want, you are more likely to do a remodel on the home you have, and you are seeing the same trend in office space.
“Whether dollars are being spent on a remodel or new construction, it still helps the economy because it’s creating jobs in construction and building supplies,” Scranton says. “However, there is less of a ripple effect with remodels because, on average, less is spent on related goods such on new furniture, landscaping, etc.”
There continues to be a lot of permitting for townhome and apartment complexes in both Spokane and Kootenai counties, especially in the city of Post Falls, according to Forsyth. “Construction of multi-family units is still going strong, with many fairly large complexes. Vacancy rates for rentals are at historic lows, so the market is signaling there is still room for more, but the pace of construction is really robust and I have some concerns about the market’s ability to absorb all of the new units when they come online.”
Retail sales still outpacing wage growth
Reminder: Sales tax reporting lags one quarter behind other indicators.
Sales tax figures for the 2nd quarter have yet to be released, but we now have numbers for the 1st quarter of the year.
“In the last issue of Business Barometer, I projected that when the 1st quarter 2016 figures were reported we would see continuing retail strength compared to the nation, with even stronger increases in total taxable sales,” says Higgins. “That was the case. Retail-sector sales grew by 5.9% compared to 1st quarter 2015, and total taxable sales rose 7.5%.”
In comparison, 4th quarter 2015 retail sales rose about 5.8%, while overall taxable expenditures were up 5.3%.
“The increases were spurred in large part by good job numbers, indications of modestly rising household incomes, and obligatory expenditures in the wake of that November 2015 windstorm,” Higgins says. “The numbers are especially strong, however, because they are not inflation-fueled. In the 1st quarter, the regional CPI rose only 0.26%, one of the lowest quarterly increases on record.”
Forsyth notes, “Retail sales continue to grow faster than what income would predict. In the long-term, spending will need to reconcile with income, probably resulting in lower increases in retail sales.”
Scranton concurs, saying, “It’s amazing to see that consumers are still confident enough to keep spending despite not seeing the type of salary increases you would expect with this rate of retail sales growth. I expect to see sales and wages align more closely going forward.”
Passenger levels up at airport
Passenger totals, year-over-year for the 2nd quarter, increased a healthy 4.6%. This is a positive sign when compared to a year-over-year 1st quarter increase of only 1%.
While the number of passengers was up, operations decreased by 9.3%. According to Todd Woodard, Spokane International Airport Director of Marketing and Public Affairs, this is the result of airlines flying larger planes with fewer flights. He reports that from July 2015 to July 2016, the number of available seats increased 3%.
Accurate cargo numbers for the airport are not available for 2nd quarter due to reporting issues experienced nationwide by Federal Express. The issue affected reporting, but not operations.
Woodard notes they are completing a multi-year, $16 million project of improvements to Felts Field, including repaving taxiways and reinstalling taxi lanes. “This is a significant investment to an important community asset that not only has an economic impact, but also provides for public safety and emergency services. For instance, Life Flight Networks keep their aircraft for medical transport at Felts Field, and recently, seven very large helicopters were used to drop water on regional wildfires over-nighted at the airfield, he said.”
Woodward continued, “Also, people are often surprised to learn the amount of international business done at Felts Field by companies such as Moody Aviation, Spokane Turbine Center and Rocket Engineering.
“In addition to the airport’s projects at Felts Field, Western Aviation recently invested $3 million private sector dollars in a new depot at Felts Field and they are seeing increased aviation traffic as a result.”
Consumer Price Index remains low
The CPI remained historically low in the 2nd quarter, rising 0.46% over the same period last year.
“The reason we are seeing such low numbers is because of commodity prices, especially oil,” says Scranton. “On the service side, price increases are running much higher, for instance in education and healthcare, but they are being offset by lower prices on products such as big screen TVs.”
Forsyth states, “Nothing about the inflation picture is putting pressure on the Fed to increase interest rates. In fact, there is still downward pressure from the energy price collapse. I don’t see anything in the near future that would cause the Fed to raise rates rapidly.”
Shaun Higgins: I foresee no combination of economic factors halting or reversing economic progress at the national or regional level in the 3rd quarter. Indeed, I expect many of the indicators we follow to continue showing an accelerating trend when compared to 3rd quarter performance in recent years.
Doug Tweedy: Total payrolls have increased 3% over the past two years, which is likely to signal an increase in wages, although Spokane will remain below the wage pressure we are seeing on the west side of the state.
Steve Scranton: We are seven years into an economic expansion and that is a fairly long one. So now is the time to put together a game plan for when the business cycle slows, which it inevitably will, whether it happens in one, three or five years. The alternative is to wait for it to happen and be unprepared.
Grant Forsyth: I am concerned about several issues that are creating uncertainty. First is the tenor of the election process. The amount of intra- and inter-party conflict at all levels has meant much less discussion of policy issues than in past election cycles, and lack of clarity on major economic issues is a danger to the economy. Second is the confusion about the pace and timing of anticipated interest rate hikes by the Federal Reserve, creating more uncertainty in the business community. Finally, at the state level, there has been very little progress on how to finance the McCleary decision, which requires the state of Washington to fully fund K-12 public education by 2018, and to show “steady, real and measurable progress each year.” The state legislature has shown little movement in determining how McCleary will be funded, whether with tax increases, spending cuts, or a combination of the two.
The Spokane Regional Business Barometer is a quarterly publication written by Debbie Rauen of Legendary Hills Communications, highlighting the Spokane economy and local economic trends. Data for the publication is assembled by the Eastern Washington University Institute for Public Policy and Economic Analysis.