Area's solid economy vulnerable to cracks showing up elsewhere

Economists often talk wistfully about a "Goldilocks economy" — not so hot as to trigger higher inflation, not so cold as to throw millions of people out of work. But maybe the goal for 2007 is better described as a "Laxton economy."

Greg and Wendy Laxton moved to Bellevue this year after Greg, a former United Air Lines pilot, landed a good job with Boeing as a flight instructor.

Now the couple hope the local housing market cools enough for them to buy a house in their new hometown, while the job market holds up long enough for Wendy — who worked at a title-insurance company in Las Vegas — to find a new career.

The Laxtons are hardly the only family hoping to thread that needle. The challenge for the region and the nation next year will be to maintain growth while preventing the slumping housing sector from dragging the rest of the U.S. economy into recession.

"I'd like something that will nurture my creative side, but I want a job I can stick with and not have to worry about being laid off anytime soon," said Wendy, 40.

Most economists see the Seattle metro area gliding through 2007, a bit slower than 2006, but stronger than the nation as a whole.

Local forecaster Dick Conway, for instance, pegs job growth next year at 2.9 percent, compared with 3.5 percent this year but more than twice the 1.2 percent growth rate forecast for the nation. That's good news for local job seekers like Wendy Laxton.

But the unwinding of the national housing boom could, if severe enough, bounce back and smack the Puget Sound area.

As Conway noted, despite the region's much-touted reliance on overseas trade, the biggest market for the Northwest's products and services remains the rest of the U.S.

So even if the local real-estate market holds up better than its national counterpart, "if the U.S. housing market pulls the country into a recession, then we have a problem," Conway said.

Bill Conerly, an economist and consultant in suburban Portland, predicts job growth in Washington will slow to 2.1 percent next year, from 3.1 percent this year.

Hit for homebuilders

"2007 will feel pretty much like 2006 for businesspeople and workers who are not involved in residential construction or the 'food chain' of residential construction," he said, referring to wood-products manufacturers, title companies and mortgage lenders.

But given how much that food chain has lifted the U.S. economy, Conerly said, there's still a chance the housing pullback could, if worse than forecast, drag it down into recession. He puts those odds next year at 1 in 4.

At her previous job, Wendy Laxton had a ringside seat for the Las Vegas housing boom, which made Seattle's look modest. Federal data for the third quarter shows home prices in Vegas more than doubled over the past five years, compared with a 62.4 percent gain in the Seattle area.

Second and third homes drove much of the Vegas boom, as did speculation. "A lot of people were buying [houses and condos] and hoping to turn them over before they were even completed," Laxton said.

Still, houses in Vegas started their boom from a lower price level than in the Seattle area, a fact the Laxtons have to contend with.

"It's quite a bit higher here," Wendy Laxton said with rueful understatement — $200,000 more than an equivalent home would be back in Las Vegas, she said. "But I'm wedded to the [Bellevue] school district."

Relative to places such as Vegas, this area's boom has been less due to speculation, economists say, and more due to fundamental growth: people moving in to take good jobs. That will stand the local economy in good stead in 2007.

"When you have high-paying jobs, that creates real housing demand," said Andrew Gledhill, an associate economist at Moody's Economy.com who tracks Washington's economy. "In a lot of other states, there was a lot of 'artificial' demand."

The region's primary supplier of well-paying jobs remains Boeing. Flush with new orders and with competitor Airbus reeling from self-inflicted wounds, Boeing has added 5,900 Washington jobs so far this year, bringing its in-state work force to its highest level since early 2002.

All told, 75,500 Washingtonians work in the aerospace industry, a 7 percent increase since the start of the year.

Conway expects the industry to add 7,000 to 10,000 jobs over the next two years — moderately strong growth, as opposed to the sometimes-frantic hiring of previous Boeing booms.

Boeing has said it's trying to avoid overexpanding its payroll, and Gledhill said so far the company appears to be succeeding. "They're trying for sustainable growth," he said. "They're looking at, say, a 15-year horizon rather than a one- or two-year horizon."

Conerly, however, was skeptical: "It sounds like somebody saying, 'I'm not going to drink too much this holiday season.' "

The software industry, led by Microsoft, also should continue solid growth next year.

Both software and aerospace should benefit both from an expected upturn in business capital spending and from the weaker dollar, which makes American products more affordable to foreign buyers.

Strength in those sectors should help offset weakness in others. Construction, which has added a whopping 13,300 jobs this year, almost certainly will slow next year along with the housing sector, though office buildings and other nonresidential construction will take up some of the slack.

Paccar, the big truck maker, already has announced layoffs at its Kenworth plant in Renton, affecting an estimated 340 workers. The company attributed the layoffs to expected lower demand next year as new emissions rules take effect.

And Eli Lilly will eliminate most of the 550 Washington jobs at Bothell-based Icos if its planned $2.3 billion purchase of the largest locally headquartered biotech company is approved next month.

But aside from those weak spots, the near-term outlook for the Seattle region seems reasonably bright. As the area's recession early in the decade was longer and deeper than the nation as a whole, its recovery seems set to be longer and stronger.

"I still feel Seattle is growing quite a bit," Laxton said. "When I go to downtown Bellevue and see all the cranes going up, that's what Vegas felt like. I like to see that growth and renewal. I'm definitely optimistic."

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com