Economist and forecaster Dick Conway, who has spent three decades tracking the national and local economies, doesn't mince words when asked about the state of the nation.

"The economy is just a mess, and some people say it'll be a mess for another five years," Conway said. "I tend to be a little more optimistic, but so much depends on politics."

That mess, unfortunately, is helping to hold back recovery here, and 2012 isn't likely to be much better than 2011.

The region's tailwinds — surging employment at Boeing, a stable information-technology industry, a strong export sector — will run up against stiff headwinds: the wheezy housing market, Europe's long-running debt crisis, slowing economies in Asia, and the prospect of continued political uncertainty and partisan stalemate at home.

Washington and the Puget Sound region probably will continue to be a little better than the country as a whole. The state Economic and Revenue Forecast Council, for instance, projects both payroll employment and inflation-adjusted personal income in Washington will grow 1.2 percent next year, versus 1.1 percent for the nation as a whole.

But "a little better" may not be enough to make much of a difference in people's lives — not the 286,100 Washingtonians who reported being out of work last month, the uncounted thousands more who are underemployed, or the nearly 63,000 who have dropped out of the labor force entirely over the past 2 ½ years.

"We need a catalyst to propel the economy into a virtuous growth cycle," Conway said. "But it's hard to find anything out there that's going to jolt us out of this. It's going to be a slow slog."

Here's a closer look at some of the key drivers of the Puget Sound-area's economy, and the factors likely to shape their performance next year.

Exports

The export sector has been one of the few local bright spots, and that's a good thing. As Conway said, "If we're going to grow, we have to look for export markets, because the fastest-growing markets aren't here — they're outside our borders."

Through the first nine months of 2011, Washington exports were running nearly 24 percent above the 2010 level. Transportation equipment — primarily airplanes, of course — is the state's biggest export category: Through September, some $19.5 billion worth had been shipped overseas.

But the second-biggest export category may surprise urban Puget Sounders: agricultural products, worth nearly $8 billion in the first nine months of this year.

Anderson Hay & Grain of Ellensburg, one of the state's top agricultural exporters, has barely noticed the recession. CEO Mark Anderson said demand for hay and straw has been stable in the company's established markets, such as Japan and South Korea. Meanwhile, newer markets such as China and the United Arab Emirates are growing.

"There's a pretty good commitment on (China's) side to rural development in general and to a strong dairy industry and self-sufficiency in fresh milk," Anderson said.

The third-generation, family-owned company has benefited from high prices for hay and other commodities, as well as from the generally weak dollar. China's yuan, for example, has gone from about 6.6 to the dollar at the beginning of the year to 6.3 now, making U.S. goods cheaper for Chinese buyers.

Anderson said a sudden strengthening of the dollar or devaluation of his customers' local currencies would hurt business. Beyond that, he said, the company's biggest challenge from the recession has been higher freight costs: With fewer imports coming into the United States, fewer empty shipping containers are available to take Anderson's products back overseas.

Eric Schinfeld, president of the Washington Council on International Trade, pointed to two trade-policy developments with special meaning for Washington. The new U.S.-South Korean free-trade agreement could lead to 10,000 extra jobs in Washington over five years, he said; South Korea already is the state's fourth-biggest export market.

And Russia, one of Washington's fastest-growing trading partners, is set to join the World Trade Organization next year. That could benefit not only the state's wheat and apple producers, but also the aerospace, infotech and even coffee industries, Schinfeld said.

Manufacturing

Manufacturing is more significant in Washington than in most states — mostly, though not entirely, because of aerospace. Boeing alone added more than 8,000 jobs in the state this year.

A slew of new airplane orders and an ambitious increase in the pace of production likely mean more aerospace jobs are on the way. Local employment also would receive a boost if Boeing decides to complete its Air Force tankers here rather than in Wichita, Kan.

For the rest of the state's manufacturing sector, though, healthier business may not lead to fatter payrolls. Take Kent-based Flow International.

Flow makes ultra-high-pressure waterjets used to cut anything from paper and glass to steel plates, and for stripping paint and other coatings. The company lost money for two years during the downturn as sales plunged, but returned to profitability in the fiscal year ended April 30 on a 24.6 percent jump in sales. In the past six months, Flow has made more than four times as much money as it did in all of its last fiscal year.

How many jobs does Flow plan to add to its 300-plus local workforce? Not many.

Like many companies, Flow slashed its payroll during the recession and revamped operations for greater efficiency. As a result, CEO Charley Brown said, "We're able with our current employee base to do more than we were able to before."

That same dynamic is helping Flow sell more cutting tools and spare parts.

"As we've come out of the recession," Brown said, "people who'd reduced their workforces and now have demand returning to what it was before (are) trying to meet it with more efficient production rather than by hiring more people."

Flow's customers also may have been swayed by a couple of rich tax breaks meant to spur capital investment, including one that allowed businesses to write off 100 percent of the purchase cost of new equipment. While that particular break expires Saturday, other, more limited breaks will continue into 2012.

Housing

More than anything else, the housing bust was responsible for turning a mild recession into the worst slump since the Great Depression. Housing remains the economy's biggest millstone.

Despite an uptick in sales of distressed properties by lenders or owners behind on their mortgage payments, plenty more are in the foreclosure pipeline, said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

"You have an inventory of properties that are at least 90 days past due on their mortgages that, at the current foreclosure rate, will last at least four years," Crellin said. "With that number of distressed properties out there, price appreciation in the near term is unlikely."

Indeed, the median sales price for King County houses last month, $321,700, was 13 percent less than the median price in December 2010. Bank-owned houses accounted for 20 percent of all King County sales, up from 14 percent in November 2010.

That makes for a tough environment for homebuilders such as Bellevue-based Quadrant Homes. For years, the Weyerhaeuser subsidiary had targeted first-time homebuyers; its message, President Ken Krivanec said, was "more house, less money."

But with fewer people able to qualify for mortgages and many of those gun-shy about buying, Quadrant has had to revamp its business. "We knew that Quadrant couldn't wait for a turnaround to succeed," Krivanec said.

The average Quadrant home now is smaller, and the company lets buyers customize nearly every aspect, from floor plans to door handles. An array of programs also takes some of the perceived risk out of buying a house — from paying up to six months of mortgage payments if buyers lose their job, to helping them sell or rent their existing house.

Krivanec said he was "encouraged about the possibilities" of the new strategy in 2012. But he has other options: Though Quadrant always has built just single-family homes, Krivanec said the company is studying the possibility of moving into the multifamily market.

"We're open to it," he said. "When I make a decision, I'll get back to you."

Retail

After falling year-over-year for nine consecutive quarters, taxable retail sales in the four-county Puget Sound region began to turn back up in the second half of 2010.

This year, first-half sales were up almost 2 percent from the same period in 2010, and retail strategists Pat Johnson and Dick Outcalt say the improvement is poised to continue in 2012.

The main reason: Consumers are feeling better about the economy. Consumer confidence, a leading indicator of retail sales, has strengthened for four consecutive months, and it has been buoyed locally by Boeing's upturn and recent job gains.

"Consumer confidence in the Northwest, from Vancouver, B.C., to Eugene, is jumping right out of its skin," Outcalt said. He expects confidence to remain elevated for three to five years, and surpass that of the nation as a whole.

However, not all retailers will benefit. There's been a trend for years away from middle-market merchandisers, toward both upscale stores and discounters. That trend accelerated during the recession, as big-box chains from Circuit City to Linens 'N Things have failed while the Nordstroms and Dollar Trees of the world have thrived. (The owner of Sears and Kmart said this week that as many as 120 underperforming stores would be closed.)

"If you're a retailer in the middle — with what we call 'popular price points' — it's been dangerous, and we don't see that changing," Johnson said. "Customers are either choosing to trade up or they're looking for a bargain."

Retailers also need to pay attention to events in Washington, D.C. Though Congress this month agreed to extend long-term jobless benefits and a payroll-tax cut, the extension only runs for two months.

Both programs pump significant amounts of money into the local economy. Emergency unemployment payments to Washington workers totaled $1.81 billion in 2011, or 0.6 percent of the state's total personal income, according to an analysis by consulting firm IHS Global Insight. That was the eighth-highest share in the country.

The state Employment Security Department estimated that 40,000 unemployed workers would have lost benefits by the end of January, and 20,000 more in February, if not for the two-month extension.

But Congress will begin revisiting the issue next month, raising the prospect that hundreds of millions of dollars in spendable cash will vanish from the local economy.

"If they can't come to an agreement to extend the payroll-tax cut and extend unemployment benefits," forecaster Conway said, "it'll take us even longer to get out of this recession."

Drew DeSilver: 206-464-3145

or ddesilver@seattletimes.com