When Washington's economy rebounds, job growth will lag

The three women behind Eye Can Art have been making and selling children's art kits for more than two years — just long enough to witness firsthand the many ways that recession can buffet a young company.

Holiday sales last year disappointed. Retailers that owed them money went under. A high-profile parenting magazine planned to feature Eye Can Art in this year's holiday gift guide, but the magazine closed before the piece was published.

So far the Seattle-based startup has hung on, thanks largely to donated time and expertise from friends, family and others. But as the company enters its third holiday shopping season, the partners hope the downturn ends soon.

"We are so closely tied to the economy, being in retail — that makes it exhilarating but also frightening," said Moria Blair, one of the three. "It all depends on the last three weeks of the fourth quarter. Last year, we thought 'Are we toast?' "

"In another economy," Bridget Daly added a bit wistfully, "we would have had employees."

Small businesses — specifically, new small businesses — supply much of the impetus for job growth, both locally and nationally. When their sales stagnate or they can't find financing, it holds back the rest of the economy. But when growth returns, they're often the first to benefit.

The good news, economists and analysts say, is that Washington's economy could turn around sooner than many people expected — possibly as soon as this winter or spring.

But the bad news is that even after the broad economy starts growing again, it may not feel like much of a recovery at the street and neighborhood level.

"I think people will really start to expect a recovery when they see themselves and their friends get jobs," said Steven Frable, regional economist for forecasting firm IHS Global Insight. "But unfortunately that's going to be quite slow."

Even if Washington payrolls start growing again next quarter, which Frable said is possible, it will take another two years or so for the state to regain all the jobs lost during the downturn — 162,200 as of October. Given that, he said, "it's going to be hard for people to feel like it's much of a recovery."

We're 'a carbon copy'

Although Washington tends to rise and fall with the national economy, previous recessions have often been longer and deeper here. The current downturn, though, has landed Washington in the same boat as the nation as a whole, rowing against a tide of bad news.

"From my point of view, Washington looks like a carbon copy of the rest of the country," said Jim Glassman, senior economist for JPMorgan Chase. "You're going through the same things."

So, he said, Washington should benefit from the same trends that appear to have kindled at least a fragile national recovery: credit markets that are reopening to risky borrowers; businesses that are starting to replenish depleted inventories; continued low interest rates, courtesy of the Federal Reserve.

By encouraging business investment, Glassman said, those factors should be enough to spark job growth starting in the first quarter of 2010. That, in turn, should boost consumers' confidence and make them more likely to spend.

Not all forecasters are as optimistic that Washington's recovery will track the nation's. The consensus of five economists surveyed by Arizona State University's Blue Chip Economic Forecaster is that even if growth resumes at some point next year, Washington payroll jobs will still shrink 0.2 percent versus 2009.

That 0.2 percent decline ranks Washington ninth among the 12 Western states in the Blue Chip forecast in terms of predicted job growth.

Over the longer term, though, IHS Global Insight sees Washington as one of the strongest-growing states in the nation. The firm projects that annual job growth in Washington will average 1.42 percent between 2009 and 2015, tied with Oregon for 16th-highest.

Job outlook

That strong eventual recovery is projected because the state has a lot of significant industries and companies — primarily aerospace and information technology, but also retailers such as Nordstrom, Amazon and Starbucks — that are cyclical, meaning they wax and wane in sync with the overall economy and will surge ahead when growth resumes.

This year, that close linkage meant layoffs at some of the region's marquee companies. Boeing has cut more than 5,000 jobs this year, 3,800 of them in Washington. Microsoft shed 5,800 jobs, the first large-scale layoffs in the company's storied history.

Frable's latest forecast (made before an unexpectedly strong U.S. jobs report earlier this month) has Washington jobs shrinking by 1.4 percent in the current fourth quarter and by an additional 0.4 percent in the first quarter of 2010 before growing 1.6 percent in the second quarter. The U.S. forecast for the same three quarters: -1.8 percent, -0.9 percent, and 0.8 percent.

The first jobs sector to come back likely will be temporary employment, as businesses hold off on bringing people on board full-time, said Desiree Phair, Seattle regional labor economist with the state Employment Security Department. Information technology, which avoided job cuts longer than most industries, likely will be one of the first to resume full-time hiring, Phair said; health care, which has continued adding jobs throughout the recession, should experience faster growth.

Frable's outlook is similar. Professional and business services (especially administrative and support services, a category that includes temps) should start out strong in the first quarter of 2010 and continue relatively strong through 2011, he said. The information sector, which includes software, should begin adding jobs again in the third quarter of 2010.

Construction, which has been hit harder than any other industry by the housing collapse, depends on a recovery in new home building, which most economists expect sometime next year.

The consensus among five forecasters surveyed by the Blue Chip Economic Forecaster is that single-family housing permits in Washington, after dropping 28.3 percent this year, will jump 31.1 percent in 2010.

"Home sales in Seattle at least are up once again, and it is only a matter of time before inventory clears and housing starts surging," Frable said.

He also expects retail job growth to start picking up in the second quarter of 2010, with growth at least through mid-2011.

Lumps and lessons

That would be welcome news for the women of Eye Can Art, who are hoping this holiday season turns out better than last year's.

The three friends — Daly and Shannon Ninburg are art teachers, while Blair has worked in health-care consulting and marketing — started their business in 2007, after Blair asked Ninburg's help in finding art projects for her daughter.

Each of Eye Can Art's four kits comes in a colorful can and includes instructions and materials for printmaking, wax drawing, making small books or Japanese brush painting. The target market is parents who want to encourage their child's creativity but don't have much artistic ability themselves; the kits try to hit the middle ground between paint-by-numbers and a bag of clay.

Sales during Christmas 2007, which came just as the U.S. economy was peaking, were encouraging enough that Eye Can Art ramped up. But by Christmas 2008, when the kits were in about 80 stores, the housing bubble had popped and what started as a fairly mild downturn had become the worst slump in most people's memories.

"Last year the retailers we called were terrified of trying anything new," Ninburg said. "They wanted the tried and true. I think that if some of that fear can be lifted, we'll see a lot easier growth."

Eye Can Art has learned much during the downturn, including the importance of insisting on payment upfront and the necessity of having multiple distribution channels — museum stores and catalogs as well as specialty toy stores.

The trio also have learned that in hard times, it takes a village to support a small business.

The company's offices, for instance, are in a spare room at Cascade Columbia Distribution in Georgetown. Cascade's owner's wife knows Daly, and he is letting them use the space rent-free; in exchange, they bring Cascade's staff home-baked cookies and pastries.

Ninburg's brother, a video producer in Los Angeles whose own workload was diminished by the recession, volunteered to shoot a promotional video. The father of one of her son's classmates has helped Eye Can Art develop financial projections and has agreed to meet with them monthly to go over their numbers. Other friends and family members have written marketing materials, built trade-show displays and even packed cans.

Daly summed up Eye Can Art's survival tactic as "low overhead and our willingness to work for free."

As the economy shows early signs of revival, the three women see some signs of hope. Eye Can Art's sales already have exceeded 2008's, Ninburg said; the kits are now in more than 150 stores nationwide.

"I'm almost positive we'll at least break even this year," she said. "We really want to be able to start paying people in cash instead of cookies."

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

This story was originally published Dec. 14 and corrected the same day.The latest forecast by Steven Frable, regional economist for forecasting firm IHS Global Insight, is for Washington jobs to shrink by 0.4 percent in the first quarter of 2010. The original story incorrectly said he saw jobs growing by 0.4 percent in the quarter.