Seattle's long road back: Return to economic health won't be rapid

By Stephen H. Dunphy
Seattle Times staff columnist

	DEAN RUTZ / THE SEATTLE TIMES Natural beauty continues to draw people to the Puget Sound region. Here are downtown Seattle and Queen Anne, as seen from Magnolia.

The homeward-bound plane had flown over Spokane minutes earlier, then across the central basin, the irrigation circles looking like brown and green coins strewn across the land.

Now Puget Sound shimmers in the summer sunset. Houses line the hills of the suburban Eastside. Another bank, another turn, and the plane heads south toward Sea-Tac, passing over the old Seattle neighborhoods, the mini-Manhattan of downtown, the empty flattops of the Duwamish warehouse district. Finally, the inevitable bump and run of landing; the flight is over.

Seattle/King County profile  A boom-bust economy

The same may be true for the turbulent Puget Sound economy. A few final bumps and it appears the recession of 2001-02 will be ending as well.

"It has stopped getting worse," said Bill Conerly, a Portland-based economist who tracks the Northwest.

That said, things will not get better soon. Dick Conway, a Seattle economist, says it may be the middle of 2005 before the number of jobs reaches the peak hit at the end of 2000, or 1,735,000 jobs in King, Snohomish, Piece and Kitsap counties.

	JIM BATES / THE SEATTLE TIMES Work is expected to resume on Bellevue's Lincoln Square in January, seven months after it virtually halted.

"If that forecast holds true," Conway said, "it will be the worst recovery from a recession we have ever had."

This summer, the Seattle area continues to bump along at the bottom of the recession. The state reported last week that unemployment rose by the same amount in July that it fell by in June and stands at 6.4 percent.

Many of the other cities visited in this series about Washington's bruised economy are like Seattle, dropping as much as they did in the last big downturn in 1981. But not all. In the Tri-Cities, federal money for a new plant to treat nuclear waste has cushioned the blow. Tacoma and Bellingham find themselves bolstered by economies that have diversified beyond their ports and lumber companies. Moses Lakes, Spokane and old-economy towns such as Longview struggle.

But the Puget Sound region has suffered more than any other part of the state, accounting for more than two-thirds of the layoffs in the downturn.

Heart is Seattle

At the heart of the Puget Sound area's economy is Seattle, a boom-bust town. From the Panic of 1893 to the Klondike Gold Rush, from the collapse of the supersonic transport to the supercharged dot-com bubble, the region's economic chart is a wildly jagged line resembling the seismic charts of earthquakes that periodically hit the region.

Yet through the ups and downs, people come here and stay. They come to kayak in the smooth waters off Alki, to glide in the warm thermals below Poo Poo Point in Issaquah, to pedal through the urban core along the Burke-Gillman Trail.

It is the land, the outdoors that drives this economy and keeps people here.

"We get 50-60 people a weekend," said Mark Chirico of Seattle Paragliding, which sells $4,000 hang gliders and gives lessons on the top of Tiger Mountain in Issaquah. "We're kind of recession-proof."

The region is home to a dozen Fortune 500 companies. A hundred years ago, the Weyerhaeusers were harvesting trees and the Nordstroms were selling shoes. They have been joined by Microsoft, Boeing, Starbucks and Amazon.com. Shock waves from the economic earthquakes here jar the rest of the state because King County is so big, so different from the rest of the state.

The biggest difference comes in paychecks. The dot-com collapse has changed fortunes for many, but as many as 7,500 of Microsoft's employees are millionaires, and at least 10,000 other people in the Seattle area have become millionaires because of their investment in Microsoft stock. The average worker at Boeing made $62,250 in 2001.

	STEVE RINGMAN / THE SEATTLE TIMES The Microsoft campus in Redmond is a mainstay of the Puget Sound area economy.

Per-capita income in King County is $14,000 above the state average and $28,900 higher than in Ferry County in the far northeastern corner of the state. King County's combined personal income in 2000 was 42.9 percent of the state total, larger than all of Eastern Washington's and larger than the rest of Western Washington's, according to Gary Smith, a Washington State University economist.

King County stands alone with a per-capita income higher than that in Connecticut, the state with the highest average. A dozen counties in the state have per-capita personal-income totals at or below that of Mississippi, the state with the lowest per-capita income.

"King County is the latte-drinking, sushi-snacking, Beemer-driving, stuck-in-traffic economic gorilla of Washington state," Smith said.

Previous declines

Is the current "bust" any different? The slide has a familiar feel to it. It is only when you look ahead that the downturn becomes different.

Twice before in the past 40 years, the economy has fallen as sharply as it has in the past year and a half. Once was in 1969-71, when the supersonic transport was dropped and the famous billboard asked the last person leaving Seattle to "turn out the lights." The other was in the sharp national recession in 1981-82.

The recent seismic chart on the aerospace industry shows that employment will have fallen 42 percent, from a peak of 112,400 in 1998 to 65,000 when the bottom is reached, perhaps by year's end. Boeing employment fell from 103,000 in August 1998 to 64,000 now.

The declines are a little steeper than the average for the other half-dozen Boeing slumps, but not exceptionally so. The "big one" for Boeing is still the 1969-71 slide, when Boeing's local work force dropped from a 1967 high of 100,800 to 38,000.

The 2001-02 recession has similarities to the 1981-82 downturn. Both were about six quarters long. Job losses then were 3.4 percent of the total. Now they are 3.7 percent. Boeing cut fewer jobs in 1982, but they constituted a larger share of total regional employment, 1.9 percent vs. 1.1 percent now, Conway said.

What makes this recession as bad as the one 20 years ago is the loss of 20,000 jobs during the high-tech tumble. Conway estimated that the high-paying jobs lost in the dot-com bust and "tech wreck" here damaged the economy as much as Boeing's downturn triggered by the Sept. 11 terrorist attacks.

Construction sluggish

Any regional economy is a balancing act: Tip a few key industries one way, and a recession results. Tip a few the other way, and growth resumes.

Boeing is the heavyweight. Reports last week of further weakness among airlines, including big Boeing customers such as American and United, add to the concern. A strike by Machinists could increase the drag on the economy.

But Boeing is not the only one.

	MIKE SIEGEL / THE SEATTLE TIMES A 747 is assembled at Everett's Boeing plant. Boeing employment has fallen from 103,000 in August 1998 to 64,000 now.

Construction, a volatile industry if there ever was one, is another drag on the economy. Construction employment grew spectacularly from late 1995 to early 2000, averaging 6.8 percent a year. Now it is in decline, forecast to hit bottom by the end of this year, down 16,800 jobs from the peak.

A few high-visibility projects will continue — the federal courthouse, the downtown library, the new civic center — but the overall industry is not likely to resume growing for a while. With about 8.8 million square feet of empty space in the Seattle-Bellevue area — 14.8 percent of all office space and equivalent to three 60-story high rises — there is little incentive for builders to start new office buildings.

High-tech employment also is expected to be weak for the foreseeable future as "new-economy" companies find that the old-economy rules apply to them after all. Dot-coms, telecommunications and computer-hardware industries all face a rough road. Dot-coms overreached. Telecom companies overexpanded. The recession has hit computer sales hard.

But if the overall economy is at the bottom, some industries are still climbing up.

Microsoft, arguably the most important company in the region, is growing, expecting to add 5,000 employees this year, many in the Puget Sound area. Nonaerospace manufacturing also is doing well. That includes companies such as truck builder Paccar and small machine shops in the Kent valley that have diversified away from heavy reliance on Boeing.

Retail trade also is holding its own as consumers continue to spend. Retail space still is in demand, with vacancy rates below 5 percent in the area, compared with office vacancies above 15 percent. Bellevue Square has expanded in the last year, adding restaurants and even a Tiffany's. How long that can last in the face of a possible slide in the national economy is the biggest question facing the region.

Another difference these days: In the past, the region tended to rebound sharply from cuts. In the 1981-82 downturn, employment was growing by 6 percent a year after the low point. That's not likely to happen again.

The region has run into the law of large numbers. With almost 1.4 million jobs in the Seattle-Bellevue-Everett area, it gets harder and harder to generate big percentage increases. The long-term average job growth has dropped from an annual average of 3.5 percent in the 1980s to 1.5 percent now, said Conway, the Seattle economist. With 1.4 million jobs, a seemingly modest 2 percent growth next year would translate into 28,000 new jobs.

Another difference is the lack of prospects for rebounds in aerospace or housing.

Boeing warns that many of the jobs eliminated in this downturn may not return. Since moving its headquarters to Chicago last year, Boeing has not committed to building new airplanes here and has made it clear it wants to handle any new production by boosting productivity rather than going to the Machinist union's rehire list.

In housing, low mortgage rates have kept the market from falling apart through the recession, but they also have reduced any pent-up demand for housing that usually is a driving force in recoveries.

In the end, however, it is still the lure of the majestic mountains and sparkling waters that keeps people here. This time around, no one is thinking about turning out the lights.

	DEAN RUTZ / THE SEATTLE TIMES Linda Lane, an artist and computer programmer, is focusing on her painting as the Seattle dot-com economy scrapes bottom.

Linda Lane, an artist and computer programmer who earned a six-figure salary during the dot-com boom designing Web sites, returned to Seattle from California last year, worked a few temporary jobs and now is out looking.

She also is using the time to paint; her work is on display at an Eastlake Avenue cafe. She said she was enjoying the alternatives "while waiting for the economy to pick back up because worrying about it isn't helpful or healthy."

Seattle drew her back for several reasons — the culture here, the ability to go to Mount Rainier if she wants, the size of Seattle these days.

Lane does not plan to leave.

"To paraphrase one of my friends," she said. "I would rather sleep under the First Avenue bridge than to ever move from Seattle again."

Stephen H. Dunphy: 206-464-2365 or sdunphy@seattletimes.com