ECONOMIC PULSE

An update on the local and national economy

Posted January 2003

Consumer Spending Expected to Pick Up During Holiday Sales

Consumer spending has been characterized as the driving force during the 2000-01 recession and the first half of this year while the nation attempts to recover. Although the threat of war with Iraq and a weak job market resulted in disappointing back-to-school sales, many retailers and retail industry forecasters are confident that consumers will spend during the holiday season. Retail sales in fourth quarter 2002 are expected to be up over the last year — the Bank of Toyko-Mitsubishik predicts a 3 percent increase in same-store sales and Retail Forward, Inc. of Columbus, OH expects a 3.3 percent increase.

In spite of refinancing to free up dollars, consumers have been saving more than spending on big-ticket items. Many consumer electronics retailers are adopting auto manufacturer strategies of zero-percent financing to entice consumers to purchase expensive items and accepting that less expensive items, such as MP3 players, DVD movies, video games and digital cameras might carry holiday sales this year. DVD players and video game consoles, which are both more affordable than years past, might also be hot items this holiday season.

With six fewer shopping days and the consistent trend of consumers waiting to shop during the holidays, Puget Sound retailers can expect to be on the edge of their seats until just before the holidays.

Washington state may be getting its share of bad press while struggling with the rest of the nation to climb out of the two year recession; however, state officials believe the unemployment rate has most likely hit bottom. State economist Gary Kamimura believes the current fluctuation in employment numbers results in very little change and doesn't reflect a further decline in the economy.

At the state level, Washington is competing with Alaska for the highest unemployment rate. However, at the Metropolitan Statistical Area (MSA)* level, the unemployment rate for Seattle-Bellevue-Everett was 6.5 percent in August 2002, tying with the Chicago MSA. Other MSA unemployment rates in August include: Los Angeles — 6.8 percent, New York — 7.1 percent and San Jose — 7.6 percent.

The new forecast for Washington state's employment picture in 2003 is 'essentially zero net change' — the state should gain as many new jobs as it loses over the course of the next year, according to Kamimura.

* MSA: Metropolitan Statistical Area as defined by the U.S. Census.

Puget Sound Economic Trends

MONTHLY	Jul-02	Aug-02	Aug-01
Rates
Inflation US %	1.44	1.77	2.81
Unemployment %	6.6	6.5	5.1
30-Year Mortgage	6.57	6.41	7.11
Indexes
Help Wanted	64.8	64.4	81.4
Numbers
Total Employment	1,357,500	1,354,900	1,398,100
— Services	419,700	420,500	431,300
— Retail	234,00	234,600	241,200
— Government	193,400	188,600	183,700
— Aircraft and Parts	72,700	72,600	84,600
New Car Sales	N/A	N/A	N/A
Homes Sold	5,741	5,812	6,095
Home Prices (Median)	$205,000	$206,000	$198,000
Airport Passengers (SeaTac)	2,792,079	2,958,261	3,121,943

Quarterly	Q1-01	Q1-02	% Change
Sales in Millions
Total Retail Trade	4,932.2	4,774.7	-3.19
— Apparel/Accessories	245.5	254.1	3.50
— Auto Dealers (New/Used)	1,025.1	898.9	-12.31
— Building Materials	297.3	305.9	2.89
— General Merchandise	507.4	518.5	2.19
— Home	665.8	551.6	-17.15
— Restaurants	696.7	704.3	1.09
Services	1,433.8	1,404.1	-2.07
— Hotels	177.3	169.6	-4.34
— Personal	71.4	65.9	-7.70
— Business	528.5	496.4	-6.07

Base: Seattle-Bellevue-Everett PMSA includes King, Snohomish and Island counties.
Sources: Data compiled from various federal and state agency reports, including Washington State Employment Security Department.