ECONOMIC PULSE

An update on the local and national economy

Posted June 2003

Federal Reserve Announces Economy is "Balanced"

In February the Federal Reserve once again kept rates steady and announced the economy is 'balanced' — referring to the balance-of-risks statement in which the committee determines whether it believes the economy is more at risk of inflation or of poor economic growth. As other risks associated with the current political climate — including oil prices — subside, the Federal Reserve believes the economic climate will improve as well. According to Jack Guynn, the Atlanta Federal Reserve President, "Setting aside the towering exception of war... I think the recovery will be a lot more apparent to all of us in the second half of the year."

For the consumer, who has already carried the economy through the recession and into recovery by continuing to spend, war is just one more thing to worry about.

According to J. Walker Smith, President of Yankelovich, a leading research and consulting firm, in a February 27, 2003 teleconference presentation, consumers are already anxious about job security and the state of the current economy.

Consumers have curbed spending slightly finding value in automobile purchases, low interest rates for buying homes and refinancing existing debt. In addition, oil prices are playing an increasingly bigger role in consumer budgets as the political tension increases. Paying more at the gas pump means less money available to spend on other goods and services. In February 2003, oil prices peaked at $40 a barrel, a 69% increase from the prior year. Historically, each time the price of oil increases more than 60%, the economy is in recession. Indications that industries are already feeling the effects of higher oil prices are evident.

Consumers are buying less fuel in general. Trucks and SUV sales have dropped and the airline industry will pay $200 million more on fuel this quarter than it did a year ago.

U.S. manufacturers are starting to cite oil prices as a reason some investment activities that could have created jobs are being postponed.

Until business investment returns, the economy will continue to rely on consumer spending.

According to the Yankelovich presentation, businesses need to continue to communicate with the public, build strong relationships with customers, remain optimistic and re-channel the consumerĂs anxiety to favor their brands and encourage spending.

Puget Sound Economic Trends

MONTHLY	Dec-02	Jan-03	Jan-02
Rates
Inflation US %	2.38	2.6	1.14
Unemployment %	6.0	6.05	7.1
30-Year Mortgage	6.17	6.05	7.16
Indexes
Help Wanted	66.0	65.2	70.7
Numbers
Total Employment	1,358,600	1,330,200	1,354,500
— Services	1,009,700	1,121,200	n/a
— Retail	149,900	141,00	n/a
— Government	203,900	202,400	199,900
— Aircraft and Parts	69,900	68,400	78,800
New Car Sales	4,342	n/a	4,848
Homes Sold	5,116	4,439	4,504
Home Prices (Median)	$207,00	$205,000	$197,000
Airport Passengers (SeaTac)	2,268,105	1,842,711	1,744,794

* NOTE: The Washington State Bureau of Labor Statistics uses NAICS as of January 2003 and therefore historical data will not be comparable in some line items.

Quarterly	Q2-01	Q2-02	% Change
Sales in Millions
Total Retail Trade	5,371.9	5,241.8	-2.42
— Apparel/Accessories	301.5	315.9	4.78
— Auto Dealers (New/Used)	980.0	949.9	-3.07
— Building Materials	422.6	423.7	0.26
— General Merchandise	522.5	567.3	8.57
— Home	666.3	548.5	-17.68
— Restaurants	796.2	788.8	-0.93
Services	1,590.8	1,536.3	-3.43
— Hotels	232.7	215.3	-7.35
— Personal	74.0	75.8	2.43
— Business	549.3	538.6	-1.95

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.