ECONOMIC PULSE
An update on the local and national economy
Posted August 3, 2003
Economists Expect Slow Recovery to Begin Second Half of 2003
Now that the war in Iraq has subsided, many believe the economy will start picking up during the second half of 2003. At the Pacific Northwest Regional Economic Conference, Narimen Bahravesh, chief economist with Global Insights, said "A robust recovery of the U.S. economy was delayed about three months by the Iraq conflict, but there should be signs of a recovery by summer or early fall." Most economists agree that everything is in place for the economy to start picking up — interest rates remain low, businesses have reduced inventories, business profits have increased slightly and consumer spending is up — all play key roles in even a slight recovery.
The Federal Reserve Bank is not expected to raise interest rates; on the contrary, rates are expected to be cut again in order to deter deflation — a decline in overall prices.
Restrained business investment is still a major influence, preventing the economy from recovery. Business spending on software and equipment was down 6.2 percent in the first quarter of 2003, a dramatic reversal from a growth rate of 6.2 percent in fourth quarter 2002. Businesses are investing in new buildings, plants and other structures — this type of spending increased 0.4 percent in first quarter 2003, after being cut the five previous consecutive quarters. In spite of reluctance by businesses to spend, after-tax profits of U.S. companies increased 2.5 percent in first quarter 2003 and 4.1 percent in fourth quarter 2002. In addition, businesses will probably hold off increasing their employee base until the recovery is certain, which could cause anxiety among consumers.
Due to the lack of business investment, pressure remains on consumers to spend and keep the economy moving forward — consumer spending during the first quarter 2003 increased at an annual rate of 2 percent, above the forecasted 1.4 percent, regardless of job security concerns. In addition, consumer sentiment, measured by the University of Michigan, rose to 92.1 in May, an increase over 86.0 in April and the highest level in almost a year.
As the national picture continues to improve, the local economy is expected to follow.
Puget Sound Economic Trends
| MONTHLY | Mar-03 | Apr-03 | Apr-02 | |
| Rates | ||||
| Inflation US % | 2.93 | 2.17 | 1.63 | |
| Unemployment % | 6.6 | 6.6 | 7.0 | |
| 30-Year Mortgage | 5.88 | 5.92 | 7.06 | |
| Indexes | ||||
| Help Wanted | 56.7 | 58.4 | 65.3 | |
| Numbers | ||||
| Total Employment | 1,333,100 | 1,338,300 | 1,349,100 | |
| — Prof. & Business Services | 178,000 | 178,300 | 178,900 | |
| — Retail | 139,100 | 139,800 | 141,900 | |
| — Government | 203,900 | 203,800 | 201,900 | |
| — Aircraft and Parts | 65,900 | 65,400 | 75,200 | |
| New Car Sales | 4,673 | n/a | 3,886 | |
| Homes Sold | 5,646 | 6,040 | 5,012 | |
| Home Prices (Median) | $211,000 | $218,000 | $200,000 | |
| Airport Passengers (SeaTac) | 2,035,061 | 2,026,635 | 2,119,665 | |
* 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 | Q3-01 | Q3-02 | % Change | |
| Sales in Millions | ||||
| Total Retail Trade | 5299.5 | 5,523.8 | 4.23 | |
| — Apparel/Accessories | 332.5 | 348.9 | 4.93 | |
| — Auto Dealers (New/Used) | 934.7 | 1,039.6 | 11.22 | |
| — Building Materials | 390.7 | 460.0 | 17.74 | |
| — General Merchandise | 638.1 | 630.9 | -1.13 | |
| — Home | 577.7 | 568.3 | -1.63 | |
| — Restaurants | 811.8 | 845.1 | 4.10 | |
| Services | 1,605.9 | 1,645.2 | 2.45 | |
| — Hotels | 254.9 | 251.2 | -1.45 | |
| — Personal | 69.3 | 75.2 | 8.51 | |
| — Business | 523.4 | 557.8 | 6.57 | |
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.