ECONOMIC PULSE

An update on the local and national economy

Posted February 2005

New housing starts are expected to help buoy the region's economy through 2005.

New residential construction bolstered the economy of the four-county heart of the Puget Sound area in 2004 and is expected to continue into 2005. The four-county area includes King, Pierce, Snohomish and Kitsap counties.

This contrasts with the national housing picture, where an apparent overbuilding of new housing could come to a quick halt in 2005. This could mean a loss of construction jobs, the possibility of higher mortgage interest rates and may contribute to inflationary pressures nationally in 2005 and 2006.

Nationally, housing starts unexpectedly plummeted 13.1 percent in November, the biggest dive in nearly 11 years, according to the Commerce Department. Permits for future groundbreaking, an indicator of builder confidence, also proved disappointing, slipping 1.5 percent to a 1.988 million unit pace.

Douglas Pedersen of Conway Pedersen Economics, Inc., said he sees "no signs around here of excessive housing." Looking at the (Seattle area's) trend of building permits for new homes, he doesn't think the region is oversupplied with new housing.

However, Pedersen said that prices for Puget Sound area housing have risen fast - about 8 to 10 percent on an annualized basis during the past six to eight months. "This doesn't seem to be something that can last," Pedersen noted. He expects to see slower home appreciation rates relative to overall inflation and household income increases. Dan Givens, a Windermere Real Estate manager, estimated that when 2004 figures are totaled, sales prices and the number of homes sold could be up 11 percent over 2003.

Pedersen forecasts Puget Sound area employment growth will hit 1.9 percent for 2004, 2.6 percent in 2005 and 2.1 percent in 2006 and then stay above 2 percent each year through 2009.

Employment growth leads to an increase in personal income. Pedersen forecasts Puget Sound area personal income increases of 4.9 percent for 2004, 5.8 percent in 2005 and 5.6 percent in 2006.

The population growth rate is expected to increase in the Puget Sound area, from a predicted 0.9 percent in 2004 to a forecast of 1.1 percent in 2005 and 1.2 percent in 2006, said Pedersen.

On the commercial construction scene, Pedersen said the Puget Sound area's new construction appears to be in sync with commercial vacancy rates. The economy was so depressed here that there was an oversupply of commercial property, which now is "starting to recover. There may be some 'hold' projects coming back to life," he said.

Puget Sound Economic Trends

		Oct-04	Sept-04	Oct-03
	Rates
	Purchasing Power U.S. Consumer Dollar	52.4	52.7	54.0
	Inflation US	190.9	189.9	185.0
	Inflation (Seattle-Tacoma-Bremerton)	196.5	NA	193.7
	Umemployment % (Seattle-Bellevue-Everett)	5.0	5.0	6.9
	30-Year Mortgage Rates %	5.90	5.75	5.83
		Oct-04	Sept-04	Oct-03
	Economic Indicators
	Total Employment* (Seattle-Bellevue-Everett)	1,370,400	1,368,100	1,347,300
	— Professional &      Business Services	189,500	189,100	181,900
	— Retail Trade	145,200	144,900	143,900
	— Government	202,800	197,800	202,500
	— Aerospace	59,200	58,600	60,200
	— High Tech	53,800	52,200	52,100
	New Car Sales**	11,063	10,545	10,049
	Home & Condo Resale**	5,917	NA	6,560
	Median Home Price	$263,200	$267,800	$239,300
	Airport Passengers (SeaTac)	2,257,318	2,395,009	2,117,724
	Year-to-Date Building Permits*	21,456	19,404	19,495

	Quarterly	Q2-02	Q2-03	% Change
Taxable Retail Sales includes SIC 52-59; Services SIC 70-89. Noted in millions.
	Total Retail Trade	$5,767.6	$5,507.5	4.7%
	— Building Materials/Hardware	561.7	497.0	13.0
	— General Merchandise	742.9	712.0	4.3
	— Food	422.1	393.8	7.2
	— Auto Dealers/Gas Stations	1,285.7	1,333.0	-3.6
	— Apparel/Accessories	376.2	335.3	12.2
	— Furniture/Home Appliances	629.5	542.1	16.1
	— Eating & Drinking Places	907.0	849.2	6.8
	— Other/Misc.	842.8	845.2	-0.3
	Services	$1,424.6	$1,440.5	-1.1%
	— Hotels	226.5	220.0	3.0
	— Personal	80.0	77.8	2.7
	— Business	453.6	483.5	-6.2
	— Auto Repair	404.0	336.2	20.2
	— Other	383.3	323.0	18.7

Bases: Most references are to the 3-county area of King, Snohomish and Island counties. Exceptions are noted.

Sources: Data compiled from federal and state agencies, including the Washington State Employment Security Department.

* Seattle inflation is reported only in even-numbered months. The Washington State Bureau of Labor Statistics uses NAICS as of January 2003; historical data using SIC codes will not be comparable over time. Employment figures are by place of work rather than place of residence.

** New Car Sales and Home & Condo Resale data are for King, Snohomish and Pierce counties. Car Sales Source: R. L. Polk. Home Resale Source: Northwest Multiple Listing Service.

*** Building permits are for residential, privately-owned units in the counties of King, Pierce, Snohomish and Kitsap. Source: U.S. Bureau of the Census.