Why the Pacific Northwest economy is so strong
In defiance of the country as a whole, business and employment are going gangbusters around here, and it doesn't appear that will change anytime soon.
Quick, what do the Boeing 787, a weak dollar, cheap electricity, Microsoft Vista, high-priced oil, and solar-grade polysilicon have in common?
Answer: All help keep the Pacific Northwest economy growing briskly during a period of slow U.S. economic growth. The U.S. economy in the January-March quarter grew at the slowest rate in four years. In dramatic contrast, parts of the Pacific Northwest are flat-out booming, and most of the rest grows at rates as much as double the U.S. average.
Montana had the nation's lowest March unemployment rate, 2.0 percent. Both Montana and Idaho (unemployment rate: 2.8%) are essentially at full employment. Idaho ranks No. 4 in the U.S., Montana No. 7 in employment growth for 12 months through March, according to Arizona State University's monthly Job Growth Update. Washington at No. 10 and Oregon at No. 11 aren't far behind. All four states are growing employment substantially faster than the U.S. as a whole.
And the new jobs aren't just in burger joints and latte stands. Construction is at or near record highs in all four states. Washington's high-paid manufacturing sector is expanding, as are some other high-paid sectors such as software publishing and professional and business services. Montana's boom, spurred in part by rising global demand for raw materials including copper, has spread to most sectors of its economy. Population growth at roughly three times the national average spurs broad growth in Idaho.
What else is behind Pacific Northwest growth? Boeing's dramatic turnaround, for starters. Boeing and its suppliers have been growing payrolls at the rate of abut 500 a month for almost three years. Washington's aerospace head count, at 77,500 in March, is still dramatically below the 113,100 reached in early 1998, but it is up 27 percent from the cyclical low of 60,800 three years ago.
High oil prices? I, too, wince at the gas pump. But it is $60-$70 oil that has made the Boeing 787 the most successful new-airplane launch in history. Boeing has promised customers roughly 20 percent more fuel efficiency per seat mile than today's fleet. It is the main reason the 787 is sold out through 2012 (more than 570 orders so far), while the less-fuel-efficient jumbo Airbus A380 (555 seats to the 787's 200-300) is stuck at about 150 orders, far fewer than needed to amortize development cost.
Aerospace jobs account for fewer than one in 40 jobs in Washington, compared with about one in 15 a decade ago, one in 10 40 years ago, but they remain among the highest paid, with wages roughly double the state average, so they are influential beyond their numbers.
Software publishing is another high-paid sector and, with aerospace, very much a driver of Washington's economy. We know from Microsoft's latest quarterly earnings report that the Vista operating system is off to a great start. Microsoft's biggest challenge today is winning the battle for "mind share" among young consumers. When was the last time you heard an iPod-toting, Google-using teenager wax eloquent about a "cool" Microsoft product?
But with $28 billion in the bank, Microsoft has the wherewithal to finance continued growth, and it already is an outsized player. The company has 35,000 employees in the Puget Sound area (76,000 worldwide), up about 15 percent in a year. It occupies more than 11 million square feet of office space on and around the sprawling Redmond campus – and just announced it will take up 1.3 million square feet of space in new buildings under construction in Bellevue.
Cheap electricity? Its the main input, along with cheap land, for the massive "server farms" that Microsoft, Google, Yahoo, Intuit, and Ask.com are building or planning in rural parts of the Pacific Northwest. I like to think of these massive buildings – unimpressive from the outside but stuffed with servers, air-conditioning, and backup power systems, and with security to match Fort Knox – as the railroads and steel mills of the digital economy.
Cheap electricity has also attracted world-scale players in solar power to the Pacific Northwest. Norway's Renewable Energy Corp. (REC) last year began building a new $600 million plant to produce solar-grade polysilicon alongside an existing polysilicon plant at Moses Lake, Wash. REC also began spending $50 million to de-bottleneck operations at its Advanced Silicon Materials plant in Butte, Mont. It just announced it will spend an additional $485 million in the Pacific Northwest to boost capacity. (Full disclosure: After writing about Renewable Energy Corp. last year, I bought a few shares.)
Several weeks ago another global solar powerhouse, SolarWorld AG of Germany, picked up for less than 10 cents on the dollar a never-opened chip plant in Hillsboro, Ore., that had been built a decade ago by Japan's Komatsu. SolarWorld will invest about $400 million to turn the plant into North America's largest producer of solar-grade polysilicon. Think of REC and SolarWorld as the aluminum smelters of 60 or 70 years ago, taking advantage of electricity that is still relatively abundant and cheap.
The weak dollar also is a plus for the Pacific Northwest. It's a pain if your tastes run to French wine, German cars, and Italian suits, but almost everyone else is a winner. We're an export-oriented region. The cheap buck makes our exports a bargain and raises prices of stuff that our farms and factories must compete against. Worried that the Chinese control too many dollars? Relax. The last thing the Chinese want is a run on the dollar that would sink the value of the trillion or so they have accumulated.
Not all is roses in the Pacific Northwest, of course. The housing downturn has hurt manufacturing employment in Oregon, which still disproportionately depends on the forest industry. Truck-making in both Washington and Oregon is down because new diesel-exhaust rules sucked so much truck-buying into 2006. Revenues are higher in all the states, but as any policy-maker will tell you, in the public sector needs always outrun resources. Don't expect a tax cut soon. In Washington, in fact, get ready for a 10 percent sales tax, partly because the share of the economy subject to the tax (tangible goods) is declining.
Risks? Either Boeing or Microsoft – both are key drivers regionally - could stumble badly. The housing downturn could worsen, crashing the forest industry, still important regionally. The global economy could run off the rails. Anything's possible, but the odds the Pacific Northwest will start to lag the U.S. anytime soon have to be rated pretty low.
Comments:
Posted Fri, May 11, 9:40 a.m.
Regular Contributer?: Is Michael Parks going to be a regular contributer to Crosscut? That would be fantastic news if it's so.
The only thing I'd like to expand more on his northwest report is including information about British Columbia, Yukon, and Alberta as they're very much woven into the Cascadia(Pacific Northwest) region. Especially in terms of energy with the oil pipelines. You could make an argument to include Alaska as well.
Posted Fri, May 11, 9:47 a.m.
The big boys get all the press, but there is a lot more to it.: One item you leave out- LIFESTYLE.
I know lots of people who grew up in traditional manufacturing areas- Detroit, Pittsburgh, Springfield Ma.- and in every case, they couldnt get out of town soon enough.
And now, they live here, in Washington State.
People move here because of the lifestyle, the climate, the geography, and the intellectual climate as well- the freedom, in the large part, from racism, small town conservatism, and corruption.
And many of those people who have moved here in the last 20 years bring their livelihood with them.
I live in a rural area, and it is full of small businesses, home offices, writers, musicians, artists, and others whose work is not obvious from the road.
I know in my small county, there are thriving small businesses making and selling high tech devices of all sorts, companies with international markets. Unlike huge, visible employers like Paccar or Boeing, they get little press and are flying below the radar of traditional wisdom- but they contribute heavily to the bustling local economy.
And all of them are here intentionally-- people choose Washington, and then make it successful.
One of the big success stories around these parts is Janiciki, in Sedro Wooley, where the son of a "doomed" and "obsolescent" logging family went out into the world, got his engineering degree, and decided he wanted to live here instead- he came back and founded a world class technology business, which has gone from zero to the third largest employer in the county in under ten years- he is supplying Boeing with the Tech to build the Dreamliner, along with building the molds for the BMW Americas cup boat, along with many other international high tech customers.
He could be anywhere, and traditional business logic says his plant should be in Mexico or China- but he LIKES Sedro Wooley, and thats where he is. He is currently building a wood pellet factory, and 50% or so of his output is already commited to European buyers.
I know of many other companies like this thruout Western Washington- smart, successful guys and gals, who could be anywhere in the World- and, if they were somewhere else, would probably make more profit, but choose to stay here because the enjoy it.
This is the other side of the "Static Population" story in the WSJ the other day- although only the City of Seattle is somewhat "Static" - the state as a whole has gained appreciably in population consistently since the 1860's.
Posted Fri, May 11, 10:49 a.m.
RE: egular Contributer?: Michael is a regular contributor, yes. You can read all his stuff here or by clicking on his byline.
Posted Fri, May 11, 11:34 a.m.
Server Farms: Good article but one problem I see with his analysis is that server farms are what steel mills used to be. Far from it. Server farms are basically big sheds with tons of servers and an electricity sucking cooling system. There is very little employment or development connected with them.
Posted Fri, May 11, 3:13 p.m.
RE: The big boys get all the press, but there is a lot more to it.: You make some good points. I absolutely agree that lifestyle is a major sustainable factor. IMHO it's more important, ultimately, than either or both of Microsoft and Boeing. Having said that, you don't need to be a rocket surgeon to figure out that those two Colossuses are driving most of the recent job growth in the region. We just happen to be benefiting from the coincidence of two major employers at the height of their hiring cycles. So expect a hard dip in the next 2-3 years when they both tail off at the same time.
You're right in pointing out the overall population growth of the State, in contrast to Stagnant, Static, Stultifying Seattle proper. You mention Janiciki in Sedrow Wooley as an example of a smaller thriving business. That's a really interesting example, because you state that the company is "from around these parts," which is true in that it's in the State of Washington. However note that the business is NOT in King County and resides in what in what has traditionally been considered a retirement community and tourist destination. My guess is that Janicki benefits from the lack of over-regulation and zoning that drives up costs unfairly and ridiculously in King County.
It's worth noting that our environmental laws devastated the logging industry, a thriving Washington industry that existed outside the Seattle metropolitan area. I won't argue that stopping clear-cutting and preserving our forests was a bad thing. I will argue that bringing that industry to its knees was not complemented by a transition to other businesses and business models that could sustain communities. Hopefully Janiciki is such an example, and will be an example of many new larger businesses that can thrive throughout the State and not just along the I-5 corridor.
Janiciki is also an example of how businesses can do well for everyone if government gets out of the way and quietly monitors progress. The lifestyle or livability factor, is a long-term sustainable advantage that a state, county, or city can provide to a global employer. One major factor is affordability of housing, which drives the % of income dedicated to housing, and thus the overall quality of life, i.e., lifestyle.
Lifestyle and livability attract businesses. Note that Microsoft is in the Seattle area primarily because the two founders wanted to come back home. They liked the lifestyle. Apparently, so do Shultz, Bezos, and Brontman & Sinegal. Janiciki likes the lifestyle in Sedro Wooley. These heads of companies are the people who decide where businesses start, where they remain, and where they move.
Posted Sat, May 12, 10:05 a.m.
RE: The big boys get all the press, but there is a lot more to it.: Well, its obvious your exposure to logging is mostly buying Presto Logs.
Logging has changed, thats for sure- but it never employed very many people, compared to the numbers of people who now work in the same rural areas.
Back at the peak of logging in Skagit County, in the late 50's, the population was about 40,000. Now, its 120,000. Of those 40,000, probably fewer than 5000 earned their living from logging.
More people today work in education, or health care, or even manufacturing, in Skagit County today, than worked in logging in the good old days.
Our economy is MUCH better now than it was in the logging days- we have higher paid, safer jobs, and lots more of em.
Today, in Skagit County, we have had two new sawmills come online in the last few years, steadily fed by loggers. We still have logs and loggers- but they are higher tech, and, consequently, fewer people work at them.
So I would have to say that "environmentalists" slowing down logging on federal lands (which was the vast majority of Skagit logging) has been very very good for jobs, and wages, around here.
Affordability of housing is another red herring. While I am all in favor of affordable housing, and I think todays high real estate prices are unsustainable, the price of housing in my area has gone up, but so have wages and opportunities. Sure, some people move to Skagit because of cheaper housing prices, but many people move here primarily, again, for LIFESTYLE reasons. And are willing to pay more than they would in say, Moses Lake or Omak, because the lifestyle here is better. Those people bring jobs, and income, into the area. So far from discouraging the economy, the higher prices in places like the Skagit, or Port Townsend, are part of a bigger picture, and while I would not say higher prices attract people, I would say that the reasons the prices are higher are the reasons people come, and the reasons the economy here is doing well.
And the zoning and environmental restrictions work the same way.
In Houston, for example, the zoning allows you to build a lead smelter or a slaughterhouse right in any residential neighborhood.
Curiously enough, people who start companies prefer the stricter environmental and zoning regulations of Washington State- because, as I am trying to point out, they realize they actually have to live here too.
In my neighborhood, there are many boat building shops building million dollar yachts, a company making seismic test equipment that exports worldwide, High Tech aircraft laminate manufacturers, Deep Sea fishing reel makers, and many other companies that could save money by being in a more open zoning and environmental climate, but they choose not to.
And one of the big employers in my area is food production- a business that NEEDS tight zoning and environmental restrictions to survive. My neighbors make or grow Goat Cheese, Artisan Bread, Oysters, Clams and Mussels, amazing fresh milk, raspberries, blueberries, apples and marionberries, potatoes, tulips and daffodils, seed for close to half the spinach grown in america, beef, lamb, and pork, eggs, fresh pasta, salmon, chickens, onions, llama and alpaca wool, and tens of varieties of vegetables and fruits.
All of which we sell to you hungry folks down in Seattle- and none of which would even be here, if, instead of tight zoning regulation, we had "affordable" housing like Lynnwood or Carnation, where suburban sprawl is virtually unchecked. It hasnt kept prices down, its just made things ugly.
Nope, Evertt and Tacoma dont smell anymore, and thats a good thing. But the resulting cleanup has not decimated jobs, or communities- its made them stronger.
What we have here, our mountains and fields, our Puget Sound and rivers and lakes and forests- thats a plus, its something that attracts smart, desirable people who set up businesses.
Posted Mon, May 14, 3:30 p.m.
RE: The big boys get all the press, but there is a lot more to it.: I found your post interesting. On a superficial level, it seems the Pacific Northwest could potentially continue its growth, even as the Nation stands on the cusp of a correction. Despite Wall Street records and Boardroom dealings, nary a word is said about the cost of oil, or the U.S. dollar.
To be sure, the author mentions the price of oil in passing, but dismisses it on the merits of Boeing and a handful of well-paid workers. The region has seen the population grow, while Boeing employees in the area have declined. I find it highly doubtful that the wages of the remaining employees compensate for the loss of thousands of well-paid manufacturing jobs after adjusting for inflation. It was a different era: those well-paid manufacturing jobs were the economic backbone of the region, while today a Boeing lay-off would mean much less.
In reality, the high price of oil at this stage of the driving season should worry any sane person. Currently, the nation's refineries are running at something like 90%. The problem is that routine maintenance is being put-off to reap the rewards of high oil prices, despite the fact that the equipment is past its prime. The prospects of new refinery capacity is dim for a variety of reasons, including the Petroleum Industry's inclination to plow profits in to stock buy-backs, despite a desperate need. Unfortunately, refining capacity is a small problem compared to the inevitability of a drop in Middle-Eastern production due to Geopolitical events.
The significance of oil to the modern economy is pretty hard to understate. Petroleum fuels our transportation, agriculture, and manufacturing systems; most consumer goods could not exist without oil. The structural state of our petroleum distribution system, which should include infrastructure as well as the diplomatic, political, economic and military components, should strike fear in the hearts of reasonable men.
Similarly, the unstable nature of our nation's saving and fiscal deficits, which are structural also, should not be ignored. The notion that "The last thing the Chinese want is a run on the dollar" amounts to outright dismissal. At what point do the Chinese say enough? Eventually, the Chinese will develop enough internal consumption to maintain their own growth with the very industries Corporate America financed. At that point, the Chinese will cut their losses. To do otherwise, one commits to the economic version of the Cold War Strategy: Mutually Assured Destruction. It is inevitable that the Chinese will stop funding America's borrowing and adventuring--more likely at 2 trillion U.S. than 3 trillion U.S.--or they go bankrupt.
While wishful thinking and easy credit may fuel growth and asset bubbles for some unknowable time into the future, eventually, the dollar will be perceived as worthless. When the world starts selling dollar's, which will happen, consumption, income and services will decrease, while taxes will increase; it is a structural imbalance, thus inevitable. The fact that the Nation shows no inclination to make changes does not preclude events from forcing changes; it guarantees it.
The Pacific Northwest will not be immune to structural adjustments. The Boeing's, Microsoft's, Starbuck's, Costco's, etc. are not a part of the Pacific Northwest's future, because they are structural artifacts. Sadly, the growth witnessed in the Pacific Northwest is extremely vulnerable to future structural adjustments, while it has only served to deteriorate the region's natural legacy, illustrating the incontrovertible fact that there are limits to growth.
Posted Mon, May 14, 5 p.m.
RE: The big boys get all the press, but there is a lot more to it.: Interesting post. I stand corrected on the nature of the businesses that are thriving in Skagit County. Sounds almost idyllic! Your points about the need and usefulness of zoning make a lot of sense. What you describe is exactly why zoning exists at all.
While Skagit County would appear to occupy a life-style sweet spot at the moment, it's interesting that I feel that I'm objecting to the current zoning in East King County because it doesn't allow for the mix of lifestyle and business that you describe. The difference between the two counties seems to be that the urban centers in Seattle, Bellevue, Kirkland, and Redmond impose a collectively huge demand on housing that fuels sprawl and the need for freeways and trains, drives up land & home prices, and drives out many of the types of business that you describe in rural Skagit County.
It's interesting to note that a booming large business such as Microsoft can obliterate the prevailing culture of an area, for better or worse, as has happened to the Eastside. Microsoft has left its mark too on the San Juan islands, where the lifestyles that were nearly indigenous to the people who lived there have been obliterated by the influx of high tech millionaires who have flocked to capture the island lifestyle by buying and building huge new homes throughout. In some ways this is progress. Or growth management.
In part, zoning is an attempt at stopping this sort of assault on life-style, but the sheer number of newcomers and the money that the newcomers bring to the islands (and don't earn on the islands) changes everything. Indeed this whole tier of fortunate society replete with high-tech fortunes makes affordable housing an extremely serious issue on the islands and in King County. Affordable housing, by its very nature, cannot compete against the demand for mansions and mega-mansions that occupy the attentions of 1) your average developer, and 2) your average municipal government which depends financially on many large homes upon which it can levy property taxes.
As for my knowledge of logging, I'm more or less at the presto-log expertise level. I have seen charts showing how the amount of logging has gone down roughly 75% from what it used to be 25 yrs ago, when clear-cutting was prevalent. As the mills closed there was plenty of dislocation. Mill towns suffered a lot. The panoply of different businesses that you now describe in Skagit County is more sustainable and to my mind a big improvement over economies that overly rely on the largesse of a single large employer or industry, as Seattle with Boeing, or as the mill towns with logging used to be.