Local Economy in for a “Long Slog”

Jon Talton wrote a great article for the Times a few days ago that goes deeper than the usual “Boeing! Microsoft! Pink Ponies!” type articles and explores all the ways the Seattle region is exposed to the slowing economy: For local economy, it’ll be a long slog.

…the national slowdown is finally hitting the Puget Sound region, slowing job creation as well as pressuring would-be home-sellers, the construction industry and credit-strapped homeowners.

As recently as last year, employment growth here was more than twice the national average, according to Dick Conway, a Seattle economist and co-publisher of the Puget Sound Economic Forecaster. Now, he forecasts it will decelerate from a peak of 3.2 percent in the first quarter of 2007 to less than 2 percent this year. On a quarter-to-quarter basis, job creation could be essentially flat, something backed up by recent state job numbers.

It’s nice to read a somewhat realistic article once in a while, instead of constantly being fed the feel-good fluff stories about how special and different we are in Seattle.

What are the chances of a state like Washington… avoiding a recession?

…the economic model of Pacific Northwest economies maintained by Jeremy Piger, associate professor of economics at the University of Oregon, showed a 99.4 percent chance of recession for Washington in its latest reading. The model is based on data from the Federal Reserve Bank of Philadelphia.

So you’re telling me there’s a chance… Yeah!

My one problem is that Talton quotes Dick Conway as some sort of expert on the local economy and housing.

“The picture did change substantially with housing,” Conway said. “Ours held up pretty well for a while. We’ve finally succumbed.” Price appreciation has stalled and inventory is swelling as potential buyers try to time the bottom of the already favorable market.

Conway compares today’s climate to 2001’s and uses the term “rubber-band effect.” The faster you drop into recession, the faster you bounce out. This has been a slow slide. He said the Puget Sound region may touch bottom in the next few months and begin growing again.

I’m not sure why he would be quoting Dick Conway as any sort of expert, considering how off base he has been with his 2008 real estate predictions so far this year.

Conway anticipates average Puget Sound-region home prices will decline less than 1 percent next year, and sales will be down about 5 percent, before rebounding in 2008.

Let’s see… According to NWMLS July data, “Puget Sound-region” (King, Pierce, Snohomish, Kitsap, & Thurston Counties) average prices are already down nearly 5 percent, while sales are down over 35 percent. Even if you just look at King/Pierce/Snohomish, prices are down over 3 percent and sales have dropped 37 percent.

The bottom line seems to be that the local economy is not bulletproof, despite what the papers and real estate agents have been saying for the last few years.

(Jon Talton, Seattle Times, 08.26.2008)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    patient says:

    I read that article when I was searching for the Times comments on June’s C/s report. I had the exact same reaction on it as The Tim. Very good journalistic effort by the author, just a shame about including the Conway bs.

    “potential buyers try to time the bottom of the already favorable market.”

    Yeah, stupid buyers who are not buying while prices are falling and more or less all indicators points to a continued fall. You should join the “save a realtors Lexus” by hurry, hurry to buy, or perhaps not.

  2. 2
    vboring says:

    sarcasm /*

    the economy sucks and everyone knows it!

    high 5’s all around. */

    the problem with being a bear is that being right is a bit depressing.

  3. 3
    singliac says:

    Nice Dumb and Dumber reference, Tim.

  4. 4
    Nickle Pickle says:

    Yet another good one from The Tim. Invaluable!

    Washington must be affected by what is happening elsewhere. It is inevitable. Perhaps why it is slower to react here may be on pure psychology. Perhaps the belief by the residents here that we are protected, gives us cushion that we are protected for a bit longer.

    But the market has a way of correcting itself and so do regional economys. I think Washington is ready for a wakeup call.

    Case in point: I own a small internet business. We basically ship things all over the world. We can locate anywhere as long as there is a Post Office and UPS store nearby – which covers most of the USA. It is a bad business move to pay high rent in a place like Seattle, when I could easily move to Tacoma, or say, Detroit – where property is dirt cheap. Low overhead – more profit. Now I have roots here that date almost 40 years – family and such, so I wont move. But I can understand why commercial business may want to move elsewhere. If the rent/ownership is cheap over there – why stay here?

  5. 5
    rose-colored-coolaid says:

    I like this quote

    Conway compares today’s climate to 2001’s and uses the term “rubber-band effect.” The faster you drop into recession, the faster you bounce out. This has been a slow slide. He said the Puget Sound region may touch bottom in the next few months and begin growing again.

    Is Conway familiar with the 1930s or 1970s? Rapid economic collapse causes panic, it does not bolster confidence creating a rapid rebound. [sigh]

  6. 6
    jon says:

    From the US Commerce Dept:

    “Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.3 percent in the second quarter of 2008, (that is, from the first quarter to the second quarter), according to preliminary estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent.

    The GDP estimates released today are based on more complete source data than were available for the advance estimates issued last month. In the advance estimates, the increase in real GDP was 1.9 percent (see “Revisions” on page 3).”

    Where’s my recession, dude?

  7. 7
    The Tim says:

    singliac @ 3,

    Just trying to keep it a little light, since as vboring says @ 2, it’s not exactly happy news. Glad somebody caught the reference :^)

  8. 8
    The Tim says:

    jon @ 6,

    Where’s my recession, dude?

    Certainly not in the ultra-baked government “statistics,” that’s for sure.

    I think it might be worth your time to read up on just how much the government manipulates the data to paint the picture they want people to believe.

    Here’s a good place to start:

    The Gross Domestic Product (GDP) is one of the broader measures of economic activity and is the most widely followed business indicator reported by the U.S. government. Upward growth biases built into GDP modeling since the early 1980s, however, have rendered this important series nearly worthless as an indicator of economic activity.

    Take a look at what GDP looks like when you don’t massage the numbers.

  9. 9
    TheHulk says:

    Are we in a recession and is inflation high?

    Well, I saw a woman buy one single apple at Safeway yesterday and it cost her 81c. Wasnt even a really big apple. She was absolutely shocked at how much it cost. So yeah, the economic stimulus helped give us a short term boost, just so that it shouldn’t cost McCain the election. (Not gonna happen, there is no way the GOP is winning this year).
    Now I am no economist but I would think if inflation is 3% and GDP growth (massaged or not) is 3% aren’t they roughly tied to each other? Now if GDP growth beats inflation by a serious amount (say 1%) I think that would be real “growth”. Feel free to correct me if I am wrong on this.

  10. 10

    Dick Conway isn’t always going to come up with inaccurate predictions. Even a blind squirrel finds an acorn once in a while.

  11. 11


    The stock market is riding 1.7% higher [after plummetting 20% in about a year], gas is down about 10% [after going up about 100% in about a year and its up to $120/barrel again], Bernanke predicts low inflation for 2009 [even though we can barely afford to drive to a grocery store, let alone buy the $3/lb produce] and GDP is 3.3% [all because of the economic stimulus check timing?]….add the Iraq War now has a withdrawl plan…..you get the picture, right after McCain becomes President, everything goes to heck in a hen basket again?

    I imageine if we paint a gloomy 6.5% unemployment and 10-15% underemployment economy, even the Dem route of uncontrolled growth seems out of place…..


    I love Presidential election years, it brings out the trickster in all of us :-)

    Looks like a

  12. 12
    Birdie Num Nums says:

    Did anyone else read this article in the Seattle Business Monthly? “Realogics Dean Jones explains how the Seattle market is still the envy of the rest of the country…. ‘Once those wait-and-see customers realize the bottom never dropped,’ Jones explains, ‘they’ll be back to that sense of urgency.’” Meanwhile, on the opposite page (p. 21), are two small articles entitled “Local Foreclosures Continue to Climb” and “Housing Slump Shutters Barclays.”

  13. 13
    jon says:

    “Now if GDP growth beats inflation by a serious amount (say 1%) I think that would be real “growth”. Feel free to correct me if I am wrong on this.”

    Real GDP means they have already adjusted for inflation. So it is 3.3% above what they say inflation is.

  14. 14
    patient says:

    A 0.825% growth quarter to quarter is all that a grand extra of spending money for most families could muster? We are in even worse shape than I thought.

  15. 15
    TJ_98370 says:

    I plucked the comment below directly from Ben Jones The Housing Bubble blog. California lenders are requiring 30% down now!?! Is this a trend and can similar requirements be expected in the greater PNW? It does not take much imagination to determine what a 30% down payment requirement would do to sales / prices.
    Comment by aladinsane
    2008-08-28 05:21:27
    A friend has been trying to sell their house here, for almost 2 years now…
    Finally, somebody came through and wants to put $80k down on a $500k+ house. The would-be buyer is retired from the military, excellent credit, has plenty of dough in the bank, but the deal isn’t flying.
    The bank/lenders want more, like 30% down.
    At this point of the game in the California real estate market, narrowing the field down to those that have $150k+ to put for a down payment, means there is no viable market.


    Housing Bubble Blog

  16. 16
    Buceri says:

    Here is the look behind the numbers:


    White House press secretary Dana Perino said the numbers demonstrated the economy’s resilience in the face of many challenges. But she added: “No one is doing a victory dance.”

    If this administration is not doing a victory dance, you know things are not well.

  17. 17
    Buceri says:

    Spring’s economic rebound unlikely to last

    Thursday August 28, 4:42 pm ET
    By Jeannine Aversa, AP Economics Writer
    Spring’s economic strength unlikely to last given slowdowns overseas, struggling consumers

    WASHINGTON (AP) — The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn’t expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut later this year.


    White House press secretary Dana Perino said the numbers demonstrated the economy’s resilience in the face of many challenges. But she added: “No one is doing a victory dance.”

    By now we all know this administration. If THEY are not “doing a victory dance” with that 3.3% GDP growth, you know we are screwed!!!

  18. 18
    Buceri says:

    Sorry for the double post!!!!

  19. 19
    Dan says:

    Take a look at what GDP looks like when you don’t massage the numbers.

    Tim, I normally like your analysis, but those shadow stats numbers are probably a little too pessimistic. Have we really had 10% yearly inflation since 2000? Well, if we did, that means prices are115% higher than at the turn of the century. With household income growing around 3% per year, this would make us about 40% poorer in real terms than in 2000. Sorry, but that doesn’t pass the smell test.

  20. 20
    EconE says:

    There are government numbers and shadowstats numbers.

    I feel that the truth lies somewhere in between.

    Just my 2c

  21. 21
    deejayoh says:

    One doesn’t need to look at “shadow stats” to come up with a major problem in the GDP numbers just released. The BEA “reak” GDP number is 3.3%, or 0.825% for the quarter, but this is not adjusted for CPI – instead the BEA uses a GDP “Price Index” – which for the second quarter was only 1.2%. This in the face of CPI advancing somewhere north of 5%.

    Barry covered this well over on The Big Picture today, and if you want the source data in PDF form it is here

  22. 22
    pfft says:

    “potential buyers try to time the bottom of the already favorable market.”

    FAVORABLE? do you think we’re stupid? never ask your barber if you need a haircut. never ask your broker if it’s a good time to buy stocks. never ask your realtor if you should buy a house. these people are not biased.

    while you are “timing the bottom” which we are told you can’t do, you are savings thousands of dollars because renting is cheaper, you are earning interest and you have the time to save money that you probably wouldn’t be able to do if you bought a home.

    someone who is saving my by renting and saving anyway could easily save $10,000-$20,000 dollars.

    don’t listen to used home salesman. homes will not bottom and rocket up 15% the next year, especially in Seattle.

  23. 23
    deejayoh says:

    oops. “reak” should be “real”. Freudian slip, I guess.

  24. 24
    Ron says:

    What we might here have is a Group of Housing Strikers…. How Could it affect the housing market if this Group here was to continue getting larger– what could the effects end up being if the Renters Joined Sort of a Union that main Goal was not only Lowering prices but controlling rents..

    Rents can be controlled by lots of people Doubling Tripling up in housing units- already probably is happening as we speak.. housing prices I bet would go much further down if say the Masses went on Strike and refused to pay any current prices.. set a Goal of 30% and talked to everyone they knew and converted them into Housing Bubble Heads..

  25. 25
    Ron says:

    I Wonder how much of an effect all those housing units in Seattle coming online will have in the next 12 months… something like 3,500 more apartments are coming online in the next 12 months, many of these were supposed to be condos which now are going Apartment.

    Im thinking by this time next year its going to get real interesting.. also a lot of housing are in the phases of being almost completed..

  26. 26
    Ron says:

    I wonder how bad it could of been if it wasnt for California, Nevada, Nevada and florida… the explosions there betcha stopped a lot more getting built here.

    even though there are a lot of builders here drinking Kool-aid.. that continued, what they supposed to do after purchasing all that land and spending the year getting state Government Authorization on Building.. Lot Of upfront costs..

    Seattle has so much red tape with Building… the way I understand it, almost a Year is needed after Buying the Land before you can start Building.. where in Texas for example you are looking at about 4 months.. So much cost in Building is actually Red Tape or you can say Most the Cost is Actually Red Tape probably- its our State Governmental control that jacks a lot of the Cost of us living here.

  27. 27
    Mike2 says:

    As I drove through downtown Woodinville earlier this month, one of the businesses just south of 522 had the word RECESSION on their sign.

    I can’t say I’ve seen anything like that around the DC area.

  28. 28
    Mike2 says:

    Conway compares today’s climate to 2001’s and uses the term “rubber-band effect.” The faster you drop into recession, the faster you bounce out.

    Apparently this guy didn’t live in Seattle between 2001 and 2005. The crash was quick, and the recovery was among the slowest in the nation.

  29. 29
    deejayoh says:

    As I drove through downtown Woodinville earlier this month, one of the businesses just south of 522 had the word RECESSION on their sign.

    Wait, there is a downtown Woodinville?

  30. 30
    biliruben says:

    I was biking on the Sammamish river trail this weekend, and asked a couple on a tandem what the easiest way to downtown Woodenville was. They said “what part?” I stared blankly for a sec and said “Downtown, ya know. The mall”, and they laughed and gave me excellent directions.

  31. 31
    jonness says:

    “the problem with being a bear is that being right is a bit depressing.”

    I whole-heartedly disagree with that statement. I’m stoked by all this bad news. Do you realize how much money I’m saving by having house prices fall? That’s exciting! Two thumbs up for the coming crash. If I had bought a house last year instead of saving a boatload of cash for a huge downpayment when the right time comes, then I would be depressed by all of this.

    Being a bull and getting all of this bad news hurts the heart and thins the wallet; but being a bear and getting all of this bad news warms the heart and fattens the wallet. It just depends what side of the coin a person lands on. I could have easily bought a year ago. The main reason I held off was pure fear. My co-worker is in a similar boat and refers to his decision as “accidental genius.”

  32. 32
    shawn says:

    The Seattle RE stages are:
    1. Denial: eg – “we are different it can’t happen here, it is not happening here”
    2. Anger: eg – see RAL
    3. Bargaining: eg – “Just let the prices bounce back up this summer and I will sell.”
    4. Depression:eg – “I’m so sad it was all a lie, the press fooled me”
    5. Acceptance: eg – “I can now buy a home and feel good about it.”

  33. 33
    BrianL says:

    Purchase in the future assumes that we’re still employed. If this gets as bad as some are predicting, we could at unemployment doubling or tripling in the near future. In addition to massive job loss, that will drive down salaries of those still employed as buisnesses have a glut of potential employees and less money coming in.

    While that house you’ve been watching may become lower priced, inflation may eat your downpayment and the economy your job. If that is what a recession means, it won’t be good for anyone – home owner or not.

  34. 34
    Buceri says:

    BrianL –

    Sure; but homes will still have to be priced at those depressing levels if owners want to sell.

  35. 35
    Troy says:

    There’s no way Seattle will avoid a recession, much less a depression. Why even bother having the discussion? The numbers certainly do not support it. A global depression is coming.

    Fed Governor Richard Fisher of the Dallas Fed recently stated:

    “The good news is this Social Security shortfall might be manageable. While the issues regarding Social Security reform are complex, it is at least possible to imagine how Congress might find, within a $14 trillion economy, ways to wrestle with a $13 trillion unfunded liability. The bad news is that Social Security is the lesser of our entitlement worries. It is but the tip of the unfunded liability iceberg. The much bigger concern is Medicare, a program established in 1965. Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy. Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percentwant to remind you that I am only talking about the unfunded portions of Social Security and Medicare. It is what the current payment scheme of Social Security payroll taxes, Medicare payroll taxes, membership fees for Medicare B, copays, deductibles and all other revenue currently channeled to our entitlement system will not cover under current rules. These existing revenue streams must remain in place in perpetuity to handle the “funded” entitlement liabilities. Reduce or eliminate this income and the unfunded liability grows. Increase benefits and the liability grows as well.

    Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income. Clearly, once-and-for-all contributions would be an unbearable burden. Alternatively, we could address the entitlement shortfall through policy changes that would affect ourselves and future generations. For example, a permanent 68 percent increase in federal income tax revenue—from individual and corporate taxpayers—would suffice to fully fund our entitlement programs. Or we could instead divert 68 percent of current income-tax revenues from their intended uses to the entitlement system, which would accomplish the same thing.

    Suppose we decided to tackle the issue solely on the spending side. It turns out that total discretionary spending in the federal budget, if maintained at its current share of GDP in perpetuity, is 3 percent larger than the entitlement shortfall. So all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent. But hold on. That discretionary spending includes defense and national security, education, the environment and many other areas, not just those controversial earmarks that make the evening news. All of them would have to be cut—almost eliminated, really—to tackle this problem through discretionary spending. Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?

    If these possible solutions to the unfunded-liability problems, throughout history, many nations, when confronted by sizable debts they were unable or unwilling to repay, have seized upon an apparently painless solution to this dilemma: monetization. Just have the monetary authority run cash off the printing presses until the debt is repaid, the story goes, then promise to be responsible from that point on and hope your sins will be forgiven by God and Milton Friedman and everyone else. We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid. If these measures seem draconian, it’s because they are draconian.”

  36. 36
    uptown says:


    You mean the guy who just said this:

    “Inflation continues to be the U.S. economy’s largest challenge, and it’s unclear whether the recent retreat in energy prices will lower price pressures, a regional Federal Reserve official said.”

    He doesn’t seem to agree with your “global depression” talk.

  37. 37
    uptown says:


    “infinite horizon discounted value” means
    The amount of money the Medicare system would need today to cover all unfunded liabilities from now on.

    Thankfully, we don’t try to fund any program forever into the future.
    Good talking points for the right wingers (google the speech and see who is talking it up), just not based in any economic reality.

  38. 38
    Yesler Hill says:

    The thing I noticed in this article is that there is no mention of the impending “Alt-A” mortgages that are coming up soon for interest changes. Let alone any mention of the slow down in the Seattle area of the commercial RE market.

    And as far as being delighted abt the economic collapse because you saved a bunch of dollars for the future. Will those dollars have any value in the future? It seems less and less likely.

    I wonder if there is a Boeing strike if this will be impetus for the corporate HQ to consider just moving out of the area?

    As far as Medicaid and Medicare go; a nationalized single-payer helth system would greatly reduce this cost. If all people were in one insurance pool, and the health insurance industry were nationalized, then we could talk abt cutting costs (and improving the quality of healthcare, by the way.)

  39. 39
    mikal says:

    Your going to get some bs comment about health care, but the reality is that CANADA is getting some of our jobs because of the health care costs. Yes, it is nice to have the best health care in the world, but even with the best insurance, few can afford to go to the doctor. And then, WHAT IS THE POINT?

  40. 40
    LUC says:


    Headquarters moved out of Seattle back in ’01.

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