Local Companies Tighten Belts, King County Cuts Jobs

As the far-reaching economic consequences of the popping of the housing/credit bubble unfold, local governments are feeling the pain. Snohomish County faces a $9 million shortfall for 2009, forcing a hiring freeze. While down in King County, Ron Sims just announced that 255 jobs will be cut.

Financially ailing King County will send layoff notices to as many as 255 employees today, on top of 150 jobs already eliminated.

Paring next year’s general fund to $644 million, Sims said, meant cutting $93 million from what would have been needed to maintain current levels of government service.

The budget is out of whack because revenues from sales tax and investments have dropped while the cost of employee benefits, cost-of-living adjustments, fuel and new labor contracts have risen.

One large factor in the drop of sales tax revenues is probably the end of the housing ATM. As documented at Calculated Risk, Mortgage Equity Withdrawal plunged to near zero in the second quarter 2008.

Mortgage Equity Withdrawal

Seattle Times columnist Jon Talton runs through some more ways that the economic crunch is weighing on Seattle.

In recent days, the gravity of the crisis for the Puget Sound region may have been overshadowed by the gut-wrenching gyrations of the stock market — itself a marker for the lost wealth in a place heavily populated by investors. But Microsoft’s announcement of re-evaluating its hiring situation is very big. Boeing and the striking Machinists, seeing the gravity of the moment, are talking again.

Nordstrom same-store sales falling nearly 10 percent in the five weeks ending Oct. 4 is a warning for what’s to come for other retailers based here. As retirement nest eggs are vaporized, jobs lost and houses foreclosed, those vaunted consumers can no longer prop up the economy.

Nor can we count on exports. The world economy is slamming into a recession, and last week the International Monetary Fund warned of “extremely serious” consequences, including famine.

Yikes. I guess when folks were going around touting Seattle’s economy as special and stronger than elsewhere, they didn’t really consider the far-reaching effects of the bursting bubble. The bottom line seems to be that this mess runs deeper than anyone really realized.

(Keith Ervin, Seattle Times, 10.14.2008)
(Calculated Risk, 10.06.2008)
(Jon Talton, Seattle Times, 10.12.2008)

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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.

41 comments:

  1. 1
    Jimmy says:

    Tim,

    Microsoft also has a hiring freeze (although it’s supposed to be hush hush). So it doesn’t look like they’re going to absorb all those WaMu employee’s on Dec 1st.

  2. 2
    Jonny says:

    Should we expect famine on Phinney Ridge?

  3. 3
    Slumlord says:

    The local economy could very well hold up better than most parts of the country, but that does not make it immune. Our economy will simply contract at a less severe rate than places like NYC (where a huge amount of the high-paying financial jobs are disappearing) and California (which is farther along in the bubble-busting process, and arguably had a larger bubble in the first place). I think our real risk is in the 2-5 year period when the cyclical Boeing downturn will occur on top of even higher oil prices. Hence, I expect that the bursting of the local bubble will be slower but more protracted than in many places.

  4. 4
    vboring says:

    at least costco should do pretty well as people trade down to the least cost provider.

    assuming Costco’s cash isn’t tied up in frozen short term “cash equivalent” markets.

    with falling international shipping prices, sentiment turning frugal (and if the Suze Orman index* means anything, sentiment is rapidly turning frugal), and rising dollar values, places like Costco and Walmart should do just fine.

    *Suze Orman index – my informal count of how often I hear “declined” shouted during ad breaks

    SBX’s days might be numbered, though. they are a pure sentiment play.

  5. 5
    vboring says:

    @ Slumlord,

    falling oil prices, not rising. as credit evaporates globally, deflation means less money chasing the same resources, which means falling oil prices, not rising.

    we’re hovering around $80/bbl and trending downward.

    plus, there is a chance that sentiment will generally turn against large SUVs and reduce average fuel consumption per capita in the US. I wouldn’t bet on it, but it may happen.

  6. 6
    David McManus says:

    Kind of off-topic, but has anyone else noticed the general increase in negative attitude or just people who are down in the dumps lately? It seems like most everyone I see is just in a bad mood. I guess it could be the economy or I guess it could be the fact that winter is rapidly approaching.

  7. 7
    Bits_of_Real_Panther says:

    Too many people reading Roubini. He’s a celebrity now

  8. 8
    robroy says:

    Wonder if that mass transit thingee will pass… :)

  9. 9
    robroy says:

    David,
    Two weeks ago I went to church for the first time in about two months (trips, seminars, etc.). Anyway, I was absolutely dumbfounded by how many people in their 30’s and 40’s with kids fell out of work during that timeframe. This is looking VERY serious, no matter what “they” say on the local news.

  10. 10
    robroy says:

    I look at that graph and seriously wonder if anybody will be buying anything this Christmas. Black Friday could take on a whole new meaning this year.

  11. 11
    David McManus says:

    robroy // Oct 14, 2008 at 2:30 pm

    David,
    Two weeks ago I went to church for the first time in about two months (trips, seminars, etc.). Anyway, I was absolutely dumbfounded by how many people in their 30’s and 40’s with kids fell out of work during that timeframe. This is looking VERY serious, no matter what “they” say on the local news.

    Bah, they probably have an emergency fund. They shouldn’t have anything to worry about.

  12. 12
    David McManus says:


    robroy // Oct 14, 2008 at 2:32 pm

    I look at that graph and seriously wonder if anybody will be buying anything this Christmas. Black Friday could take on a whole new meaning this year.

    Hopefully, I’ll be able to find some killer deals this Christmas.

    Regarding the mass transit initiative, I think you can pretty much count on that passing. Seattle has never….ever……voted down a tax. It doesn’t matter how bad the economy is.

  13. 13
    softwarengineer says:

    FACE REALITY RON SIMS

    The rest of the city is going down the toilet drain, why should we care if the county loses 250, let alone 2500. You should cut our property taxes and decrease our assessments/rents; not tax us to death like Bush.

    Get a bigger butcher axe out and zip up your mouth and property assessments lies [rent increases too].

  14. 14
    Angie says:

    Regarding the mass transit initiative, I think you can pretty much count on that passing. Seattle has never….ever……voted down a tax. It doesn’t matter how bad the economy is.

    Wha? Seattle and environs is notorious for not being able to pass mass transit infrastructure levies. Seattle lost out on the money for commuter rail in the, what, 1970s (the money went to Atlanta for MARTA instead, IIRC). More recently the Sound Transit light rail went to the voters at least twice before the package was approved by the voters.

  15. 15
    Flotown says:

    keep beating the dead horse, people……We knew this would happen..now what? Being right on this is no longer fun or entertaining I’m sad to say…

    and I think property taxes are calculated on what best I can tell is basically a three year moving average, so your assessment will go down, but it might take a few years.

  16. 16
    Dan says:

    Right on, Flotown. :) It seems that some people won’t be happy until people ARE starving on Phinney Ridge.

    Personally, I think some of the panic is overblown. The Dow going from 14,000 to 8,200 was an overreaction for instance, and yesterday’s 11% rally was a reflection of that. The Federal Reserve has taken some very aggressive measures to keep credit flowing, and are basically sending the message that they will do whatever it takes.

    With all the new money in the system, I think our biggest risk is inflation. During the early years of the Great Depression, the money supply contracted by 25%. That won’t be happening this time.

  17. 17
    David McManus says:

    Angie,

    The only way that mass transit initiatives fail around here is when they are on the ballot statewide or when they are an absolute debacle (see Monorail). The measure on the ballot is in only for the Sound Transit district and Seattle is a big enough ‘YES’ to negate any ‘NO’s.

  18. 18
    Mike2 says:

    During the early years of the Great Depression, the money supply contracted by 25%. That won’t be happening this time.

    Just what do you think is happening to the shadow banking system? A 25% contraction is quite possible. Recent losses are already close to the “minus 1 year of GDP” level.

  19. 19
    brian patenaude says:

    yee hoo! way to go! water down the already weak dollar by… making more of ’em!
    if you think the USD is hurting now, just wait ’til you try to take that trip to italy next year.

  20. 20
    mukoh says:

    Jimmy, you have any confirmation anywhere on the freeze at Microsoft? Failing so far to find anything but heresay

  21. 21
    deejayoh says:

    During the early years of the Great Depression, the money supply contracted by 25%. That won’t be happening this time.

    The government has poured about a trillion to M, but the money supply multiplier is probably at 20% what it was last year.

    Do the math and you have a contracting money supply. That is why Bernanke is willing to throw so much money at this – but if he can’t unstick lending he is stuck. And since the lending that has disappeared is consumer lending – how is he going to get it back?

    home prices off 15-20%
    Oil falls from 150 to 80/bbl
    land prices falling
    commodity prices falling

    Inflation?

    Oh, and check the dollar vs. the Euro. It is almost back to where it was 2 years ago. And 2 years from now, there may not be a Euro

  22. 22
    Dan says:

    Hey deejayoh,

    The government has pretty much shown that it is willing to print as much money as needed to alleviate the crisis. Is there a limit to how much “liquidity” can be injected into the system. I’m not sure.

    I think this article by Nobel winner Paul Krugman is the simplest explanation for why we will see some inflation (and why it will be a good thing!)

    http://www.slate.com/id/2202165/

  23. 23
    BanteringBear says:

    Dan posted:

    “Personally, I think some of the panic is overblown. The Dow going from 14,000 to 8,200 was an overreaction for instance, and yesterday’s 11% rally was a reflection of that.”

    I disagree. I think the DOW could end up in the 6000 range. What happened yesterday was nothing more than a sucker rally. Pump and dump. As soon as more bad news flows, the stock market will tank again. Count on it.

  24. 24
    Scotsman says:

    A couple of points. First, the HELOC money taken out at the peak was almost 5% of GDP, so just watching that one factor go to zero means that the economy will be in negative territory. That fact, coupled with commodity price increases (now ignored in.gov inflation calculations) means that we’re probably already experiencing a meaningful recession, even if the .gov stats don’t show it yet.

    The second point concerns inflation/deflation. Remember that debt is money, and spends just as easily as cash. While it’s true that the .gov has been pumping lots of cash into the system, there has been a significant contraction in the debt markets through deleveraging and default as asset values have fallen. The net result is deflation. While some specific prices have risen, suggesting inflation to some, the net effect is falling asset prices and deflation. This will become more obvious as we go forward. Deflationary cycles are extremely hard to stop, and are always the rule during recessions/depressions. At this time we’re still balanced on the edge, but my money is on tipping into deflation as the recession gains speed. Higher unemployment, hiring freezes, wage freezes, all support deflation. The cash the .gov is now pumping into the system is all going to disappear down a dark hole, never to be seen again. Only the tax burden will remain, further damping any chance for recovery .

  25. 25
    deejayoh says:

    I think this article by Nobel winner Paul Krugman is the simplest explanation for why we will see some inflation (and why it will be a good thing!)

    um, yeah. So – His parable suggests increasing the money supply is a necessity. Where does he suggest inflation? oh, that’s your interpretation. meanwhile, what is happening to prices?

  26. 26
    Scotsman says:

    Will Seattle follow Chicago?

    “Mike Flannery CHICAGO (CBS) ¯ Mayor Richard M. Daley said Tuesday he will shut down “non-safety related city services” for six days abutting holidays over the next two years to save millions of dollars.

    CBS 2 Political Editor Mike Flannery reports that Mayor Daley says he’s facing a budget shortfall of nearly a half-billion dollars. He’s already moved to cut 2,500 jobs from city hall’s payroll. Now he’s going to shut it down – along with other non-essential facilities on the day after Thanksgiving, Christmas Eve and New Year’s Eve. That will save $20 million.”

  27. 27

    deejayoh, obviously you haven’t had to buy a beer lately like I do. I buy a lot of beer. And I drink it. Yum.

    Everyone know beer is more expensive these days because of the hops shortage. Where’s the hops bailout, huh smart guy?

    Beer prices are going up, no wonder InBev bought Bud, they can see the writing on the wall! They will be the next Exxon!

    I’m gonna keep watching you and straighten you out like this when you need it.

  28. 28
    Matthew says:

    Wow this bailout sure has helped the housing industry (sarcasm). Look at mortgage rates flying up up and away!!

  29. 29
    Sniglet says:

    Central banks don’t have complete control over the money supply. If credit contracts, it doesn’t matter how cheaply a central bank loans money, the over-all money supply can still shrink.

    Look at how the Bank of Japan pushed masses of cash into their economy in the ’90s but that didn’t do much to prevent deflation. Interestingly, the Japanese money supply kept rising all through the ’90s but deflation reared it’s head nonetheless. it would seem that an increasing money supply is no barrier to deflation. I guess it all depends on where that new money goes…

  30. 30
    Dan says:

    um, yeah. So – His parable suggests increasing the money supply is a necessity. Where does he suggest inflation? oh, that’s your interpretation. meanwhile, what is happening to prices?

    To see where he talks about inflation, you have to click on the solution proposed at the end of the article.

    http://www.slate.com/id/2202165/sidebar/2202169/

    Krugman says, regarding a liquidity trap, “that inflation is actually the economically correct way out.” Now, whether we can count on the Fed to create the conditions necessary for inflation who knows? But, of course, nothing erases debt faster than inflation – so there is an incentive for the government to make it happen.

    You obviously have a strong opinion about this, though, so maybe you are right. I just figure that in the long run we’ll be okay.

  31. 31
    robroy says:

    Looks like yesterday was a dead cat bounce. And the report about retail sales I saw this morning said that for September, retail sales “fell off a cliff”. I’m feeling more and more like Black Friday will not just be down. It will further support this “tin-foil-hat” thing: http://www.freerepublic.com/focus/f-chat/1994684/posts

  32. 32
    David McManus says:

    It’s amazing how people can’t buy crap they don’t need when they don’t have credit. This is the death of the faux riche.

  33. 33
    Softwarengineer says:

    3 YEAR AVERAGE ON HOME PROPERTY ASSESSMENT PRICES

    Uses a realitor home price assessor or a privately contracted honest one? Its a documented fact that escrow type assessors have been inflating Seattle home prices through the roof, unethically too.

    I’ll bet any blogger money that a private assessor you contract will get any home assessment to plumnmet in 2008 [3 year average too]…..but of course, very few of us fight the good fight. Sims knows that.

  34. 34
  35. 35
    david losh says:

    Inflation is what I thought would happen. Now it seems as though we have already had years of inflation that seemed normal. The stock market is over priced, along with housing, commodities, and food.
    The stock market dropping to 8,000 or even 6,000 still leaves it over priced. Exactly like housing, which went up 100% since 2000, when the price “drops” by 50% it’s still over priced.
    Having inflation makes no sense.
    Second is the money supply. I see the government infusing real dollars. Since 2000 our governments, as is pointed out in this post, have raked in huge amounts of money. The money is continuing to come in from a variety of sources. Today there was talk of reducing the capital gains tax as a way to stimulate the economy. How do you give up a huge source of revenue without expecting something in return?
    OK let’s skip the whys let’s look at the economy. How many billionaires can one country have? How huge can a corporation get? How many billions of dollars can change hands every day? We are so used to thinking in billions of dollars we are talking about trillions.
    Inflation is already here.
    We are receding in prices. I don’t see that as deflationary. If prices go down from ridiculous heights they will settle at a normal correction that is still over value.

    What I’m starting to think is that the global economy is stronger than any individual country, or trading group.
    Seattle is special for one set of reasons. We are close to the Port City of Tacoma, Canada, and Asia. In 2000 China was a communist country that was our enemy. In these eight years they have become a major source of world wide revenue.
    The continued references to Japan shows the power of the Asian economies, which happen to be cash based. They had a run on the banks as I recall and never returned. Prices in Japan went down to accommodate cash, in my opinion. You don’t have bank transactions the way we do. When you buy a house in Asia it’s measured in “bricks” of cash. Cash is bundled and changes hands.

    The question is if larger economies will have that ability to use cash and it seems unlikely. We will continue to involve a secondary market in our purchases. We will continue to give our savings over to 401Ks, pensions, and securities (if you can call them that anymore). Large economies will do business as usual and we will need to pay our own debts.

  36. 36
    Slumlord says:

    Vboring @5,

    You are right that oil has dropped and it is now under $80/barrel (from $147 in the summer). It may even fall further, for a while. The best description I have heard for what happened over the summer was a quote from George Soros: “It is [was] a bubble superimposed on an upward trend.”

    The big oilfields are already in use and many have declining production after decades of production. Most of the new oilfields have at least one of the following characteristics: they are small, low quality, and in difficult to reach locations. Many new oilfields are currently operating at a loss and only remain in production in the hope that prices will rise again. If this does not happen, they will shut down and force prices back up.

    OPEC is holding an emergency meeting on November 18 and most observers expect them to cut production in an effort to return the price of oil to around $100/barrel.

    A good reference is http://www.energybulletin.net/primer.

  37. 37

    Softwarengineer,
    Maybe I’m a little more cynical than you, but I just wouldn’t assume that a private real estate appraiser is necessarily going to be honest. I know some honest ones, but every single one of them I know has stated that they have gotten pressure from lenders to find a specific value, and have gotten threatened that if they didn’t they would lose a customer. Unethical, yes, illegal, maybe, dishonest, sure, but I don’t think there’s any profession within the real estate industry that’s completely honest.

  38. 38
    Flotown says:

    Japan wasn’t $13 trillion in debt went it went on its liquidity binge. (I would be curious to know what their national debt was as a % of GDP though)…

    I’m afraid that if Treasury keeps printing long bond yields will increase, if there is not enough domestic demand for treasuries to potential offset the inability of foreign investors to buy any more – or once they sell. If assets are deflating while borrowing costs are inflating that at some point (maybe not this year) the money supply will increase faster than credit can be destroyed via defaults and subsequent debt writedowns…

    no one really seems to posit a good answer to this conundrum in the blogosphere.

  39. 39
  40. 40
    David McManus says:

    From one of the job boards that I subscribe to:

    Posted by: NAME STRIPPED EMAIL STRIPPED
    Mon Oct 20, 2008 4:33 pm (PDT)
    You Must be located in Seattle or must be able to relocate to Seattle
    -> full relocation paid to qualified candidates


    -Most groups within Microsoft have a hiring freeze, but not the group
    we are working with!

    -We are working with VP directly on these roles

    This hiring freeze is not just a rumor, however, like the poster said, it depends on the group. MOST != ALL.

  41. 41

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