The slow climb of the local economy out of the “Great Recession” is predicted to slightly speed up with higher wages, more jobs and higher home prices, but the moves upward will take time since the economic hole was deep.
University of Puget Sound economics professors Bruce Mann and Douglas Goodman delivered their predictions for the year to come at Tacoma/Pierce County Chamber of Commerce’s 2013 Horizons Economic Forecast on Jan. 11 at the Greater Tacoma Convention and Trade Center. Their Pierce County Economic Index tallied spending, taxing and employment data to forecast a year of slowing job growth, higher home prices and rising retail spending.
But even the modest improvements could be hampered from the area’s increased dependence on international trade. Growing threats of recessions or financial crises in Europe could drag down trade volumes while deep “fiscal cliff” cuts in federal entitlement program spending such as Medicare and Medicaid and rising interest rates could, for example, hit consumer and business confidence and depress local markets.
With a backdrop of those unknowns, however, the economists predicted sluggish gains. And those increases could also be affected by federal decisions, most notably the new Patient Protection and Affordable Care Act, known as “Obamacare,” which could lead to an increase in federal health care funding that would feed the coffers of Pierce County’s extensive health care industry.
Individual spending and federal expenditures associated with returning military personnel at Joint Base Lewis-McChord could also fuel economic growth in the coming year. Growing sales of Boeing airplanes and the arrival of the Grand Alliance consortium of shippers on Tacoma’s Tideflats could also add jobs and dollars to local wallets.
This 25th annual report was the last for Mann and Goodman. They are retiring from researching the PCEI and have passed the effort to their professors at their cross-town rival Pacific Lutheran University.
“When Doug and I presented our first official forecast 25 years ago, we had no idea it would be so well received by the community,” Mann said. “So we continued with the project and enjoyed it. However, 25 years is long enough for anyone to peer into a crystal ball. We want thank our sponsors, the Tacoma/Pierce County Chamber, as well as University of Puget Sound and the community, for 25 years of fun and, we hope, some insights.”
Since the forecasts looked at annual changes and individual business sectors, the duo did not keep tally of their overall success rate during the last two decades of research. But they do note that years heading into recessions and the years that followed were the most difficult to predict, since shrinkage and expansion rates involved so many integrated factors.
“But overall, I think we did pretty good,” Mann said.
Changes in the economy also threw curveballs into the mix since the rise of online retail sales and technology brought change to every business.
“These kinds of things are major shifts,” Goodman said.
The PCEI was the first index of its kind in the nation and served as a model for other communities to follow around America.
PLU economics professors Martin Wurm and Neal Johnson will now take on the effort of researching, analyzing and presenting the local economic forecasting.
“It’s a bit early to know if we’ll alter the methodology for next year,” Johnson said. “If it is altered significantly, we are likely to also do a forecast via Mann and Goodman’s current methodology as a back-up in case the new methodology proves intractable. There have been tweaks to the methodology in the past to account for structural changes in the economy. Those types of changes would continue to be made insofar as they give a better picture of the Pierce County economy.”
Gone are the influences of paper production and wood products, for example. Tourism and military spending have replaced them.
Aside from doing the PCEI, Wurm’s research and teaching interests include the empirical aspects of financial economics, macroeconomics and economic development. He is also currently working on several projects including banking sector development and property rights and the role of terrorism for investment and business cycles.
Johnson’s teaching responsibilities focus on statistics and microeconomic principles. His research focuses on sports economics, natural resource economics and benefit-cost analysis. In addition to his work at PLU, Johnson also does economic consulting work related to solid waste management and rate-making.
Some of the major predictions in the 2013 forecast include:
The Pierce County economy will grow by 2.8 percent in 2013, following 2.2 percent growth in 2012 and 3.6 percent growth in 2011.
How Congress resolves the remaining “fiscal cliff” federal deficit and debt issues will be critical for Pierce County. Almost one-third of local income comes from non-labor sources, and much of this is from Social Security, welfare, veterans’ benefits, and similar. If such payments are cut, consumer spending will decline.
Employment will grow by 1.8 percent, or about 5,000 jobs, in 2013, following 2.1 percent growth in 2012. However more than 1,000 additional people will be actively looking for jobs, as young graduates enter the market and some discouraged jobseekers resume their search.
The unemployment rate, which peaked at 10.5 percent in early 2010, will drop from 8.25 percent at the end of 2012 to 7.9 percent by the end of 2013.
Retail spending by consumers rose by 4.7 percent in 2012, well ahead of inflation. In 2013, it will rise by only 2.2 percent – less than the inflation rate.
Total personal income will grow by 5.5 percent in 2013, reaching a new high of $38 billion by year end. After inflation, individuals on average will have 1.3 percent more income in their pockets than in 2012.
The housing recovery, which hit a rut in late 2010 and through most of 2011, is back on track. In 2013, the volume of single-family home sales will surge a healthy 7.6 percent. Demand for condominium units will remain weak.
The outlook for industrial real estate continues to be strong. Commercial and office real estate, however, will remain weak, with high vacancy rates continuing in most areas.