Published March 2002

‘Recession over’ for U.S.
but not for Northwest

By Bryan Corliss
Herald Business Writer

The national recession is over, but the downturn will linger in the Northwest for many months to come, an economic forecaster said recently.

"We're probably in the worst part of the recession," said Michael Parks, the Editor and Publisher of Marples Business Newsletter, during a presentation Feb. 14 held by Frontier Bank.

Aerospace is one of the best-paying industry sectors in the state, he said, and Boeing and its suppliers are shedding jobs by the tens of thousands.

"There's no way our statewide economy can take this kind of shock without sending us into negative territory," he said.

The poor prospects for the Northwest contrasted with Park's generally upbeat assessment of national economic conditions.

On a national scale, "the recession is over," Parks said. "The recovery has begun."

The recession was unusual in that it didn't involve a drop in consumer spending, he said. Spending remained strong throughout last year, buoyed by low interest rates that drove purchases of cars and homes.

Instead, the recession was the result of the collapse of the unprecedented stock market boom tied to the technology and telecommunications industries, Parks said. That market collapse led to a sharp decrease in capital spending by businesses, which stopped buying new tech and telecom equipment.

But those products — computers and cell phones — become obsolete very quickly. That's going to drive a quick rebound as companies move to newer hardware and software, Parks said.

Couple this with the economic stimulus provided by federal tax cuts and low interest rates — plus the fact that energy costs have fallen from last year — and you have the ingredients for a recovery, he said.

However, it won't be a strong recovery, Parks added. And we could face a "double-dip" recession — in which a weak recovery is followed by another downturn — because of poor economic conditions in most developed nations.

The U.S. economy also could suffer from "Enron-itis," he warned.

"There is the risk that Enron shakes the confidence in the financial system," Parks said. It took investors 30 years to recover from the shock of the market crash of 1929, and the collapse of Enron could also have serious repercussions.

"Enron really represents a systemic failure," he said. "Everyone whose job it was to say, 'The emperor has no clothes,' kept his mouth shut because they had a conflict."

Anyone looking for a Northwest recovery had better wait until next year, Parks said.

Sept. 11 battered an aerospace industry already entering a cyclical slowdown, he said. The resulting layoffs are "truly daunting." State projections call for Boeing and its suppliers to cut employment from 87,000 to 69,000 this year. The figure could drop to 65,000 in 2003, Parks said. That compares to the most recent aerospace employment peak, which was 113,000 in mid-1998.

And these aren't just any jobs, he said. The average Boeing worker takes home more than $60,000 a year, with overtime pay. Statewide, the average worker makes about $38,000 a year.

So the loss of 25,000 good-paying Boeing jobs probably will take away another 50,000 jobs from companies that relied on Boeing paychecks to stay in business, Parks said.

But long term, the Northwest is well positioned, he said, mostly through the strength and diversity of the technology companies here.

"We've got a good horse in every race that counts," Parks said, noting that the Northwest is home to industry leaders in software, hardware, telecommunications, biotechnology, biomedicine and medical devices.

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