Western Economic. evelopments IN THIS ISSUE. District economies gain momentum in early Job growth intensifies and spreads

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IN THIS ISSUE F E D E R A L R E S E R V E B A N K O F S A N F R A N C I S C O Western Economic Developments District economies gain momentum in early Figure : Nonagricultural payroll growth by state

1 IN THIS ISSUE F E D E R A L R E S E R V E B A N K O F S A N F R A N C I S C O Western Economic Developments District economies gain momentum in early Figure : Nonagricultural payroll growth by state (annualized percent change) July to December January to May The Twelfth District economy gained momentum in recent months and is expanding in line with the nation. With the economy gaining ground, job growth has picked up noticeably and spread throughout the District. Although California has lagged a bit in recent months, other western states have seen rapid and sustained growth. Job growth intensifies and spreads District states other than California were the advance guard for the job recovery now spreading through the nation (Figure ). Several District states posted rapid job growth in the second half of last year; nonfarm payrolls increased at a.% annual rate for the Dis- US- th th AK AZ CA HI ID NV OR UT WA Source: U.S. Bureau of Labor Statistics. Beginning in August, West estern ern Economic Dev evelopments elopments will change to a revised web-only format. J U N E Employment in IT centers rebounding... It t will be updated online eight t times a year ear, on the Monday following each meeting of the Federal Open Market Committee. Long-term unemployment in Bay Area... Consumer spending remains solid... High-tech Watch... S T A T E H I G H L I G H T S Alaska, Oregon, Washington... Arizona, California, Hawaii... 8 To rec eceiv eive e an notification tion when West estern ern Economic Dev evelopments elopments is posted online, subscribe at g/publications/ec tions/economics/ onomics/ newsubscriptions.html Idaho, Nevada, Utah...

2 trict compared to flat payroll growth elsewhere in the country. In particular, Arizona, Hawaii, and Nevada posted impressive gains. So far this year (through May), employment in the District has been growing at about the same rate as the rest of the country. In addition to the usual fast-growing states in the District, notably Nevada and Arizona, job growth has been strong in recent months in Oregon and Washington, which were among the states most affected by the recession and subsequent sluggish labor market recovery. Employment in Idaho has also been increasing sharply, boosted by large gains in professional and business services. Although California has seen an increase in the rate of employment growth this year, the state s performance has been weaker than the District and the nation. For the first five months of, payroll jobs grew at a.% pace in California compared with.% in the nation as a whole. There are several possible reasons why California s employment engine is not taking off as fast as some other states. One reason is that employment in Southern California and the Central Valley areas fared much better than the rest of the nation during the most recent recession and, consequently, are not experiencing a bounce-back. Another possible reason is that, in light of the costs of doing business in California, some job growth is moving to nearby states, such as Arizona and Nevada. Finally, as discussed more fully in the next section, employment in the IT industry has yet to rebound strongly in the San Francisco Bay Area. In addition to spreading across states, job gains have spread across most District industries, including the beleaguered manufacturing sector (Figure ). Construction jobs continue to grow at a strong pace, boosted by strong housing markets. Spurred by stronger international and domestic demand, manufacturing employment has begun to increase after several years of steady declines. Government jobs contracted during the last half of last year, reflecting the budget woes of many local and state governments; by contrast, this year government employment has ticked up slightly. There has also been some change of fortune in the information industry, which includes software and publishing. After falling significantly in most District states during the information technology (IT) bust (for the District as a whole, employment in the information industry fell 9.% between November and September ), employment has started growing in the first part of this year. Employment in IT centers rebounding After the dramatic boom and bust in the IT industry, three District IT centers are showing signs of recovery in. Employment has stabilized or increased some in Portland, Seattle, and the San Francisco Bay Area (see Figure ). Seattle has had the best increase in fortunes, boasting an increase of nearly, jobs (a.7% increase at an annual rate) since December. The IT industry chipped in about, of these new jobs while employment in the battered aerospace industry has ceased falling. Portland s payrolls Figure : District employment growth by sector (annualized percent change) Construction Trade, Trans., & Utilities Financial Activities Natural Resources, Information Mining Manufacturing July to December January to May Prof. & Bus. Services Educ. & Health Services Leisure & Hosp. Other Services Govt. Figure : Employment growth in IT centers, (annualized percent change, through May) Total Nonfarm IT Portland Seattle SF Bay Area th Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics June

3 Figure : Total nonagricultural employment in IT centers Figure : Unemployment rates (Jan-99 = ) San Francisco Bay Area Portland Seattle... U.S..... California th ex. California United States Source: U.S. Bureau of Labor Statistics.. May- May- May- May- May- Source: U.S. Bureau of Labor Statistics (seasonally adjusted data). Note: Shaded area represents period of recession. have increased by nearly, jobs (a.% boost), about one-quarter of which came from the rebounding IT industry. In the San Francisco Bay Area, overall employment gains have been more modest, increasing at a.8% pace (about, jobs). Unlike the other two IT centers, IT employment in the Bay Area has only recently stabilized. The recovery is good news, but it will take some time for these areas to dig out of the holes left by the IT boom and bust (Figure ). All three areas enjoyed significantly faster job growth in the late 99s than the country. Employment in the Bay Area surged by % from January 99 to December ; employment in Portland posted a 9% gain, and Seattle enjoyed a % increase. Meanwhile, employment in the nation increased just %. All three areas also experienced sharp contractions in jobs; the Bay Area was hit particularly hard, with % of its jobs disappearing by early. Seattle and Portland lost about % of their jobs. Many of the job losses in each of these areas were concentrated in the IT area: % of the Bay Area s jobs lost were in IT, % for Portland, and % for Seattle. Long-term unemployment concentrated in Bay Area The District has been struggling with higher unemployment rates than the nation as a whole (Figure ), as the recession and the subsequent sluggish employment recovery hit the District particularly hard. During much of and, Oregon and Washington had the highest unemployment rates among all states. With that said, the District Figure : Long-term unemployment share* (-month moving averages) California th ex. California United States Apr-89 Apr-9 Apr-9 Apr-98 Apr- Apr- Source: U.S. Bureau of Labor Statistics and FRBSF (seasonally adjusted data). Note: Shaded areas represent periods of recession. * Unemployed 7 weeks or more, as a share of all unemployed. unemployment rate outside of California increased less than the national unemployment rate during the most recent downturn, and in recent months the gap between District and national rates has closed noticeably. Although the current unemployment rates are similar, there are differences in the composition of those looking for work. Close to 8% of California s unemployed have been out of work for at least six months (Figure ). Elsewhere in the June

4 Figure 7: Long-term unemployment share, by area* United States California Southern California SF Bay Area ** Source: U.S. Bureau of Labor Statistics (not seasonally adjusted). * Unemployed 7 weeks or more, as a share of all unemployed. ** Based on data through April. - Figure 8: State sales tax revenue (change over months earlier, -month moving averages)* AZ CA HI ID NV UT WA Source: State Revenue and Budget Offices (not seasonally adjusted data). * California, Utah, and Washington data are May-over-May changes. Arizona, Hawaii and Idaho data are April-over-April changes. Nevada data is March-over-March change. District, the share of long-term unemployed is just.%, and the figure for the entire nation is just.9%. The above-average long-term unemployment in California arises primarily from the San Francisco Bay Area (Figure 7). The share of long-term unemployed in the Bay Area has risen to % in the first four months of, a sharp increase from % in and % in. In contrast, the long-term unemployment shares in Southern California were similar to the national value in and, at about to %, rising slightly above it to about % for the first four months of. Consumer spending remains solid Consumer spending, as measured by sales tax revenues, continues to contribute to the District economy. Growth in sales tax revenues for most District states has been noticeably faster this year than last year (Figure 8), running as high as %. Sales tax revenues should be proportional to actual consumer sales receipts, provided that sales tax rates are constant over time. For District states, sales tax rates have been constant in recent years, with the exceptions of increases in Idaho (May ) and Nevada (for cigarettes and alcohol, July/August ); the growth rates displayed in Figure 8 reflect a rough adjustment for the changes in these states. Another indicator of consumer spending is travel and tourism, and the District is home to two large tourist destinations, Nevada and Hawaii. Detailed gaming and tourism statistics for Nevada and Hawaii indicate strong gains. In Nevada, gaming revenues for the three months ending in April were up about % compared to the same period last year, and tourist visits and room rates in Las Vegas were up about % on the same basis. In Hawaii, domestic visitor counts have been running about % above their levels from twelve months earlier (data through June), and international visits, which plummeted concurrently with major hostilities in Iraq, have risen substantially this year as well. Consumers are also spending money on homes. District housing markets saw strong sales and price appreciation recently. New permit issuance remains at high levels in many District states. However, there is speculation that some of the recent housing market activity may reflect consumers desire to lock in low mortgage rates. As a result, housing markets in coming months may cool somewhat. Contributions by Mary Daly, Mark Doms, Lily Hsueh, Ashley Maurier, and Rob Valletta, Applied Microeconomic and Regional Research, Economic Research Department, FRBSF. June

5 High-tech Watch Orders & shipments of semiconductor manufacturing equipment by U.S. firms (billions of dollars) Orders Shipments Business investment in technology products by U.S. firms (quarterly percentage change)* 8 Computers & peripherals... May-99 May- May- May- May- May- Source: Semiconductor Equipment and Materials International (SEMI). - Information processing Communications equipment - equipment & software - Mar- Mar- Mar- Mar- Mar- Source: Bureau of Economic Analysis. *Annualized values Monthly semiconductor sales by U.S. firms (percent change in -month moving averages) months prior* Year-over-year Shipments of computers and related products by U.S. firms (percent change in -month moving averages) Year-over-year months prior* -8 Apr-99 Apr- Apr- Apr- Apr- Apr- Source: Semiconductor Industry Association. - May- May- May- May- May- Source: Bureau of the Census. *Annualized values Shipments of communications equipment by U.S. firms (percent change in -month moving averages) IT job growth, th District (monthly percent change in -month moving averages*) months prior* IT services Year-over-year IT manufacturing (excluding AK, HI) - May- May- May- May- May- Source: Bureau of the Census. *Annualized values - May- May- May- May- May- *Annualized values June

STATE HIGHLIGHTS Alaska Oregon Washington Nonagricultural payroll employment by state Nonagricultural payroll employment by MSA AK Anchorage - - OR U.S. WA - - - Portland- Vancouver - -

6 STATE HIGHLIGHTS Alaska Oregon Washington Nonagricultural payroll employment by state Nonagricultural payroll employment by MSA AK Anchorage - - OR U.S. WA Portland- Vancouver - - Seattle-Bellevue-Everett - May- May- May- May- May- - May- May- May- May- May- Alaska Employment by Industry Total Employed Total Employed (thousands) Change (thousands) Change May- -mo. a -mo. a YTD a -mo. May- -mo. a -mo. a YTD a -mo. Washington Total Total, Natural Resources & Mining Natural Resources & Mining Construction Construction Manufacturing Manufacturing Trade, Transportation & Utilities Trade, Transportation & Utilities Information Information Financial Activities Financial Activities Professional & Business Svcs Professional & Business Svcs Educational & Health Svcs Educational & Health Svcs Leisure & Hospitality Leisure & Hospitality Other Services Other Services Government Government Oregon Total, Unemployment Rates (%) Natural Resources & Mining Construction May- Apr- Mar- Feb- May- Manufacturing Trade, Transportation & Utilities Alaska Information Oregon Financial Activities Washington Professional & Business Svcs Educational & Health Svcs U.S Leisure & Hospitality Other Services Note: Unemployment rates are from the household employment survey; all other Government data are for nonagricultural payroll employment. All data are seasonally adjusted. a Annualized. June

7 Residential permits May Moving average -mo. average percent change number -mo. a -mo. a Alaska 7... Oregon,99... Washington, Source: Bureau of the Census. Nonresidential construction awards May Moving average -mo. average percent change $ millions -mo. a -mo. a Alaska Oregon Washington a Underlying data are seasonally adjusted moving averages. Source: F.W. Dodge. Metro area office vacancy rates 8 8 Portland Seattle Mar- Mar- Mar- Mar- Mar- Source: Torto Wheaton Research. Sales of existing homes Seattle Metro area office gross rents WA OR Portland Mar- Mar- Mar- Mar- Mar- Source: National Association of Realtors. - Mar- Mar- Mar- Mar- Mar- Source: Torto Wheaton Research. 8 Home price index Seattle-Bellevue-Everett Portland-Vancouver Export update $ billions Change** Apr-* Apr- Apr- Apr- Alaska Oregon Washington Mar- Mar- Mar- Mar- Mar- Source: Office of Federal Housing Enterprise Oversight. * Year-to-date values. ** change from past months relative to prior months. Source: Census FT9 Supplement, Origin of Movement Series. June 7

STATE HIGHLIGHTS Arizona California Hawaii Nonagricultural payroll employment by state 8 Nonagricultural payroll employment by MSA SF Bay Area CA HI Honolulu AZ Phoenix U.S. - LA-Long Beach - - - - - May- May- May- May- May- -8 May- May- May- May- May- Arizona Employment by Industry Total Employed Total Employed (thousands) Change (thousands) Change May- -mo.

8 STATE HIGHLIGHTS Arizona California Hawaii Nonagricultural payroll employment by state 8 Nonagricultural payroll employment by MSA SF Bay Area CA HI Honolulu AZ Phoenix U.S. - LA-Long Beach May- May- May- May- May- -8 May- May- May- May- May- Arizona Employment by Industry Total Employed Total Employed (thousands) Change (thousands) Change May- -mo. a -mo. a YTD a -mo. May- -mo. a -mo. a YTD a -mo. California Total, Total, Natural Resources & Mining Natural Resources & Mining Construction Construction Manufacturing Manufacturing, Trade, Transportation & Utilities Trade, Transportation & Utilities Information Information Financial Activities Financial Activities Professional & Business Svcs Professional & Business Svcs., Educational & Health Svcs Educational & Health Svcs., Leisure & Hospitality Leisure & Hospitality, Other Services Other Services Government..... Government, Hawaii Total Unemployment Rates (%) Natural Resources, Mining & Construction Manufacturing May- Apr- Mar- Feb- May- Trade, Transportation & Utilities Information Arizona Financial Activities Hawaii Professional & Business Svcs California Educational & Health Svcs Leisure & Hospitality U.S Other Services Government Note: Unemployment rates are from the household employment survey; all other data are for nonagricultural payroll employment. All data are seasonally adjusted. a Annualized. 8 June

9 Residential permits May Moving average -mo. average percent change number -mo. a -mo. a Arizona 7,. 8.. California 7,. 9.. Hawaii Source: Bureau of the Census. Nonresidential construction awards May Moving average -mo. average percent change $ millions -mo. a -mo. a Arizona.. 7. California, Hawaii a Underlying data are seasonally adjusted moving averages. Source: F.W. Dodge. Honolulu San Francisco Source: Torto Wheaton Research. Metro area office vacancy rates Phoenix Los Angeles - Long Beach Mar- Mar- Mar- Mar- Mar- HI Sales of existing homes 8 San Francisco Metro area office gross rents AZ CA - Los Angeles - Long Beach Phoenix Mar- Mar- Mar- Mar- Mar- Source: National Association of Realtors. - Mar- Mar- Mar- Mar- Mar- Source: Torto Wheaton Research. Home price index San Francisco Los Angeles- Long Beach Export update $ billions Change** Apr-* Apr- Apr- Apr- Arizona California Honolulu Phoenix-Mesa - Mar- Mar- Mar- Mar- Mar- Source: Office of Federal Housing Enterprise Oversight. Hawaii * Year-to-date values. ** change from past months relative to prior months. Source: Census FT9 Supplement, Origin of Movement Series. June 9

STATE HIGHLIGHTS Idaho Nevada Utah Nonagricultural payroll employment by state UT NV ID 8 Nonagricultural payroll employment by MSA Boise Las Vegas Salt Lake City U.S. - - - - May- May- May- May- May- - May- May- May- May- May- Idaho Employment by Industry Total Employed Total Employed (thousands) Change (thousands) Change May- -mo.

10 STATE HIGHLIGHTS Idaho Nevada Utah Nonagricultural payroll employment by state UT NV ID 8 Nonagricultural payroll employment by MSA Boise Las Vegas Salt Lake City U.S May- May- May- May- May- - May- May- May- May- May- Idaho Employment by Industry Total Employed Total Employed (thousands) Change (thousands) Change May- -mo. a -mo. a YTD a -mo. May- -mo. a -mo. a YTD a -mo. Utah Total Total, Natural Resources & Mining Natural Resources & Mining Construction Construction Manufacturing Manufacturing Trade, Transportation & Utilities Trade, Transportation & Utilities..... Information Information Financial Activities Financial Activities Professional & Business Svcs Professional & Business Svcs Educational & Health Svcs Educational & Health Svcs Leisure & Hospitality Leisure & Hospitality Other Services Other Services Government..... Government Nevada Total, Unemployment Rates (%) Natural Resources & Mining Construction May- Apr- Mar- Feb- May- Manufacturing Trade, Transportation & Utilities Idaho Information Nevada..... Financial Activities Utah Professional & Business Svcs Educational & Health Svcs U.S Leisure & Hospitality Other Services Note: Unemployment rates are from the household employment survey; all other Government data are for nonagricultural payroll employment. All data are seasonally adjusted. a Annualized. June

11 Residential permits May Metro area office vacancy rates Moving average -mo. average percent change number -mo. a -mo. a Idaho, Nevada, Utah, Salt Lake City Source: Bureau of the Census. Nonresidential construction awards May Moving average -mo. average percent change $ millions -mo. a -mo. a Idaho Nevada Utah a Underlying data are seasonally adjusted moving averages. Source: F.W. Dodge. Las Vegas Mar- Mar- Mar- Mar- Mar- Source: Torto Wheaton Research. Sales of existing homes Metro area office gross rents Salt Lake City NV ID UT - - Las Vegas - Mar- Mar- Mar- Mar- Mar- Source: National Association of Realtors. - Mar- Mar- Mar- Mar- Mar- Source: Torto Wheaton Research. Home price index 8 Las Vegas 8 Boise Salt Lake City - Mar- Mar- Mar- Mar- Mar- Source: Office of Federal Housing Enterprise Oversight. Export update $ billions Change** Apr-* Apr- Apr- Apr- Idaho Nevada Utah * Year-to-date values. ** change from past months relative to prior months. Source: Census FT9 Supplement, Origin of Movement Series. June

12 Issues Posting Dates March March June July August August September September 7 November November December December Beginning with the August issue, will become an online-only publication. Updates to the text and charts will be available on the above dates at ttp:// bsf.or.org/publica g/publications/ec tions/economics/w onomics/wed/index.h ed/index.html tml is produced by the Applied Microeconomic and Regional Research Section of the Economic Research Department of the Federal Reserve Bank of San Francisco. The publication is managed by Mark Doms and edited by Anita Todd with contributions by Mary Daly, Mark Doms, Fred Furlong, Lily Hsueh, Ashley Maurier, and Rob Valletta of the Economic Research Department. The analyses represent the views of the staff and do not reflect the official views of the senior bank management of the or the Federal Reserve System. is distributed by the Public Information Department, () 97-. This publication is available on our website, Market Street San Francisco, California 9 Address Service Requested PRESORTED FIRST-CLASS MAIL U.S. POSTAGE PAID PERMIT NO. 7 San Francisco, CA

Western Economic Developments

IN THIS ISSUE F E D E R A L R E S E R V E B A N K O F S A N F R A N C I S C O Western Economic Developments A tale of three cities: Portland, San Francisco, and Seattle Figure : Trends in total nonfarm