Grant D. Forsyth, Ph.D. College of Business and Pubic Administration Institute for Public Policy and Economic Analysis

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1 2011 Regional Economic Outlook Grant D. Forsyth, Ph.D. College of Business and Pubic Administration Institute for Public Policy and Economic Analysis

2 Old Economy vs. New Economy Sweet and sinful Austere and purged of sin

3 Happy News Recapitalization of Sterling Savings and a new owner of AmericanWest Bank. Schweitzer Engineering expansion in Pullman and Lewiston. Wheat prices are above break-even levels. Public infrastructure projects continue public schools, roads, bridges, and waste water treatment. Kendall Yards has its first housing units up. Opening of Apple Store in downtown Spokane. BMW plant in Moses Lake to expand?

4 Annual Growth County Population Growth, % 3.0% 2.9% 2.7% Continued Slowing Growth: Weak local job creation Weak U.S. housing market Cities catch a breather 2.5% 2.3% 2.0% 1.6% 2.0% 1.7% 1.5% 1.4% 1.4% 1.1% 1.0% 0.5% 0.0% 1.0% 1.1% 0.6% 0.2% OFM 2010 Kootenai Spokane 7 Border Counties Source: U.S. Census, WA OFM for 2010, and author s calculations.

5 City Population Growth, 2009 and 2010 Medical Lake -1.2% Dalton Gardens 0.6% Spokane 0.7% Spirit Lake 1.6% Deer Park 0.9% Coeur d'alene 1.7% Spokane Valley 0.9% Cheney 1.2% Hayden 2.1% Airway Heights 1.5% Post Falls 2.3% Liberty Lake 4.8% Rathdrum 2.4% -2% 0% 2% 4% 6% Spokane County, 2010 OFM 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Kootenai County, 2009 Census Source: U.S. Census for Idaho, WA OFM, and author s calculations.

6 Unemployment Rate, % 11% Remained High in 2010: No job creation in 2010 More actively seeking Will be over 8% in % 9% 8% 7% 6% 5% 4% Estimate U.S. Spokane + Kootenai 7 Border Source: BLS and author s calculations.

7 Initial Unemployment Claims Jan-09 SA Spokane+Kootenai Monthly Unemployment Claims, Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 9,000 8,000 Improvement in 2010: Coming down very slowly Labor market weakness in the 1 st half Leading indicator = slow growth in ,000 6,000 5,000 4,000 3,000 2,000 Source: LMEA, ID Labor Department (Alivia Body), and author s calculations.

8 Annual Growth Spokane+Kootenai Non-Farm Employment Growth, % 2% 1% 1.1% 2.4% 0.6% Job Losses Continued in 2010: Most losses came in 1 st half Levels stabilized in 2 nd half Below trend growth in 2011 H % 0% Est -1% -0.6% -1.0% P 1.5% -2% -3% U.S. Spokane + Kootenai -2.4% -4% -5% -4.3% -4.5% L 0% Source: BLS and author s calculations.

9 Estimated Spokane+Kootenai Sector Employment Growth, % 0% -2.4% -9.7% -1.4% -0.6% -2% Total Non-Farm Private Goods Producing Private Service Producing Government -4% -6% -8% -10% -12% Source: BLS and author s calculations.

10 Real Annual Growth Spokane+Kootenai Real Per Capita Personal Income Growth, % 0.5% 0.0% Little or No Growth in 2010: Stability generated from GTP Low wage growth Low dividends and interest rates 0.7% 0.0% Estimate H % -0.5% -1.0% -0.5% P 0.5% -1.5% -1.3% -2.0% -1.8% U.S. Spokane+Kootenai L -1.5% -2.5% -2.2% Source: BEA and author s calculation.

11 Annual Growth Nominal Existing Home Prices, % 8% 6% 4% 9% 3% Price Declines Continued in 2010: No employment growth Slowing in-migration Foreclosure inventory Tough lending standards H SPK 2% 2011 H KOOT 10% 2% 1% 0% -2% Est P -4% P -2% -4% -6% -8% Spokane Kootenai -3% -4% -7% -6% L -10% L -14% -10% -9% Source: FHFA and author s calculations.

12 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep Month-MA Permitted Residential Units, Permitted Units Stabilized in 2010: Still running at low levels hard to justify new housing Leading indicator = slow growth in Source: U.S. Census and author s calculations.

13 Share of Commercial Valuation Inland Northwest (8 Counties) Commercial Permit Valuations, % 26% 26% 25% 23% 20% 19% 15% 10% 12% 5% 7% 4% 4% 0% Est Offices, Retail-Wholesale, Dinning, Motels-Hotels, Mixed Public Buildings & Projects Source: Central Pre-Mix (Inland Northwest Construction Monitor) author s calculations. Counties represented in WA: Adams, Stevens, Spokane, Lincoln, Pend Oreille; ID: Bonner, Boundary, and Kootenai

14 Annual Growth Nominal Taxable Sales, % 6% 4% 4% 7% Sales Declines Continued in 2010: No job growth Low income growth Weak consumer confidence Slower in-migration Deep discounts H SPK 4% 2011 H ROC 4% 2% 0% -2% Est -1.5% -2% -2.5% P 0% P 0% -4% -6% -5% -8% -10% Spokane Rest of County -6% -9% L -4% L -4% Source: WA DOR and author s calculations.

15 Share of Non-Current Loans to Total Loans Non-Current Loans to Total Loans, Troubled Loans Peaked in 2010: Regional banks still high 10% 9% Banks U.S. Banks 8.6% 9.3% 9.0% 8% 7% Credit Unions 6.2% 6.9% 6% 5% 4% 5.1% 3.8% 4.4% 5.0% 5.4% 5.4% 5.2% 3% 2% 1.4% 1.6% 1.8% 1.9% 2.2% 2.0% 1% 0% 1Q Q Q Q Q Q 2010 Source: FDIC, NCUA, and author s calculations.

Change in Regional Company Market Capitalization, 3Q 2009 3Q 2010 Company % Change Sterling Financial (Recapilatized) 352% Key Tronic 154% Clearwater Paper Corporation 79% Hecla Mining 51% WTB

16 Change in Regional Company Market Capitalization, 3Q Q 2010 Company % Change Sterling Financial (Recapilatized) 352% Key Tronic 154% Clearwater Paper Corporation 79% Hecla Mining 51% WTB Financial Corporation 36% Red Lion Hotels 31% Northwest Bancorp. 29% Potlatch 20% Coeur d Alene Mines 14% Avista 4% Itron -4% Intermountain Community Bank -23% Ambassadors Group -29% Coldwater Creek -35% Idaho Independent Bank -64% Index % Change Hart Index 5% Russell % S&P 500 8% Source:

17 Fiscal Austerity and its Regional Implications

18 Recent Studies on Fiscal Consolidation Guichard, S. et al. (2007), What Promotes Fiscal Consolidation: OECD Country Experiences, OECD Economics Department Working Papers, No. 553, OECD. Price, R. (2010), The Political Economy of Fiscal Consolidation, OECD Economics Department Working Papers, No. 776, OECD. International Monetary Fund World Economic Outlook (2010), Chapter 3: Will It Hurt? Macroeconomic Effects of Fiscal Consolidation. National fiscal consolidations were more likely to close deficits when: Spending cuts were weighted more heavily than tax increases although tax increases were a common feature of most consolidations. Cuts included both current government expenditures on goods and services and transfer payment (social welfare) programs. Fiscal consolidations tend to be contractionary, and the more so if tax increases are emphasized over spending cuts. Source: OECD and IMF

19 Government Transfer Payments as a Share of Personal Income, 2007 Pend Oreille, WA 28% Shoshone, ID Stevens, WA 27% 26% Benewah, ID Lincoln, WA 24% 23% Spokane + Kootenai Bonner, ID Whitman, WA 16% 17% 17% Multnomah, OR 13% Ada, ID King, WA 8% 9% 3 State County Average = 19% 0% 5% 10% 15% 20% 25% 30% Source: BEA and author s calculations.

20 Government Employment as a Share of Non-Farm Employment, 2007 Whitman, WA 44% Pend Oreille, WA Lincoln, WA 35% 35% Benewah, ID 26% Stevens, WA 21% Shoshone, ID Spokane + Kootenai Multnomah, OR Ada, ID King, WA Bonner, ID 17% 14% 12% 12% 11% 10% 3 State County Average = 19% 0% 10% 20% 30% 40% 50% Source: BEA and author s calculations.

21 Gov. Employment Share of Non-Farm Employment Government Dependency Scatter Plot of WA, OR, and ID, % 45% 40% The higher the share of GTP, the higher the share of government employment. 35% 30% 25% 20% 15% 10% 5% 0% 0% 5% 10% 15% 20% 25% 30% 35% Gov. Transfer Payment Share of Personal Income Source: BEA and author s calculations.

Home prices will likely decline, but at a slower pace. Commercial activity will still be slow. Stability in 2012?

22 2011 that lovely taste of broccoli Slow growth in employment and income. Population growth holding at 1% to 1.5%. No or slow growth in taxable sales. Local government be conservative with assumptions on revenue growth. Home prices will likely decline, but at a slower pace. Commercial activity will still be slow. Stability in 2012? Continued improvement in bank portfolios, but with only modest growth in new lending. Regional growth will be consistent with continued modest growth in national GDP. National fiscal consolidation (if/when it starts) will be a drag on growth.

2010 Regional Economic Outlook

2010 Regional Economic Outlook Grant D. Forsyth, Ph.D. Department of Economics College of Social and Behavioral Sciences Institute for Public Policy and Economic Analysis gforsyth@ewu.edu Chinese Calendar