2016 Year-End Business Barometer
Good economic news across the board in 2016
“Spokane had a solid year in 2016 and we are seeing economic growth more similar to the Puget Sound and Portland areas than we did in the beginning of the recovery,” says Steve Scranton, Chief Investment Officer for Washington Trust Bank.
“Data confirms that our regional economy really started taking off in 2015,” says Avista Chief Economist Grant Forsyth. “2016 was a continuation of that somewhat belated recovery, which has been very strong so far.”
Shaun Higgins concurs. “There have been few annualized economic report cards for the region that have been better in the past decade. Employment growth outstripped the national growth rate and came close to the statewide rate; incomes rose; unemployment held steady; retail sales were up nicely; home prices grew as did housing sales; air travel in and out of the Spokane airport increased; and, on an annualized basis, regional inflation came in under one percent.”
“2016 was a very encouraging year for employment,” says Doug Tweedy, Regional Economist, Washington State Labor Market & Economic Analysis, “We have more capacity to grow jobs here in a variety of industries.”
Double-digit growth in Real Estate sales volume
The dollar volume for single-family home sales in 2016 rose 18 percent over 2015, while the number of units sold was up 9.7 percent. The average sales price increased 7.6 percent and the median sales price was up nearly 10 percent.
“Last year, 7,558 homes were sold, compared to only about 4,000 per year at the beginning of the decade,” says Higgins. “And, since the decade began, both median and mean home prices have grown by 26 percent. This is very good news for homeowners who have seen their home valuations reach and exceed pre-recession levels of value.”
Scranton says he was “a little surprised by the strength of the housing market in the fourth quarter. Given the winter that we’ve had, I would have expected weaker home sales in November and December.”
Units sold in fourth quarter 2016 were up nearly 19 percent over the same period last year, while sales volume rose nearly 26 percent. Fourth quarter average sales price rose nearly 6 percent and median sales price increased nearly 10 percent.
Scranton offers a slight caution. “We’re seeing a similar pattern to what is happening in the rest of the Northwest, with home prices rising faster than wages. At some point, it’s going to impact home sales, particularly when many young couples are unable to afford a starter home. I don’t think we’re at that point yet, but it’s something we need to watch.”
Forsyth notes there is concern about whether housing prices are rising too rapidly, but “it’s only in the last couple of years that home prices have taken off significantly. We actually had a prolonged period without much price appreciation and there wasn’t a lot of home building, so we have very limited inventory available, on top of a pretty strong employment recovery. Recently, there has been a lot of permitting for single-family homes and apartment complexes, so more product will be coming on the market and I am not yet concerned about home price increases.”
Strong year in Permitting, with more in the pipeline
“Permitting was active throughout the broad spectrum of the construction industry,” says Scranton. “Private sector commercial construction is strong, as is the government side with area universities all having major construction projects in the works, as well as projects going forward in the City of Spokane and the City of Spokane Valley building their new headquarters.”
“Commercial real estate had languished for a very long time,” says Forsyth. “But, it’s finally a bit healthier and is broad-based – retail, office and industrial, plus construction related to the cannabis industry.”
Scranton adds, “The balance between new construction and remodeling permits was much better in the fourth quarter of 2016 compared to earlier quarters that were more heavily weighted toward remodeling. That’s a good sign.”
Forsyth points to continued activity in apartment construction as a factor in the strong permitting numbers. “While 2015 was a very good year for apartment unit permitting, 2016 was even better. In fact, for Spokane and Kootenai Counties combined, there was a 90 percent increase in apartment units permitted in 2016 over 2015. Vacancy rates continue to be low for apartments and there seems to be quite a bit of upward pressure on rents, which is encouraging more building. In fact, quite a few apartment units have already been permitted in 2017.”
For 2016 over 2015, the number of permits in the entire county rose 37 percent, while permit valuations rose 38.5 percent. This compares to fourth quarter year-over-year increases of 14 percent in number of permits and 9.5 percent for valuations.
Permitting by areas of the county for 2016 over the previous year:
- City of Spokane: number of permits up 64 percent, permit valuations up 27 percent
- City of Spokane Valley: number of permits up 29 percent, permit valuations up 169 percent
- Unincorporated Spokane County: number of permits up 11 percent, permit valuations up 9.6 percent
Permitting by areas of the county for fourth quarter 2016, year-over-year:
- City of Spokane: number of permits up 19 percent, permit valuations down 15 percent
- City of Spokane Valley: number of permits up 23 percent, permit valuations down 3.8 percent
- Unincorporated Spokane County: number of permits up 11 percent, permit valuations up 9.6 percent
Employment continues strong growth trend
Note: The CES database is used for employment because it is benchmarked with payroll data that covers a majority of businesses and has very little adjustment over time. However, the LAUS database is used for unemployment figures since this is not included in the CES database.
“The Spokane Metropolitan Statistical Area (MSA) added 6,708 jobs in 2016, with job-creation accelerating significantly in the fourth quarter,” says Higgins. “The annual job-growth rate of 2.9 percent outdistanced the national growth rate and nearly matched the statewide rate, a rare phenomenon. Even more impressive, job growth of 3.9 percent in fourth quarter actually beat the statewide rate of 3.1 percent and more than the doubled the national rate of 1.6 percent.”
According to Tweedy, the hot industries for employment growth continue to be Professional Business Services, Health Services, and Education, which tend to pay above average wages.
“In addition to new jobs related to the medical schools, we are seeing growth in Wholesale Trade and Information, which is businesses buying and selling equipment and supplies, and includes web hosting and other jobs in the information sector,” Tweedy says.
Tweedy notes that unemployment in Spokane is still greater than other urban areas in the state at 6.6 percent for the year and 6.1 percent for fourth quarter, compared to 5.6 percent and 5.2 percent respectively for Washington state, and 4.9 percent and 4.5 percent for the U.S. He believes there is a positive side to our unemployment levels because it provides a labor pool for existing businesses in the area and for those seeking to relocate or expand their operations because of labor shortages in other places.
“We have traditionally had a higher unemployment rate in Spokane than in Seattle or Portland because Spokane is a regional hub for employment and we attract job seekers from a large geographic area,” says Tweedy. “This helps expand our labor pool, although most job seekers are not unemployed for long.”
Forsyth agrees, “Spokane’s unemployment rate rarely drops below 6 percent, so I don’t anticipate any significant decreases in our unemployment rate in 2017. The unemployment rate in Spokane is now low enough that we are starting to see some upward pressure on wages.”
Higgins agreed, saying, “Rising wages marked the year, a trend likely to continue in 2017. It is also driven by upward pressure on wages created by changes in state minimum-wage standards.”
Tweedy adds, “Initial claims for unemployment in Spokane County are at historic levels. You have to go back to 2005 to see claims this low. In fact, our initial claims rate is lower than most of the rest of the state. Layoffs are also the lowest they have been in many years.”
“From a longer-term perspective,” says Higgins, “the MSA has added more than 20,000 jobs this decade, and has steadily lowered the unemployment rate by nearly a third.”
Retail sales increases continue to outperform wage growth
Reminder: Sales tax reporting lags one quarter behind other indicators.
For the year, retail trade taxable sales increased 5.7 percent while total taxable sales were up 6.5 percent (using data for fourth quarter 2015 through third quarter 2016, over the same period one year earlier, due to the lag in taxable sales reporting).
“As jobs, earnings and population have increased here, so have retail sales,” says Higgins, “reaching a record level of nearly $4.5 billion for these four quarters.”
When looking at year-over-year taxable sales for third quarter, retail trade sales rose 5.9 percent and total taxable sales increased 6.8 percent.
Forsyth says retails sales “were still stronger than expected when compared to wage growth.”
“I like that our retail sales increases are in the 5 to 6 percent range and not in double digits,” says Scranton. “It is a much more sustainable rate of growth.”
Both Scranton and Forsyth, however, continue to express concern about a potential drop in new car sales if the Federal Reserve raises interest rates as expected in 2017. Car sales have been a significant factor in taxable sales increases throughout the recovery.
CPI gaining importance as an indicator
“There was a bit of resurgence of inflation in the fourth quarter, mostly due to increases in oil prices. Overall, it’s nothing to be alarmed about, but there will be more inflationary pressure in 2017 than we have seen in quite a few years,” says Forsyth.
The Consumer Price Index (CPI) in fourth quarter 2016 was 1.8 percent, compared to 0.51 percent for the same period in 2015.
For the year, the CPI in 2016 was 0.92 percent, compared to 0.41 percent in 2015.
“I am particularly watching inflation and interest rates, and the Fed’s efforts to maintain a balance between them,” says Higgins.
Forsyth points to national unemployment numbers of 4.9 percent for 2016 and 4.5 percent for fourth quarter as giving the Federal Reserve “comfort” in raising interest rates in 2017.
“Inflation is still not a factor,” says Scranton, “but housing prices, along with oil prices, have held inflation down for a long time. Both have been steadily rising throughout 2016 and I anticipate we will see inflation increase in 2017. It’s something economists will be watching closely.”
Increases in number of flights and seats
Flight operations at Spokane International Airport declined 4 percent from 2015 to 2016, but this is attributed primarily to a drop in General Aviation activity, according to Todd Woodard, Director of Marketing and Public Affairs, Spokane International Airport. He says the combined operations for Spokane International Airport and Felts Field together actually increased just over 4 percent year-over-year.
Available seats were up 3.86 percent in 2016 compared to 2015, with a 3.2 percent increase in passengers.
Spokane International Airport continues to work with carriers to add nonstop flight options. Beginning June 8, United Airlines will offer year-round nonstop flights to San Francisco and Chicago’s O’Hare International Airports, with twice-daily San Francisco and once-daily Chicago service.
For the first time, seasonal nonstop service to San Diego will become available in June, provided by Southwest Airlines. San Diego topped the airport’s list for adding nonstop service, as 126 passengers fly each way daily (using an annualized average).
Accurate cargo numbers for 2016 are not available due to reporting errors experienced nationwide by FedEx in the second quarter of 2016, which is why the numbers show a decrease. Therefore, the 2.3 percent increase, year-over-year for fourth quarter, is a more meaningful representation of cargo trends at the Spokane airport.
Doug Tweedy: According to the U.S. Census report, the educational level of our labor force in Spokane increased in prime working age groups, which speaks well for the current and future skill level of our workforce.
Steve Scranton: Many in the business community are optimistic since the election because they expect changes from a Republican Congress and administration that will stimulate greater economic growth. I like to remind people that hope or optimism is a great emotion but it’s not a strategy. I suggest tempering our expectations until we see what they can get done. For the Northwest, we need to pay attention to trade and immigration policies. More than 19 percent of our state’s GDP growth is tied to exports. Legal immigration is helping to fill labor shortages in our region and many business leaders are apprehensive about an overreaction against legal immigrants who are needed to fill jobs.
Shaun Higgins: I’m waiting to see details of the Trump administration’s infrastructure plan, in particular, and the outcomes of any renegotiated trade pacts that might impact the agricultural sector, which is already being negatively impacted by a continuing strong dollar.
Grant Forsyth: The new administration is pretty hostile to trade agreements and there is a risk that new trade policies will be harmful to our economy in Spokane and throughout the Northwest. Another area to watch is the potential for large changes to business and corporate taxation. As with all changes, there will be winners and losers, so businesses should be examining any proposed changes carefully. For example, the current blueprint on Speaker Paul Ryan’s website, titled “A Better Way.” Finally, it will be interesting to see if Attorney General Jeff Sessions goes with his opposition to legal marijuana or his preference for states’ rights in deciding whether to reverse current federal policy on marijuana enforcement. It will be a big shock to the cannabis industry in our state if he changes the federal policy.