Pierce County Economic Index 2006 Presentation

Prepared by

Dr. Doug Goodman, Ph.D.And

Dr. Bruce Mann, Ph.D.

Department of EconomicsUniversity of Puget Sound

Special Thanks To:LandAmerica Commercial Service

Port of TacomaPuget Sound EnergyRegence BlueShield

Tacoma-Pierce County Association of REALTORS

Tacoma Public UtilitiesVenture Bank

Tacoma-Pierce County Chamber

Four Years of Strong GrowthThe Mystery to Explore

0

50

100

150

200

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

2004 – 3.2%

2.8%

4.0%Pierce County Economic

Index

2005 – 6.3% 2006 – 3.9% 2007 – 3.0%

Above Average Growth

-4

-2

0

2

4

6

8

10

1990 1992 1994 1996 1998 2000 2002 2004 2006

Pierce County Economic Index

Average = 2.98%

A New Modus Operandi?PCEI Growth

5.68

2.14

-2.22

9.07

7.06

2.55

-4.00-2.000.002.004.006.008.00

10.00

1990-01 1997-98 2000-01

Recession to Recovery to Growth

• 2001 Mild Slowdown• 2002 No Growth• 2003 Recovery• 2004 Expansion• 2005 Strong – 6.3%

Quarterly Change in PCEI

01234567

A Brief History

A Solid 2006

First Half Up 4.5%

Third Quarter 3.5%

Fourth Quarter3.0%

Above Trend Growth Rate

PCEI Percent Change

0123456

2006Q1

2006Q2

2006Q3

2006Q4

Last Year This Year

Slower But Good

2007: Remaining Strong

First Quarter Up 2.9%

Second Quarter Up 2.9%

Third QuarterUp 2.9%

Fourth QuarterUp 3.1%

For the YearUp 3.0%

PCEI Percent Change

0

1

2

3

4

2007Q1

2007Q2

2007Q3

2007Q4

This Year

Stable Growth

Searching for an Explanation:The Evidence

• RecoveryMild and Shallow SlowdownSolid Economic Foundation

• Housing and industrial Real EstateSpending and Employment StrongHousing Expenditures

• Military and Related Spending

Searching for an Explanation:The Evidence

• Strong and Growing Regional SectorsAerospace – Boeing RelatedTechnology – Recovery of Dot ComsWarehouse and Distribution – PortBiotechnologyTourism and Conventions

• Urban Centers

Pierce County Unemployment: 2003-2007

Pierce County Unemployment Rate

3

4

5

6

7

8

9

2003 2004 2005 2006 2007

Up and Down Downturn Ups

Rate to 8.3% Drop to 5.5%

in 2004 5.5% Range

for 2006 and 2007

Unemployment: 2005

As Expected Last Year

Annual Average Rate of 5.9%

Strong Second Half4.0

5.0

6.0

7.0

Q1 05

Q2 05

Q3 05

Q4 05

Last Year Current Forecast

Unemployment RateImproved Through Year

Unemployment: 2006Rigor Mortis?

Constant 5.4% to Third Quarter

Ends the Year at 5.3%

2006 Average of 5.3% Betters Than 5.9% of 2005

4.0

5.0

6.0

7.0

Q1 06

Q2 06

Q3 06

Q4 06

Last Year Current Forecast

Unemployment RateContinued Good News

Unemployment: 2007Still in Rigor

First Half of YearUp to 5.6%

Second Half of YearBack to 5.5%

Yearly Average 5.5%

At “Full Employment”

5.6 5.6 5.4 5.5

4.5

5.5

6.5

Q1 07

Q2 07

Q3 07

Q4 07

Unemployment RateSmall Movements

Labor Force Growth: 2000 - 2005

310

320

330

340

350

360

370

380

2000 2001 2002 2003 2004 2005

Labor Force In Thousands

Growth At 2.5% Since 2002

recession

recovery

Labor Force Growth: 2004 - 2006

3.02.7

0.8

0

1

2

3

4

2004 2005 2006

Last Year This Year

•2004 and 2005Up by 20,0002.9% Total1.6% Migration

•2006 Slows

Supply Increased

Civilian Labor Force Growth in 2006

• 3,000 New Workers in 2006

• Supply up by Only 0.75% for the Year

• Strong Regional and Local Opportunities

Percent Growth in Labor Force

0

0.5

1

1.5

2

06 Q1 06 Q2 06 Q3 06 Q4

Growth Slowing

Civilian Labor Force 2007:Movement Detected

• First Half Up 1.25%• Second Half Up 1.75%• In 2007

5,700 New Workers 1.5% Increase

Percent Growth in Labor Force

0

0.5

1

1.5

2

07 Q1 07 Q2 07 Q3 07 Q4

Growth Increasing

More Stable – Less Volatile Movement

Employment Pattern2003 to 2005

Up 1.9% in 2003Up 2.5% in 2004Up 3.3% in 2005

8,400 New JobsThird Best in History 0

1

2

3

4

2003 2004 2005

Percent Growth

Recovery Started in 2003

Job Growth - 2006 Good But Slowing

First Half Job Growth – Up 3.25%

Second Half Job Growth – Up 2.25%

For the YearJob Growth of 2.75%Adds 7,200 New Jobs

Non-Agricultural Employment Growth

1.0

2.0

3.0

4.0

06 Q1 06 Q2 06 Q3 06 Q4

Percent Change

Continued Job Growth In 2006

Job Growth 2007Moderation Continues

First Half Job Growth – 1.7%

Second HalfJob Growth 2.2%

Annual Growth Of 2.0%

5,300 New Jobs

Employment Growth

0.0

1.0

2.0

3.0

07 Q1 07 Q2 07 Q3 07 Q4

Percent Change

Job Growth Continues In 2007

Labor Market Detection

• Three Years Near “Full Employment”

• Some Problems LoomConstruction Sector

Skill ShortageMedical and Technical

Specialty Needs

Job and Worker Gtowth Rates

0.0

0.8

1.62.4

3.2

4.0

2004 2005 2006 2007

Employment Labor ForceSuspects and Issues

Total Personal IncomeAccelerates

• 2005 – Big JumpUp 5.6%Above 3.9% Trend$26 Billion for

Households• 2006 – Strong

5.0% Increase$2.2 Billion

Increase3

4

5

6

7

2005 2006

Last Yeat This Year

5.6

6.6

4.5

5.0

Two Good Years

Total Personal IncomeGrowth to Remain Solid

• Up 4.4%• $2.1 Billion More• Three Years of

Growth Above Long Term Trend Rate of 3.9%

5.6

5.0

4.1

0

1

2

3

4

5

6

2005 2006 2007

2007 – Income Growth

Demystifying Income Growth

• Strong Economy and More Jobs• Restructured Jobs Opportunities

High-End Service SectorManufacturing StabilityHigher Wages in Trade Jobs

• Education and Productive Workers

Total and Per Capita Income GrowthMysterious Convergence

Average Per Capita Income (2000 Dollars)

1

2

3

4

5

6

2004

2005

2006

2007

Per Capita TotalStrong Growth In Both Per Capita and Total Income – 2005 to 2007Starting in 2005 Total and Per Capita Rise At Similar RatesNew Pattern Remains Into 2007

Average Income Per Person

Average Per Capita Income (2000 Dollars)

25,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000

2004

2005

2006

2007

8% per year

2007 Per Capita Income •$39,800•25% Gain in 3 Years•Average Annual Growth of 8%

•Best in 30 Years

Illuminating the Why

Economic Growth Labor Market ImprovementsReduced Household Size

School Age Population ShrinksSmaller Sized Housing Units

Retail Sales Growth: 2005

Third Sales SurgedUp 12.3%5% Over Forecast

Culprits Higher Gas PricesLocal TourismHousing Strength

Percent Change

02468

101214

Q1 Q2 Q3

Last Year This Year

Mystery: Third Quarter

Retail Sales Growth: 2005

Fourth QuarterUp 7.2%

For the Year - 2005Dollar Sales Up 9.2%Real Sales Up 5.7%

Percent Change

02468

101214

Q1 Q2 Q3 Q4

Last Year This Year

Year Ends Normally

Retail Sales Growth: 2006

First Half Up 8.5% Higher Incomes Good Job MarketThird Quarter Slows Up 4.8% Energy Prices Hurt Slower Housing ActivityFourth Quarter – Holiday Up 6.9% $1.6 Billion – RecordAnnual Increase of 7.0%

Percent Change

0.0

2.0

4.0

6.0

8.0

10.0

Q1 Q2 Q3 Q4

More of the Same in 2006

Retail Sales In 2007

First Half StrongFirst quarter up 7.0%Second quarter up 5.0%

Second Half Also SolidThird quarter up 5.0%Fourth quarter up 5.25%

Annual Increase of 5.5%Real Sales Up 2.0%

2007 Retail Sales Growth

012345678

Q1 Q2 Q3 Q4

Slower 2007

Housing: No Mystery Here

• Up 12% In 2003• 2004 Up 4%• Strong 2005 Up 14%

02468

101214

1990 = 100Hot Housing Market: 2003 to 2005

Housing 2006 A Change of Direction

• First Half StrongUp 9.0%

• Third Quarter SlowingNo Real Increase

• Fourth Quarter Down 4.3%

• Annual Rate Up 3%

Percent Change

-6.0-3.0

0.03.06.0

9.012.0

Q1 Q2 Q3 Q4

Housing In 2007Another Change of Direction

• Declining Activity in First Three QuartersSlower ClosingsPrice ConcernsMore Time on the

Market• Fourth Quarter Recovery

Up 1.5%• Annual Decline of 2.0%

Percent Change

-4-3-2-10123

Q1 Q2 Q3 Q4

Down to Up

Multi-FamilyA Recovering Sector

Vacancy Rates DownRents Move UpFewer Condominium ConversionsSmaller Household Size Increase Demand

Improvement Started in 2006

Commercial Real Estate

Vacancies Remain Lowest in RegionStrong Port, Fife, Sumner, and Auburn Areas Lease Rates Moving Up SteadilySpec Buildings Leasing UpThe Mystery: Land Availability?Market Strong Through 2007

Industrial Space Market

Retail Real Estate

Lowest Vacancy Rates in Region Improving Lease Terms Renovations at Existing Sites Up-Scale Retail Potential

Sales, Population, and Income Growth

Office Space

Vacancy Rates Fall Below Regional Average

Supply IncreasingSteady Lease RatesAttractive Local Market ConditionsGood Year in 2007

Lagging Sector Picks Up

Port and Trade ActivitySome Cooling

Slower 2006 2% IncreaseLarger VesselsMilitary Shipments

HelpAuto Traffic Up 17%Grain Exports Good

Containerized Cargo

0.02.04.06.08.0

10.012.014.016.0

2005 2006 2007Source: Port of Tacoma

(1,000 of TEUs)

Port and Trade: 2007

World Trade UpDomestic Activity StrongNew Service Will Call At PortLarger Vessels for Existing ServiceGrowth of 3%Investments in Facilities and

Improvements Continue

Strengthening Activity

PCEI 1995 to 2007

Annual PCEI

120130140150160170180190200

Special Thanks To:LandAmerica Commercial Service

Port of TacomaPuget Sound EnergyRegence BlueShield

Tacoma-Pierce County Association of REALTORS

Tacoma Public UtilitiesVenture Bank

Tacoma-Pierce County Chamber