While economy booms, forecasters strike measured tone

While economy booms, forecasters strike measured tone
While Washington’s economy continues to outperform the nation, the national economy is shifting away from a low-interest monetary policy. Created by Rawpixel.com - Freepik.com

As far as Washington state coffers are concerned, the good times keep on rolling. A new report from the Office of Financial Management (OFM) shows that the state revenue projections for the 2019-2021 biennium is $443 million higher than originally estimated, in addition to $348 million in surplus revenue for the current biennium (2017-19).

On top of that, the state’s unemployment rate is 4.5 percent; although higher than the national average, that’s the lowest it’s been since 1976 when the first Rocky film was released. Its 2017 gross domestic product was $507 billion, the 13th largest in the country. GDP also grew by 4.4 percent, the most of any state – as well as beating the national average of 2.2 percent for the sixth year in a row. A new report by the state Economic and Revenue Forecast Council (ERFC) showed that aside from manufacturing, Washington employment growth outpaced the nation in every industry.

It’s a similar situation nationwide, with a 4.1 percent GDP growth report the second quarter of this year. One Forbes writer argues that the U.S. is “in the second longest period of economic growth since World War II.” For that same quarter, the Federal Reserve Bank of St. Louis reports that U.S. household net worth as a percentage of disposable income reached an all-time high of $107 trillion.

Last month, the NFIB Small Business Economic Trends reported the highest level of small business optimism in 35 years, while consumer confidence has hit an 18-year high.

At ERFC’s Sept. 26 revenue review meeting, Executive Director Steve Lerch told members that for “some households…their financial picture has improved a lot, and that undoubtably shows up in those stronger consumer confidence numbers.”

As with ERFC and other government agencies, tariffs remain a significant concern both for the nation and Washington. It’s one of three major policy issues D.A. Davidson Companies Chief Investment Officer Ed Crotty says is affecting the economy. At the Association of Washington Business’ (AWB) Policy Summit on Sept. 19 in central Washington, he argued that recent federal tax reform has positively impacted corporate earnings and wages growth, leading to increased discretionary spending.

That perhaps explains the 6.5 percent annual growth in retail sales and a “resurgence” in brick-and-mortar stores.

At the same time, Lerch cautioned at ERFC’s Sept. 26 meeting that when adjusted for inflation, wage growth remains weak “despite how robust the labor market is.”

Yet the ongoing trade war between the U.S. and China raising the price of products such as iPhones isn’t going to interrupt the holiday season, according to Brent Williams, research analyst with D.A. Davidson Companies.

At the Sept. 19 AWB Summit, he told Washington Retail Association President Mark Johnson that “to quote the Target CEO…it’s going to be the best Christmas shopping season in at least 2,000 years. I think it’s going to be a really strong holiday season.”

Meanwhile, the small business confidence could be due to deregulation, Williams said. “Why is it important? Small business drives nearly half the output of the U.S. economy. They’re not really the most tangible items, but they’re really important.”

He added that tariffs could undermine the positive effects of deregulation and tax reform, though the harm could be “manageable.”

“To us, it’s like driving one foot on the gas and one on the brakes: a bit counterproductive,” he said. “I’m often asked ‘What are the impacts?’ as we try to imagine what’s the full impact of these tariffs, and it’s still playing out, so it’s kind of too early to say for sure.”

The greater context of the trade war is a transition from the last 75 years of globalization closely linked to the U.S., he said. “The potential for more outcomes is there.”

In addition, the national economy is shifting from an inflationary period marked by “quantitative easing” by the Federal Reserve to a renewed focus on fiscal policies and higher interest rates – something ERFC anticipated in its latest economic forecast.

“I think that while things look good, there are always things to worry about,” Lerch said at the Sept. 26 meeting.

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