The latest forecast from the state Economic and Revenue Forecast Council (ERFC) shows that Washington’s economy is holding steady despite increased talk of a recession from various U.S. financial institutions.
Despite a large drop in manufacturing exports due to the shutdown in Boeing 737 production earlier this year, Washington’s unemployment rate remains at 4.6 percent, just above its all-time low of 4.4 percent. In the last month, state revenue was $45 million or 2.8 percent greater than anticipated, and the state also ranks third in personal income growth: seven percent compared to a national average of 5.4 percent.
However, Executive Director & Chief Economist Steve Lerch told the council at its Nov. 4 meeting that both the state and nation are experiencing slower economic growth compared to last year. “In terms of that question ‘When’s the next recession?’ …things that are not very clear.”
At the same time, he said several persistent trends are reason for concern. One is a “heightened” risk of a construction industry downturn. Currently, the sector composes six percent of all employment in Washington. However, historically that has only happened three times since 1975, with the two others occurring in the years just prior to the 1980 Recession and the 2009 Great Recession.
“That’s not a guarantee that this is going to happen,” Lerch said. “But it does seem that there’s at least the potential here for a downturn in construction.”
During the last recession, construction’s share of state revenue fell from 12 percent to 8 percent. “That’s bad news, not only because of loss of jobs, but construction is a pretty big contributor to general fund revenues.”
He added that nationally the manufacturing sector activity has tapered. “Again, not a guaranteed signal of recession by any stretch, but a slowdown in manufacturing activity is again a warning sign.”
Adding to the concern is a recent New York Federal Reserve (NYFR) model that shows an increased probability of a recession within the next year. The probability is now almost equal to that forecasted by the NYFR model before the Great Recession.
However, Lerch noted that data from the Philadelphia Federal Reserve comparing national and state economic activity indicates slowed growth rather than a recession. “I certainly don’t see a clear recession signal here either.”
The council’s forecasts are used to determine the state’s four-year budget outlook and how much state lawmakers can spend within a two-year operating budget without enacting new taxes.
ERFC will release its next revenue collection report on Nov. 18 and its revenue forecast on Nov. 20.