It’s a tough call – did the Tri Cities economy start with the year with a bang to end with a whimper? Or is it the reverse? A comparison of where things stood at the beginning and the end of this year leads to conflicting signals.
Let’s first consider a couple national measures that influence the regional economy.
Inflation, specifically the Consumer Price Index (CPI), has been headline news. At the beginning of the year, the country had experienced two years of unprecedented increases in the CPI: 7% in 2021 and 6.5% in 2022. And today? As of the end of October, the CPI had fallen to 3.2%, year-over-year.
This is now lower than the 10-year pre-pandemic average of 3.5%
A whimper then, but one that we welcome.
On the other hand, mortgage rates are going out of 2023 with a bang, one that isn’t welcome. At the end of November, the average rate for conventional, 30-year fixed mortgage was 7.2%. A year ago, the average stood at 6.5%. Lest we forget the pre-pandemic rate for the same mortgage type was 3.7%.
Another national economic yardstick, gross domestic product (GDP), has surprised watchers for most of this year, to the upside.
For the quarter ending in September, the annualized growth rate from the second quarter reached 5.2%, the highest growth since the bounce in the middle of the pandemic. However, national and local GDP growth rates don’t move in sync too much, so guidance from the national experience might be weak.
If we focus on metrics specific to the two counties, a reading of the local labor market also gives mixed signals.
Job creation in 2023 hasn’t been robust. The number of people employed in the third quarter of this year shows a gain of 1.6%, year-over-year.
While this implies that the economy is growing, its growth is considerably slower than the three-year, pre-pandemic average of 3.5%.
Of course, 2023 represents an improvement over the three pandemic years, 2020-22, which yielded an average growth of total employment less than 1%.
Yet, the unemployment rate for the two counties has continued to decline over the year.
As of the end of September, it stood at 3.8%. The year started (first quarter average) at 6.8%.
Given the seasonality of work in the two counties, the first quarter is always the highest through the year. Local third quarter results represent a noticeable improvement over the same quarter in 2022 when it stood at 4.8%.
Where will the measure for all of 2023 fall for the two counties?
The three-quarter simple average for the year-to-date is 4.8%. If fourth quarter unemployment stays at recent rates, a 4.5%-4.6% annual rate can be expected. If so, as the Benton-Franklin Trends measure shows, this will be the lowest rate on record.
Running counter to this likely happy ending is local consumer spending.
At least the spending taxed by Washington state code.
As the Trends measure on quarterly taxable retail sales reveals, taxable activity in the first half of this year is lower than 2022, by -0.8%.
Third quarter numbers haven’t yet been released for the two counties but are out for the state. Overall 39 counties, taxable spending went up a mere 1% over 2022.
Given a high correlation between local and state taxable retail sales, a mere 1% gain reported for the third quarter statewide, and the negative, year-to-date results here, I will be surprised if the annual report to be released by the Department of Revenue next year will show an increase.
My best guess for annual result of taxable retail sales in the two counties will likely be in the range of 0 to -2.0%.
If so, 2023 will be the first year since 2009 with a negative result. Ouch!
Another key economic local activity – residential construction – offers a parallel. For the first three quarters of the year, building permits in the two counties have dipped by 163 units. That’s a near 11% decline from the same period in 2022. If it’s any consolation, the decline statewide for the same period is much larger, at 26%. Clearly, higher interest rates are taking a toll on this vital industry. Add another whimper to the list.
To wrap up this stroll through the 2023 economy of the greater Tri Cities, consider the housing market. Prospective homeowners may find a silver lining to the slower pace of economic activity here.
As seen in the Trends indicator covering the median home resale price at the end of September (Q3), it stood at $433,600. That represents a 2.5% decrease over the same period in 2022. The data also show a gap to the state median that is widening, as the median home resale price for all 39 counties inched up 1.2% over the prior year’s same quarter.
All in all, more local economic measures are ending 2023 with a whimper rather than a bang.
At least for the first half of the year, many economic indicators likely will continue to be soft. But a soft landing is better than a hard one, which seems increasingly unlikely.
D. Patrick Jones is the executive director for Eastern Washington University’s Institute for Public Policy & Economic Analysis. Benton-Franklin Trends, the institute’s project, uses local, state and federal data to measure the local economic, educational and civic life of Benton and Franklin counties.
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