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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 11, 2009 at 10:04 AM

Despite a sobering unemployment report, the worst probably isn’t over

Top of the News: By some measures, Washington state is fortunate. While California’s January unemployment rate jumped to 10.1 percent, ours came in at 7.8 percent, just a bit higher than the national average. Four states are now above 10 percent. A deeper look, however, gives cause for concern.

First, Washington’s rate jumped 3.2 percent year-over-year. A minority of states (13) turned in as-bad or worse performance. From December to January, state joblessness here rose 1.3 percent — nine other states saw that degree or worse in labor market erosion. It could be worse, to be sure: Indiana and Michigan, for example, suffered year-over-year increases of more than 4 percent.

But Washington has prided itself on economic diversity, innovation, flexibility and world-beater companies. Now its unemployment has hit the highest level in more than two decades. This is what happens when a world recession — with virtually no industries or companies moving against the down cycle, hits home. (You can read the report here). Now even the Wall Street Journal has taken notice of how the downturn has finally caught up with proud Seattle.

Federal stimulus dollars will help put a floor under job losses. But it’s too soon to hope the worst is over in a recession that has a long way to run. Too many bad bets, bad debts and distortions have to be worked out — and unfortunately too often on the backs of working folk. What to watch: The export and import markets, critical to Washington (China’s exports are falling); consumer demand, important to Seattle-area retail giants and unique neighborhood shops; Boeing and world demand for its products; the credit markets and ever stage of startup and venture capital, vital for the state and region’s ability to restart job creation, and, of course, Microsoft.

It would be comforting to believe that with the assisted suicide of Washington Mutual and initial job cuts at Boeing and other companies that the worst is over. I fear that would be the comfort of the naive.

The Back Story: Not so long ago, the dollar was weak and helping U.S. exports offset the implosion of the housing bubble. Now a jittery world is hoarding dollars, global economies are in a nosedive and demand for U.S. products has collapsed — not good news for the nation’s most trade-dependent state (that’s us). A recent report from the Census shows that export demand is down in nine of the 12 largest trading partners, including China, Japan and Korea (some of Washington’s top destinations).

As Boston economist Rebecca Wilder recently pointed out, U.S. imports uniformly fall during recessions — but exports don’t necessarily tank. Export demand remained positive during recessions in 1969-70, 1980 and 1991-92. Exports fell during the 1973-75, 1981-82 and 2001 recessions. This another reason why the stim is so important — and, as passed, may not be big enough. “In fact,” she writes on RGE Monitor, “the normal mechanisms that propel the U.S. out of a recession – exports, inventory cycle, durable goods – are all out for the count.”

Today’s Econ Haiku:

Madoff’s off to jail

Inmates won’t trade smokes with him

Fearing Ponzi schemes

Comments | More in Jobs/Unemployment, Trade


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