Average to above performance in Northwest

By John W. Mitchell Senior Vice President & Chief Economist U.S. Bancorp

T HE "R word" is back in vogue

I after being in storage for eight years. Here in Oregon, Washington and Idaho, the discussion brings back memories of the 1979-82 period when the nation went through its shootout with inflation.

As of August 1990. Idaho. Washington and Oregon were the third. fourth and seventh fastest growing states as measured by nonagricultural employment growth. Construction activity in the region has been very strong in marked contrast to the weakness that has prevailed in the national numbers during the last four years. Rapid population and employment growth has helped boost construction activity. Through August, residential building permits in Oregon were up l2% over last year, while the increase in Idaho was 2lo/o and in Washineton l2o/o.

At the present time many expect that the national economy is entering or in a recession. The media is full of stories about real estate problems in various portions of the nation. Regionally the question is: "How will we fare in a national downturn?" We are certainly not immune to the business cycle, but this time things are likely to be different. In Washington the aerospace sector has a backlog of nearly $100 billion. The aging fleet, the growth in trans Pacific traffic and pressure for fuel efficiency suggest that the industry may be stable during the next few years.

The weakness in the dollar and

Northwest well positioned to ride out rccession... retir€e income will drive service and construe tion sector... modest decline in building.

the relatively high growth rates in Western Europe and the Far East will help hold up exports - unlike the experience in the early 1980s. The Northwest's durable goods industries are major exporters as is the agricultural sector.

The region is experiencing an influx of retirees and lifestyle seekers who are bringing income and wealth to the area and helping to drive the service and construction sectors. The retiree income is independent of the business cycle. The agricultural sector is in far better shape in this cycle.

The risk of a real estate collapse, as has been seen in some other regions, would seem to be low. The area did not have the construction boom ofthe early 1980s and the recent population growth has kept the building permits per new resident below the national average in all three states. The tightening up in real estate lending requirements should help to prevent major overbuilding. Residential construction is expected to decline in all three states in l99l as the economies slow. The region will experience more modest growth reflecting the national weakness as well as regional factors. In Washington and Oregon, particularly, the reduction in the availability of logs from federal lands due to the forest plans and the ancient forest controversy will in the coming years result in a continuation of the downsizing of the industry.

During the coming year, the Northwest will not have a continuation of the recent boom. but from Boise to Brookings to Bellingham, the region will very likely have average to above average performance. A replay of the 1979 to 1982 period would not seem to be in the cards.