The year 2018 ended with the United States in a trade spat with China, the U.S. stock indices flirting with bear market territory, and a partial shutdown of the Federal government. At the same time, national and local unemployment rates are low and consumer sentiment remains on an upward trend. The U.S. hasn’t seen unemployment rates this low since 1969 and Pierce County hasn’t seen lower unemployment rates since 1999. With the national economy in its tenth year of consecutive growth since the Great Recession, it is natural to ask if and when the next recession will start. For now, the partial answer appears to be ‘Not this year, ’though slower economic growth is on the horizon.
This report examines the prospects for Pierce County’s economy over the coming year of 2019. It covers jobs, employment levels, personal income, retail sales activity, commercial real estate sectors, residential housing affordability and housing sales activity, along with shipping traffic at the Port of Tacoma and the Northwest Seaport Alliance. The centerpiece of the report is the Pierce County Economic Index, or PCEI. The PCEI was originally developed by Drs. Douglas Goodman and Bruce Mann, former professors of economics at the University of Puget Sound. Dr. Neal Johnson and Dr. Martin Wurm, formerly an associate professor of economics at Pacific Lutheran University, revised the methodology in 2013 to allow for the inclusion of the prior year’s income data, which typically isn’t available from the Bureau of Economic Analysis (BEA) until mid-November. They also linked the PCEI directly to total personal income (TPI) and per capita income, so that the methodology could easily be applied to other counties for comparative analyses.
The methodology behind the PCEI – and behind many of the other forecasts included in this report – has changed over the years. The current methodology relies on three key inputs. These are estimated building construction costs, as reported on building permits, state-level forecasts of economic activity, and national-level forecasts of economic activity. Building permit data has proven to be a good short-term leading economic indicator for the county. It helps to capture the sentiment about the local economy that isn’t reflected in either the national or state forecasts. Other factors also enter into the forecasts, including assessments of labor force participation rates and independent forecasts of housing values and rental rates through 2019.
The data behind the forecasts comes from a variety of sources, including the BEA, the Bureau of Labor Statistics (BLS), the U.S. Census Bureau, the Washington State Department of Revenue, the Northwest Multiple Listing Service, and the Northwest Seaport Alliance. A fuller list can be found in the Data Sources and References section of this report.
Measuring county-level total personal income (TPI) is an imprecise science, with the BEA making nearly annual revisions to prior years’ estimates. The estimates for 2017, which were released by the BEA in November 2018, included revisions for Pierce County from 2001 onwards. Both TPI and personal income per capita were revised downwards for 2001-06 and upwards for 2007-16. Population estimates were revised downward slightly for the 2010-2016 period. The 2015 TPI and per capita income were revised upwards by 1.4 percent and 1.5 percent respectively, while the 2016 values were revised upwards by less than 1.0 percent. King County had smaller upward revisions in 2015, but upward revisions of 3.0 percent for TPI and 2.7 percent for per capita income in 2017. At least for King County, the annual upward revisions are becoming a regular occurrence.
While county-level personal income is available on an annual basis, state-level personal income is available quarterly. The quarter-to quarter percent changes at the state level are used to infer a more accurate quarter-to-quarter change in the PCEI. This primarily holds for historical PCEI values. Forecast values for the PCEI should still be interpreted on a year-over-year basis. PCEI Reports prior to 2015-2016 provided historical and forecast cargo volumes for the Port of Tacoma. Since the formation of the Northwest Seaport Alliance (NWSA) in August 2015 only combined data for the Port of Tacoma and the Port of Seattle is available.
Forecast horizons in this report vary, depending on the economic variable being forecast and whether the forecast is by quarter or for the full year. The PCEI is estimated for 2018 and forecast for each quarter of 2019. Taxable sales are forecast for the last two quarters of 2018, and for each quarter of 2019. Nonfarm employment and the unemployment rate are estimated for the last quarter of 2018 and
forecast for each quarter of 2019. The Housing Activity Index uses data for the full 2018 and is forecast for each quarter of 2019. The Housing Affordability Index is estimated for the first three quarters of 2018, and forecast through the end of 2019. NWSA activity is estimated for the last quarter of 2018 and forecast for 2019. While some of the 2019 Q4 estimates for NWSA traffic volume is estimated based on traffic volume through November 2018, all of the 2019 forecasts rely on the NWSA’s budget forecasts.
Dollar figures, unless otherwise stated, are in 2018 (third quarter) dollars. The conversion from nominal to real dollars uses the national personal consumption expenditure implicit price deflator.