As the national economy enters its eleventh consecutive year of economic expansion a mixed bag of economic factors adds uncertainty to the 2020 Pierce County economic forecast. On the plus side of the ledger, the major U.S. stock indices reached record highs at the end of 2019, the U.S. unemployment rate continues to flirt with territory not seen since the early 1950s, and consumer sentiment remains high. On the negative side are U.S. tariffs on imports from China and retaliatory tariffs imposed by China on exports to China, a temporarily inverted yield curve – a usually a harbinger of an impending recession – and the political uncertainty that comes with an upcoming presidential election.
This report examines the prospects for Pierce County’s economy over the coming year of 2020. 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. Douglas Goodman and Bruce Mann, former professors of economics at the University of Puget Sound, developed the PCEI. Dr. Neal Johnson and Dr. Martin Wurm, an associate professor of economics at Pacific Lutheran University, revised the methodology in 2013 by linking the PCEI directly to changes in total personal income (TPI) and per capita income.
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 compiled by the U.S. Census Bureau, 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 2020.
The data behind the forecasts come from a variety of sources, including the Bureau of Economic Analysis (BEA), the Bureau of Labor Statistics (BLS), the U.S. Census Bureau, the Washington State Department of Revenue, the Northwest Multiple Listing Service, Zillow.com, the Northwest Seaport Alliance, the Port of Tacoma, and other west coast ports. 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 annual revisions to prior years’ estimates. The estimates for 2018, which were released by the BEA in November 2019, included revisions back to 1969. Notably, the revisions included a 0.9 percent increase to Pierce County’s 1985 TPI and per capita income. Since 1985 is used as the base year for the calculation of the PCEI, that change had the effect of decreasing the level of the PCEI in subsequent years. More recent revisions were relatively minor for Pierce County, with the largest recent change being a 0.5 percent upward revision to 2016’s TPI, largely a result of a 0.4 percent upward revision to per capita income. Otherwise, Pierce County’s recent revisions tended to be 0.1 percent or less. In contrast, King County’s 2016 and 2017 TPI were revised upwards by 1.0 and 2.1 percent, respectively.
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 2019 and forecast for each quarter of 2020. Taxable sales are forecast for the last two quarters of 2019, and for each quarter of 2020. Nonfarm employment and the unemployment rate are estimated for the last quarter of 2019 and forecast for each quarter of 2020. The Housing Activity Index is estimated for the fourth quarter of 2019 and forecast for each quarter of 2020. The Housing Affordability Index is estimated for the first three quarters of 2019, and forecast through the end of 2020. NWSA activity is estimated for the last quarter of 2019 and forecast for 2020. While some of the 2019 Q4 estimates for NWSA traffic volumes are estimated based on traffic volume through November 2019, all of the 2019 forecasts rely on the NWSA’s budget forecasts.
Dollar figures, unless otherwise stated, are in 2019 (third quarter) dollars. The conversion from nominal to real dollars uses the national personal consumption expenditure implicit price deflator.