Overview bullet points ahead of my economic-update presentations last week to the Northwest Wall & Ceiling Bureau (slides here), a trade association, and the Economic Development Association of Skagit County (slides), perhaps Washington’s most successful economic development association:
- Listen to the music of the global bond markets. The tune they are singing is Almost No Inflation, and Very Little Growth. The U.S. is in its seventh year of N-ZIRP, the near-zero interest rate policy of the Federal Reserve. Bond markets in Europe have pushed rates on short-term government paper below zero. The European Central Bank last summer instituted NIRP, a negative interest rate policy, charging banks a small penalty for keeping their deposits. NIRP has since become the official policy of central banks in Switzerland, Denmark and Sweden.Negative interest rates are without modern precedent. Low and even negative rates tell you that central bankers around the world are more worried about deflation than inflation. I have not see this movie before, and I do not know how it ends.
- Think of the U.S. economy as the best house in a dodgy neighborhood. Our recovery from the Great Recession has been tepid by the standards of post-World War II recoveries. Total economic output is far below the pre-recession trend. Yet compared with what you see when you look around the world, we are doing relatively well.
The Euro zone is on the cusp of its third recession since the great financial meltdown in 2008, notwithstanding Germany’s decent fourth quarter. Japan is not breaking out from its two-decade long slump. It is aging rapidly, and its population is declining.China’s growth rate, roughly 10.5% for twenty years through 2011, has dropped to about 7.4%. Well-informed skeptics think China is cooking the books and that its real growth may be closer to 5%. Booms in Latin American and Oceania spurred by China’s earlier growth have faded.
- Spurred especially by Amazon.com’s hiring and spending sprees, the Seattle metropolitan area is booming, and the growth is spilling into other areas in Western Washington. Most of the Silicon Valley’s big names have established outputs in the Seattle area, in part to poach talent from Microsoft.
Boeing is shifting a few thousand white-collar jobs away from the Evergreen State, but aerospace remains much the largest manufacturing employer in Washington. It will remain so for as far ahead as the eye can see, not least because of its record backlog and plans for a third 737 line at Renton and final assembly of the newest 777 at Everett. Western Washington, with economic growth far above average, is in effect a fertile oasis in a slow-growth world.
Not that we are without risks. The strength of the dollar hurts exporters, pushing up the prices their customers must pay and reducing the prices of imports against which they compete. Labor trouble on the waterfront aggravates the competitive threats posed by the widening of the Panama Canal and hyper-competitive container ports in western Canada. Low oil prices potentially threaten Boeing’s backlog.