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Second quarter Economic Review shows strong growth, vulnerability to new tariffs

The Economic Review and Forecast Council presented its quarterly Economic Review this week at a Economic Review Meeting on September 6th.  The report  largely synthesizes and interprets the latest Economic and Revenue Update issued in August, but also builds on the update with new figures reported for August.

In addition to the strong employment growth in June and July, which was 6,300 more expected in the June forecast, the recently released report also incorporated data from the Quarterly Census of Employment and Wages (QCEW).  The additional numbers showed even stronger job growth of 19,600 (0.6%) more jobs in July 2018 than expected in the June forecast, which is also stronger that the US as a whole.

Along with strong growth in jobs, the report estimates modest personal income growth. The estimate of Washington personal income in the first quarter of 2018 is $441.8 billion, which is $5.0 billion (1.1%) higher than assumed in the June forecast. The new estimate of wage and salary income is $5.6 billion higher than expected and non-wage income is $0.6 billion lower, correlating with increased availability of jobs.

The report confirmed the somewhat slowing housing market reported in August, and also indicates that Seattle area consumer price inflation remains well above the national average, which could eat in to actual income growth.  From June 2017 to June 2018, consumer prices in the Seattle area rose 3.3% compared to 2.8% for the U.S. city average. Core prices, which exclude food and energy, were up 2.9% in Seattle compared to 2.2% for the nation. Not surprisingly, the higher Seattle inflation can be tied to more rapid growth in shelter costs. Over the year, shelter costs in Seattle rose 6.4% compared to 3.4% for the nation as a whole. Excluding shelter costs, Seattle inflation was below the national average at 1.5% compared to 2.5%.

Finally, the report shows impressive increases in exports over the last three quarters.  Exports increased 3.7% in the second quarter of 2018 compared to the second quarter of 2017. Transportation equipment exports (mostly Boeing planes) declined 5.3% over the year but exports of agricultural products rose 26.8% and exports of all other commodities (mostly manufacturing) increased 12.0%.

However, we are left to wonder if this increase in exports was merely a product of a rush to trade before Chinese, Mexican, Canadian and European Union tariffs on many US goods went into effect in July and August. Washington was the largest state exporter of goods to China last year, exporting close to $18 billion, including wheat, airplanes, seafood, apples, pears, and cherries.

With almost all of those products and industries facing new tariffs, the overall effect on the Washington economy could be serious. Overall, however, the report maintains a positive forecast, pointing to  elevated consumer, business confidence which could likely translate into stronger growth moving into the last half of 2018.