The next normal: INW economists describe a stabilizing economy
Some economic indicators shows highs, lows of recent years are leveling outFebruary 2nd, 2023
The Spokane region is experiencing stabilization in some major economic factors, and while consumer prices are unlikely to drop to pre-pandemic levels, a likely economic recession will slow inflation, Inland Northwest economists say.
“The economy is moving back to more long-term normal levels of activity,” says Grant Forsyth, chief economist at Avista Corp.
Inflation and rising interest rates are expected to have a tempering effect on growth in some parts of the economy, Forsyth says.
“There has been some deterioration in economic activity, if you look at a broad range of data,” Forsyth says. “But it's been pretty modest, which indicates that if we do get into a recession—which I think is highly probable—it'll be a pretty mild one by historical standards.”
The housing market here already has seen a shift toward a calmer dynamic, he says.
“On the housing market side, I’m not surprised you’re starting to see things like price growth start to settle down, because interest rates have gone up so much,” Forsyth says.
The number of homes sold in Spokane County has declined to below pre-pandemic levels. According to the Spokane Association of Realtors, 6,637 homes were sold in the Spokane market in 2022. That’s a 19% decrease from 2020, and a 20% decrease from the number of homes sold in 2018.
Forsyth notes that home prices remain elevated. The median price of a home sold in Spokane County in December 2022 was $382,000, according to SAR data. That’s an increase of 21% from the December 2020 median price of $315,000 and is higher by 72% than the December 2018 median price of $222,500.
Forsyth says home prices are likely to continue to rise, but at a more moderate rate than the region has experienced in recent years.
Steve Scranton, chief investment officer and economist at Spokane-based Washington Trust Bank, says that likely will be true of prices for most things in 2023.
“We may find that our core expenses—shelter, energy, food—are rising slower,” Scranton says.
A recession could see some prices come down, he says, but the price floor has risen and is unlikely to fall.
“It’s the ratchet effect. When prices go up, they come down some, but not as much as before,” he says. “Prices went up so much, and even though inflation may drop off … I don’t think we’re going to see food prices go down anytime soon. With gas prices, we’ve all become desensitized to the point that we think $3.75 (per gallon) is great.”
Scranton says that while consumers are likely to feel some relief as price growth stabilizes, they’re still feeling the pain of inflation.
Real average hourly earnings, which is defined as wages received after adjusting for inflation, is an indicator of how far consumers’ money is going, Scranton says.
According to the U.S. Bureau of Labor Statistics, real average hourly earnings decreased by 3.3% from December 2020 to December 2022.
“The consumer may think things are not as bad as they have been, and things have been stabilizing, but they wouldn’t say things are back to normal,” Scranton says. “The consumer is still feeling expense growth outstripping wage growth.”
Unemployment rates in the U.S. and in Spokane County declined significantly in 2022, says Doug Tweedy, the Spokane-based economist for the Washington state Employment Security Department.
“We haven't returned to normal; we've exceeded normal,” Tweedy says. “The unemployment rate is down at historic lows, which has created some problems with labor shortages. There are more job postings than there are workers right now.”
At both the national and Spokane-Spokane Valley metro area levels, unemployment in December 2022 dipped to pre-pandemic levels, at 3.5% nationally and 4.6% locally, down from December 2018 rates of 3.9% and 5.5%, respectively.
Forsyth says employment growth in the region is showing signs of slowing, but not rapidly.
“It's this weird mix of things going on, but that mix has essentially meant that employment growth isn't really collapsing in the face of these interest rate increases,” Forsyth says. “The effects of the interest rate increases don't seem to be particularly uniform.”
For example, he says, the tech industry is experiencing layoffs while the health care industry continues to struggle to fill open positions.
Tweedy says the Spokane metro area added a total of about 12,700 jobs in 2022.
“The number of jobs we have has increased markedly over the last year or 18 months … but in some areas where we've been surprised,” Tweedy says.
Manufacturing is one such industry, he says. In 2022, the manufacturing industry swelled by 1,300 jobs here.
Health care continues to grow, with 1,700 new jobs added to Spokane’s health care industry in 2022.
Hospitality employment also saw significant increases in 2022, Tweedy says.
“Those jobs have started to come back. The sector increased by 1,900 jobs over the year, with the biggest increase in restaurants and bars,” Tweedy says. “Overall, we've gained jobs, and some of the sectors that were hard-hit are coming back.”
Tweedy says many businesses have been hesitant to hire or expand as inflation has hit their input costs harder than consumer inflation.
“Consumer inflation is impacting what they need to pay workers to stay competitive,” Tweedy says. “At the same time, they have to absorb input price increases that exceed consumer inflation.”
A lower inflation rate will provide employers some breathing room, he says.
“If you can get the inflation rate down at both the consumer level and the input level, it makes it easier for businesses to plan for the future and make those expansion decisions,” Tweedy says. “It's uncertainty that’s keeping some businesses from pulling the trigger on hiring decisions.”