What’s with the national and local economies? “The recession America was expecting never showed up,” writes the New York Times. Looking at the national economy, it does seem so. In a recession, unemployment jumps to 8 or 10 percent, and production falls. The national unemployment rate in December was 3.7 percent. Last year the national economy grew 3.1 percent. And in the stock market, the Dow Jones Industrials have been setting all-time highs, closing above 38,000.
Those are not recession numbers.
Yet if you peruse the business pages of the Seattle Times, the recent local news is not reassuring — and not just because the news media like to report bad news. What they’re reporting is real. Locally, the blow-out of a door plug on a Boeing 737 Max 9 in flight over Portland has revealed a quality-control problem that will probably cost America’s largest airplane company hundreds of millions in business. Its stock has dropped 12 percent in a little over a month. Stock in Alaska Air Group, whose airplane had the mishap, has fallen by one-third in the past seven months.
The wider problem has been in the tech sector, which has the highest average pay of the large industries here. Sampled by the Bureau of Labor Statistics in mid-2022, the mean wage for computer-user support here was $36 an hour, for software quality assurance $54.98, for computer systems analysts $62.53, and for software developers (and there are 80,000 of them here) $74.85.
Employment in the tech sector here grew steadily for many years until mid-2022. Since then, it has been heading downward in its own private recession. The latest figures — final figures, not estimates — are for November. While total employment in all industries in King and Snohomish counties was up 2.6 percent from November 2022 — thanks largely to manufacturing, hospitality, education and health; “information” employment (tech) was down 5.8 percent during that time.
That’s a big change, and it shows up in many places. Microsoft has just announced the layoff of 8.6 percent of its employees in computer gaming, though not all of them are here. These layoffs follow others in the company during 2023. Other tech news has been gloomy. Tableau Software, which had about 4,000 employees in Seattle when it was acquired in 2019 by San Francisco-based Salesforce, has suffered cutbacks and the exodus of top people. Last year T-Mobile, based in Bellevue, announced cuts of 400 jobs. Later in the year, Qualtrics Software, a business-data company with 900 employees in Seattle, cut its workforce by 14 percent.
Some moves have countered that trend. A year ago, Maryland-based IonQ began quantum-computer production in Bothell. Also in Bothell, Seagen, which is being acquired by Pfizer, is building a 270,000-squre-foot manufacturing plant. Seagen has 1,800 employees and lays claim to be the area’s largest biotech company. And late last year, AstraZeneca announced a deal to buy Icosavax, a spin-out from University of Washington work on respiratory-disease vaccines, in a deal that values the Seattle company at $838 million. Always there are entrepreneurs and companies that buck the trend — but for the past year and a half, the trend in tech has not been good.
Amazon, the area’s largest public stock company, has had a string of negative news. Set aside the labor problems, which they could have during good times as well, but these times are not so good. Amazon has had several waves of layoffs. It has slowed its push into bricks-and-mortar retailing, and this month it shut its last Fresh Pickup store. It has put its second-headquarters in Virginia on hold. Lately it has laid off hundreds of employees in its entertainment businesses. Its stock is doing O.K., which suggests that the company is not in any long-term trouble. The news that founder Jeff Bezos is leaving the state marks “the symbolic end of an era,” writes Todd Bishop of GeekWire. (Note that Bezos is moving to Florida, which has no state income tax on a tax on capital gains.)
Other retailers have been making cuts. The big story in Seattle has been Bartell Drugs, long the largest locally-owned drugstore chain in the state. The century-old private company had the extraordinarily bad timing to be acquired in 2020 by Rite Aid, which filed for bankruptcy October 15, 2023. Bartell’s woes have been followed by Seattle Times business reporter Paul Roberts. On November 17, he reported that more than one-quarter of the Bartell stores had closed, leading to what Times cartoonist David Horsey dubbed The Great Pharmacy Fade.
There have been other big store closures: Target in the U District and Ballard, Walmart in Everett, and PCC in downtown Seattle. In December, the Internet retailer Zulily shut down after 13 years in business, laying off 292 employees in the Seattle area.
A handful of retailers have bucked the trend. Bloomingdale’s opened its first Seattle store at University Village last year, and Sundays, a Canadian furniture chain, opened at 1023 First Avenue downtown. But REI, Seattle’s retailing giant of outdoor gear, has been cutting back. A year ago it laid off 8 percent of its headquarters staff, and it has just announced a layoff of 6.4 percent of its Washington workforce (though none in the stores).
We have all learned about the supply chain since the Covid epidemic. In 2023, the number of containers imported and exported on the docks of Seattle and Tacoma (counting full containers, not empty ones) fell 8 percent from 2022. Looking at imports only, the loss was 13.7 percent. The drop in imports affected companies in logistics. In January 2024, the Seattle logistics startup Flexe laid off 38 percent of its workforce, following layoffs by Flexport and the closure of the digital trucking platform Convoy.
Real estate, an industry that thrives on debt, has always been vulnerable to rising interest rates — and to economic downturns. Early last year, Microsoft and Facebook each vacated buildings in Seattle and Tableau Software put its headquarters building up for sublease.
In commercial real estate, the industrial market vacancy rate is 5.6 percent, which is not too bad, and the vacancy rate in retail is closer to 3 percent. The big problem is in office space. In the downtown Seattle office market, Cushman & Wakefield reported that “net absorption” has been negative since 2020, the Covid year. That means, on balance, that tenants have been giving up space, much of it because of employees working from home. In the fourth quarter of 2023, the overall vacancy rate in the downtown market reached 25.7 percent. Last year, Times reporter Paul Roberts had business stories about Seattle’s most famous developer of office towers, Martin Selig, and his struggles with markets and debt.
In downtown Seattle at year-end, average rents for class A space — $50.77 per square foot — were down 10.6 percent from a year earlier. “Pricing is projected to decline heading into 2024 as more vacant subleases come online with lower asking rents in place,” the company said.
Kidder Mathews offers different numbers for office vacancy — it depends on how you define what space counts and what doesn’t — but the trend is the same. The company says office vacancy rates are the highest they’ve been since 2010, in the backwash of the Great Recession. At year-end 2023, there were 16 major office projects underway in the Seattle and Eastside markets. But — no surprise! — the company says, “Developers are reluctant to commence any new speculative projects.”
No more new skyscrapers for a few years. That’s not good for the construction industry, where employment shrank by 4.3 percent here in between November 2022 and November 2023. Office towers are typically built to attract big tenants, but the sore spots include the small guys, too. In November, the global company WeWork, which catered to the self-employed with “coworking” office space in the Seattle area, filed for bankruptcy. In January it closed its location on Capitol Hill.
The real estate market that most people care about is for housing. For single-family houses, prices in the Seattle area fell between 3 and 4 percent in 2023. The median single-family house in King County dropped from $900,000 to $876,000 — not a big drop if you’re in the market to buy, but it was the largest drop in more than 10 years. One reason for the drag: more homeowners with low-interest mortgages have been reluctant to move up. Over the year, new listings are down by more than one-quarter — and that’s not good news for the real estate industry. Zillow and Redfin have both cut back, as has the real estate startup Flyhomes.
The apartment market has also softened. Apartmentlist.com reports that in December the median rent in Seattle was $1,844 for a 1-bedroom unit and $2,301 for two bedrooms. That’s high — 17th highest of the top 100 markets in the country. But those figures were down 1.9 percent from November, ranking Seattle 97th out of 100 in rent growth.
So – are we in a recession? Officially, no, at least not yet. But for several industries, especially tech, the office market, much of retail, and now aerospace, it feels very much like a coming-down. The U.S economy may have avoided a nasty recession and made a “soft landing,” and rah-rah for that, but for some big, important flagship industries around here, the landing has not been soft.
And we’re not done yet.
DO NOT appreciate or need your Reality Check: No National Recession, But Seattle Economy is Ringing Alarms article. And you know why.
By Chance: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
I fear the “Acres of Clams” response to these warning signals. That response is to note the cyclical nature of the local economy (just dig clams while waiting), anticipating another “savior” to come along soon, as tech did and Boeing did. Usually, what digs us out is a war, and I hope it doesn’t come to that, though preparing more naval and military bases, with an eye on China, could happen.
I hope you recall that Chancey Gardiner was illiterate and cloistered. But still, there are cycles to the (NW) economy.
Also, I think we get a pass for just having survived a global pandemic.No Casandra nor Pollyanna here.
I do sound optimistic, some might say uninformed. And i see your POV. Invest in Military stocks.
Lacking a stable, diverse economic base …
Tim Hill, Gary Locke, Ron Sims, Frank Chopp, Greg Nickels, Ed Murray — and the list goes on — convinced themselves that all this region needed was more office buildings and low corporate taxes and income taxes. What they didn’t count on was the internet rendering offices (and by extension large Seattle-area workforces) increasingly irrelevant. The market has been rewarding the stock prices of all the big tech companies that now use smaller, leaner, and more geographically-distributed employee teams, so you can count on more job losses and less office leasing here (especially as ai begins replacing more and more jobs that lots of downtown office workers used to have to perform).
Will there be a “next big thing” in Seattle, or San Francisco? Maybe after decades of economic decline/doldrums.
I think much of this is just an evening out of poor corporate decisions. Many of those tech companies over-hired during Covid booms and pumped money into sectors/departments/projects that were not particularly successful, theoretically in a bid to make them so.
The U District Target was terrible, they never stocked what you needed and I constantly wondered when they were open how they took up so much space and had nothing. Zulily had horrendous UX/UI, at a time when a well designed site was make or break for an e-retailer, and failed to hang onto their niche target market. Boeing has made terrible management decision leading to poor quality control—it would be a huge detriment to local employment rates if they shut down or scaled back significantly, but let’s face it they need to make some serious changes and they’ve had many chances in the past few years.
Development SHOULD slow because every building planned for right now (hyberbole) is luxury apartments with first floor retail, and people are realizing they don’t want to pay out the nose for 400 square feet and sub-par but pretty interior finishes. Developers need to reassess what kind of projects will do well long term.
So yeah, this all could bring things crashing down, but hopefully this can be a turning point to even out some of the growth in this city in a more sustainable way. This article is a bit reductionist in the way it looks at these numbers.
I don’t look at it as much of a reality check, but a suggestion of when would be appropriate timing to again invest in Seattle/Northwest. Still have some time to wait. It’s early, IMO.