The Economy: What’s Happening in the Inland Northwest and When Will It Be Better?

An Economic Overview and Forecast for 2009

I’ve been “iffy” about this presentation for months. Indeed, late last summer I announced to a group of local economist colleagues that I would likely not be making a public forecast for 2009. At the time I thought the times ahead would be gloomy enough without additional doom-and-gloom prognostications. I didn’t want to contribute to those. Indeed, because I’m a businessperson who depends on the strength of consumer confidence, I have a vested interest in seeing it remain strong. In years when I foresee significant weakening, I usually choose to make no forecast rather than pull punches and lay out questionably rosy scenarios.

By standing here today, I am signaling my faith that signs of U.S. recovery will begin showing themselves shortly (some, as I’ll show today, already are showing) and that good news will proliferate as 2009 progresses. The good news will, however, vary widely by industry sector and geographic region. Fortunately, we are better positioned, on both factors, in the Inland Northwest than are other parts of the nation.

It would be foolhardy of me to offer – and foolish of you to heed – any specific forecast of the national or regional economy in the coming year. We are currently so barraged by political in-fighting, econo-babble, punditry, spin-doctoring, snarking and blather that we risk becoming the first economy in history to collapse from the combined effects of logorrhea AND blog-orhea! One of my goals this morning is to encourage a reasoned perspective on the current state of things and the way it unfolds to the public. While political pundits sling economic factoids, the public suffers not “paralysis by analysis” but a “paralysis of analytic capability.”

But first, as always, I have a couple of quick pieces of housekeeping to get out of the way:

SLIDE: Caveats and Disclosure

With the caveats noted, I want to give some credit where it’s due. I don’t just make this stuff up. Here’s a list of some contributors to and sources for today’s report:

TWO SLIDES: Acknowledgments

And, since I’m going to be emphasizing definitions today, it’s important to define three regions: The Inland Northwest, the Spokane metropolitan area and the Coeur d’Alene metropolitan area.

TWO SLIDES: Inland Northwest Map and
Overview of Components

Population and Median Household Income figures

SLIDES: Population Estimates and
Estimated Median Household Income

Now that we’ve got geography and basic numbers out of the way, let’s look at what’s happening in terms of consumer behavior.

In trying to get a handle on recessionary impacts here, I’ve made a point of talking to local business owners and workers about changes they’ve seen in customer behavior in the past three months. Across a broad range of business, I’ve found – and there’s no surprise in this – that shoppers are buying less often, shopping harder for bargains, are more likely to buy generic and store brands that national brand goods and shopping more at discount and used-merchandise stores.

A used book dealer told me he was seeing more people shopping for newly paperbacks at his place – for $4 – before going to a new book store, grocery store or elsewhere and paying the $8 cover price. He also noted that more people are coming in to sell books or establish trading accounts.

One of the most interesting conversations was with the guy who cuts my hair at one of those no-appointment, unisex shops.

I ask him, “So how’s the recession?”

He tells me, “It’s deep and getting worse.”

I ask him if he sees any chance of a recovery.

“Nope,” he says. “Not happening. Too much has been lost already.”

“But what about stimulus, does that kind of thing work? I ask.

“It’s expensive and from what I’ve seen never works,” he said, “Pure quackery.”

“So,” I ask, “are you saying there’s nothing we can do?”

“Well,” he says, “If I were you? IMPLANTS.”

Unfortunately, a lot of economic discussion is like my chat with my cutter. Once, however, he and I had properly defined our terms and established a clear context for the questions, our communication got better. He told me what I’d been hearing elsewhere, but with specifics for his line of work.

He said traffic in his branch of salons was steady, fueled by customers who had been paying $30 to $50 and up for a haircut, choosing to move to his place, which charges $11 to $20.

Regular customers accustomed to paying $11-$13, were coming in less often – perhaps once every 5-6 weeks, instead of every 4-5 weeks.

Families with kids were cutting the kids hair a home – trimming the bangs and shortening the back and sides for months at a time – until the kids’ hair got so ragged that a professional was need to set things right again.

Significantly, fewer customers were responding to upsells – shampoos, color treatments, extensions and purchases of “hair wonk” salon cosmetics.

On balance, traffic in the place was steady, but margins were being squeezed. Still, he reckoned that was better than the upscale salons from whom his shop was taking business, but not perhaps as good as for the grocer or drugstore, who was selling cheaper hair supplies than those offered at either the upscale or mid-scale salons.

That’s the way people are coping these days. And, while some are changing purchase habits from necessity, many seem to be finding it fun to see just how much they can NOT spend by shopping around.

Let me return for a moment to the original “recession” discussion, in which my cutter and I were speaking of different things. This is common in econo-talk. For example, a political brouhaha recently arose when Fox News broadcaster Major Garrett’s asserted that President Obama spoke falsely when he stated that total job losses in 2008 were the highest since 1945. The facts are that about 2.7 million jobs disappeared in 1945, compared to 2.6 million in 2008. So the President, using raw totals, was correct.

Garrett was attempting to make a valid point, but he was dealing with a different metric. He was looking at the percentage of the workforce that was out of work. In 1945, the 2.7 million jobs represented 6.6% of the workforce. Last year’s 2.6 million jobless represented 1.9 percent of the workforce. If Garrett’s point was that joblessness was more widespread in 1945 than today, he was right, but that didn’t make the president wrong. If Garrett had chosen to clarify his point, rather than attack the president, his point might have helped shed light rather than heat on the situation.

There were two years since 1945, in which the percentage of jobs lost exceeded last year’s: 1949, when 3.4 percent of the workforce was jobless and 1982, when 2.3 percent of willing and able workers were idled. Raw numbers usually require perspective and those of us who were cognizant of economic affairs in 1982 will recall it is as a time of economic misery that certainly rivaled, if not exceeded, today’s. While job losses were bad enough, inflation was raging in double-digits.

This is not an attempt to dismiss the current crisis, but it is a dog with different fleas than that of the late-Carter/early Reagan years. That was a time of too much money (despite those job losses) chasing too few goods; today, we fear the possibility of too few dollars chasing too many goods – and that risks the type of overproduction (in our case, perhaps, its “leftover” production) problem that was a significant cause of The Great Depression. The Depression represented a triple confluence of reckless speculation in stocks, overproduction of goods which there wasn’t enough money to buy, and overly protective trade policies. Today’s issues are similar: over speculation and irresponsible lending policies relating to homes and derivatives and, locally, debentures; an apparently endless supply of money which encouraged production and importation of increasingly frivolous items to absorb it. And, as to trade, perhaps trade policies of this decade have been as overly lax as the pre-Depression variety were overly restrictive.

Is the recovery package that is likely to emerge from Senate/House conference wranglings likely to fix it all? Is it too big? Too small? Is it putting the right amounts of money on the right programs? Punditry has opinions, but only hindsight – in time – will tell.

Regardless of how many irrelevant facts are flung about without a clear stated context, there is some consensus: Everyone seems willing to stipulate that the economy is weak in the Inland Northwest, weaker still in the U.S. – and pretty much a train wreck throughout the world.

Beyond that, opinions are widely split on how long the current recession will last, how deep we will recess, what aspects of the economy will permanently change and whether government stimulus is really necessary and whether it will make the difference between ruin and recovery.

There has never been a more important time than now for solid economic reporting by media and improved economic and media literacy among the citizenry. The play between media and citizenry, as one presents and the other weighs economic information, has major bearing on the mind of the market – on the unmeasurable, but critical, psychological factors that can deepen or lengthen a downturn, and create or accelerate an upturn. Many economists use a phrase of economist John Maynard Keynes to describe these factors. Keynes called them “animal spirits” – often unpredictable and unscientific (which is why most economists hate calling them into play).

If there is a place where “animal spirits” can be rekindled quickly, Spokane would seem to be it. I say this because of recent findings from a propriety study on Spokane’s attitude toward change, measured in terms of market psychographics. These are being reported here today for the first time. First, some background:

In 1984, The Spokesman-Review commissioned Belden & Associates, a Dallas-based research firm, to look at the Spokane market in terms of “psychographics.” Psychographics help researchers understand a community’s values, its thought processes and the way it is likely to deal with social and economic change. The newspaper repeated the study in 1994 and again in the fall of 2008.

2 SLIDES: Psychographics 1984, 1994, 2008 and
Spokane Psychographics Graph

Each iteration of the study presented respondents with a series of 10 “values and lifestyle” statements. Respondents were asked to indicate whether he or she strongly agreed, generally agreed, strongly disagreed or generally disagreed with each statement.

I won’t read you all 10 statements, but here are three that give you an idea of the rest:

• “I often wish for the good old days when life was simpler.” (In previous studies, 54 to 65 percent said they agreed with that strongly or generally; in 2008, the number stayed at about 65%.)

• “There is too much emphasis on sex today.” (In 1994, 80% agreed with that statement and 56% agreed with it strongly; in 2008, only 75% agree with it; and strong agreement has dropped to 47%.)

• “I would like to live in a foreign city like Paris for a year.” (This is now slightly up with about 33% of the population attracted to living abroad.)

Basically, factors relating to empowerment of youth and women found wider acceptance in the population in 2008 than in the previous surveys.

Belden factored the responses to these statements into scales for Traditional and Non-Traditional attitudes. Individuals were then identified as belonging to one of four psychographic groups: Doers, Worriers, Adventurers and Seekers.

Doers are people who score low on both Traditionalism and Modernism, perhaps indicating a moderate, middle-of-the-road attitude toward the issues raised in the statements for each scale. They have been characterized as being “tolerant of those who move at a more reckless pace, while moving steadily toward their own goals.”

In 1984 and 1994, Beldon found that about 20% of Spokane County adults fit this category. Now it’s about 15%.

Adventurers score low on the Traditionalism end of the scale and high on the Non-Traditional end. They are definitely the most non-traditional of the four Spokane psychographic groups. Significantly, this group has been growing. In 1984, it represented 26 percent of adults in the county; in 1994, 28% and in 2008, about 36%.

Adventurers are the youngest of the four groups. They have a high proportion of singles and renters and tend to be the most mobile group. Adventurers have the highest percentage of professionals, executives and technicians, but their incomes are only average because they are younger.

Worriers are the most traditional of the four groups, scoring high on Traditionalism and low on Non-Traditionalism. One of their chief concerns is the erosion of traditional values. In Belden’s words, “they are acutely aware of social change and usually unhappy about it. Both social innovation and personal risk-taking are unpleasant.” Worriers used to make up the largest psychographic group in Spokane, comprising 30 percent of Spokane County adults in 1984 and 1994. The 2008 study found that their numbers had declined steeply, down to 20%.

The fourth group, Seekers, are something of a psychographic enigma: they score high on both the Traditional and Non-Traditional scales, almost as if they cannot make up their minds. Belden describes them as “forward looking and adventurous, but nevertheless careful to maintain . . . respect for traditional values.

These impulses sometimes conflict . . .”The Seeker, therefore, might be considered the “Charlie Brown” (you know, the character from the Peanuts comic strip) of the groups: an average person, trying to make his or her way in an increasingly complex society.”

Seekers now make up 30 percent of the market, up 8 points from 1994. The characteristics of this group are that they are equally likely to be men and women, less likely to have attended college and they have the lowest incomes.

The changes in Spokane’s psychographics now, compared to the previous study is significant. The proportion of change-resistant Worriers has dropped by one-third, most of which seems to have migrated to the less change welcoming Adventurers and the “open to change” Seekers. Previous studies showing psychographic stability in the wake of population change indicated a tendency of “like attracts like;” that is, new Spokanites have moved here because they liked the town the way they found it. The latest study indicates that the market has turned a corner in attracting people who see it as a more inviting place for personal growth and re-invention. This is a form of statistical support for AARP’s contention that Spokane was a top market for “boomers” seeking such opportunities.

It may also make us a place more subject to influence of Keynes’ “animal spirits” so that when embers of hope begin to emerge – as they will in few months – there will be open to fanning them into flames of prosperity.

And, there are some embers still glowing in the hearths of regional employment and housing. Let’s look at where we are:

SLIDE: Job-Creation Performance Snapshot
4 SLIDES: Housing

So, what’s this mean? Here’s the short version of my forecast:

SLIDE: Executive Summary 1
SLIDE: Executive Summary 2
SLIDE: Executive Summary 3
SLIDE: Executive Summary 4

In closing this morning, I want to share a story from the 1930s. This one is about Sir Winston Churchill and his faith in the American economy.

Every year around November 30, a group of about 60 mostly Oregon business leaders, lawyers, judges, military, and diplomatic and elected officials gather in Portland to celebrate the birth of Sir Winston Churchill. Following a formal dinner, the members offer prepared and impromptu salutes to Churchill’s memory. Usually the focus is military leadership. In November 2008, however, the economy weighed heavily on the minds of the members. One noted that on Black Thursday, 1929 – the day of the infamous stock market crash, Churchill, then between political positions and on a speaking and writing tour of America, was dining on Fifth Avenue with financier Bernard Baruch.

Churchill described the evening this way: “[Baruch] had gathered around his table forty or more of the leading bankers and financiers of New York, and I remember that when one of them proposed my health he addressed the company as “friends and former millionaires.” According to his official biographer, Martin Gilbert, “Churchill was himself deeply involved in the American stock market and suffered severe financial loss…[the day following the crash] from a window high up in the Stock Exchange building, Churchill looked out over the city. “Below lay the Hudson and North Rivers...dotted with numerous tugs and shipping of all kinds...below lay all the cities and workshops of the New Jersey shore.... Around the mighty buildings of New York...streets swarming with human life.... “No one could doubt that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing episode in the march of a valiant and serviceable people who by fierce experiment are hewing new paths for man, and showing to all nations much that they should attempt and much that they should avoid.”

Churchill backed his words with deeds. In May and June of 1931 – when stock values had shrunk to the lowest levels of the Great Depression, he pumped the equivalent of $640,000 into U.S. stocks, and followed it up with another $960,000 a few months later. This showed him to be an astute “buy low” investor. “Those who have come through this pinch will reap the future,” he wrote his American lecture agent.

As was the case then, so is the case now: “Those who come through this pinch will reap the future.” Many of them are among this audience – leaders who will show the leadership, express the hope and manifest the wisdom of investing in our region, its businesses, our communities, our people and our future; who will demonstrate integrity in their dealings and who show firm and long-term faith in the economic strength of our country.

Thank you for having me with you today and thanks for all you do to make this Spokane and the Inland Northwest a great place to live and do business.

Copyright 2009 by Shaun O’L. Higgins. Permission to quote for media-coverage within 15 business days of the date of the presentation is hereby granted to representatives of the news media. For all other and later uses, written permission is required. To request permission, please contact Julie Read, New Media Ventures, Inc., P.O. Box 2160, Spokane, WA 99201.

Shaun O’L. Higgins is Director of Sales and Marketing for The Spokesman-Review and President and Chief Operating Officer of New Media Ventures, Inc., a subsidiary of Cowles Company. He is the author or co-author of 10 books on a wide range of topics, including four on Spokane: Review Tower, Measuring Spokane, Vachel Lindsay: Troubadour in the Wildflower City, and the forthcoming Measuring Spokane for the 21st Century. For more than 25 years he has presented annual economic forecasts to audiences for Spokane and other Inland Northwest communities. Higgins spent 18 years as a newspaper reporter and editor before joining the commercial side of The Spokesman-Review. Among many community involvements, he is a past Chairman of the Spokane Area Economic Development Council and currently serves on the Mayor’s Economic Forecasting Committee and the board of the Northwest Museum of Arts and Culture.