Archive for May, 2010

Good news and warning signs

Thursday, May 27th, 2010

At first glance, it appears that our region’s labor market has finally turned a corner and begun to recover. According to the Washington State Employment Security Department Whatcom County’s unemployment rate fell from 9.5 percent in March to 8 percent in April. In Skagit County, the rate fell from 11.5 percent to 9.8 percent during the same period.

The state unemployment rate fell for the first time in more than three years from 9.5 percent in March to 9.2 percent in April. However, in Whatcom and Skagit counties, much of the job growth resulted from seasonal work in agriculture and, in Whatcom County, the lower rate in April can be explained in part because approximately 16 percent of the labor force seeking employment in March dropped out of the labor force in April. In addition, these numbers don’t account for the underemployed people who are working in jobs they are over qualified for. We have an extraordinary talented labor pool in our area that is operating substantially below it’s potential. Unfortunately, that’s the good news.

The challenge we now face is avoiding higher unemployment as the new norm. This won’t be easy if the political class at all levels of government can’t control the severe problem of too much government spending and debt. As I write this column the national debt has exceeded $13 trillion. That equals $117,975 per tax-payer and amounts to a 90 percent debt-to-gross-domestic-product ratio and doesn’t include the debt associated with unfunded entitlement programs and the losses from Fannie and Freddie that total $145 billion and rising.

The political class has dug an enormous economic hole for us and their current policy seems to be to keep digging. The private sector is heavily burdened and concerned about future tax increases and increased cost of doing business associated with a complex 2,700 page health-care reform bill, a financial reform bill expected to be more than 2,000 pages (which does not address Fannie or Freddie), and other initiatives like cap and trade and talks about a European-style value-added tax.

In addition, in mid-May USA Today reported that paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year. In the same time frame, government-provided benefits rose to a record high. This trend is unsustainable. The government depends on the taxes from the private sector to pay for these expanding programs. With private incomes shrinking and government spending increasing, the math just doesn’t work.

Why is this particularly important to those of us living in Whatcom and Skagit counties? In our region, government is our largest employer. In the past, this has been a great benefit and to a certain degree, it’s why we’ve never really experienced the economic high of the highs or low of the lows. However, the lack of fiscal discipline at the federal and state levels and the down trend in private incomes will have a clear negative impact on local governments and our regional economy. Western Washington University is in the process of managing approximately $13 million in budget cuts as are most other state institutions and virtually every local government agency is dealing with similar challenges.

So, what is the solution? First, we must send a clear message to Washington D.C. and Washington state that we’ve had enough. We must demand fiscal discipline. We’ll have that opportunity in November.

Second, we must refocus local efforts on economic development and job creation in the private sector. A number of groups including the Economic Development Association of Skagit County and the Northwest Economic Council of Whatcom County have been at the heart of these efforts. In the past, the focus has been on touting the quality of life and strong labor force in an effort to attract companies to relocate to our region. In order to make these efforts successful, it requires strong cooperation from local governments in making us a business-friendly region. Skagit County has been successful in that regard. Whatcom County has not. In the current economic environment, if we’re going to create jobs, it’s going to require our government officials backing up their rhetoric with action and it will require focusing on existing small and early-stage companies, which is where most of the jobs are likely to come from.

And third, local governments are going to be required to discipline themselves financially and understand they will be facing challenges that will be trickling down from the federal and state levels. Raising taxes and imposing costly regulations on businesses and productive individuals in this environment is typically the first reaction. Instead, officials should re-examine their priorities and be prepared to make some tough choices.

Bellingham/Whatcom real estate: Behind the numbers

Tuesday, May 25th, 2010

Last week Dr. Julie Hansen, an economics professor at Western Washington University, spoke to a group at the Building Industry Association of Whatcom County’s Housing Outlook and Construction Economic seminar. Hansen is the editor of the Whatcom County Real Estate Research Report, which is out this week. She gave an overview of the current housing market at the state level, then zeroed in on specifics to Whatcom County and Bellingham.
“In our region we relied on internal migration for our growth,” Hansen explained, adding that the national recession has stifled the flow of migration from one state to another as people simply can’t afford to move.
Yet, “we’re clearly in a better position than other areas,” Hansen said, noting other regions around the country. But that doesn’t mean we aren’t feeling the pinch of the recession, she admits. Housing recovery is “still very fragile,” and will take a turnaround in high unemployment and foreclosures to really see the market recover.
Perennially listed as overvalued on lists such as the one from IHS Global Insight, which cited 21.4 percent of Bellingham/Whatcom homes overvalued in fourth quarter of 2009, the area is still a lower-cost alternative to Seattle or Vancouver, B.C., Hansen said.
The “why” to this phenomenon could lie in several factors, Hansen said. Possibilities include a city climate “above average in terms of its anti-growth policies” or the impact of a stronger Canadian dollar, among others. A spillover effect from housing prices in California may also be a factor, she said.
Realtor Mike Kent, who attended the seminar, added that it has a lot to do with how buyers perceive the value of the area. “People here are willing to pay more of their income for a higher quality of life,” he said.
Members of the audience brought a number of questions to Hansen on varying topics. Here’s a sampling of the discussion:
• Shifting preferences: Will younger homeowners continue to “drive to qualify” for an affordable home in the county, or will they be wooed by the idea of urban living? While living downtown may appeal to Generation Y, Hansen feels their views may change as their family situation does. “Are people going to want to raise kids in condos?” she asks. One builder in the audience remarked that he is seeing many young families migrate to the Ferndale area.
• On the waterfront: How will Bellingham’s waterfront redevelopment affect us? Hansen notes that now is the prime time for boomers to be buying a second home, not necessarily in the approximately 10 years it will take for development to be realized. “One of my concerns is that we’re not going to recover fast enough to capture that (market).”

Special visitors to the NWBM office

Saturday, May 22nd, 2010

The other afternoon we had some surprise guests come marching down our driveway – an entire family of geese. Mom took the lead, followed by her goslings, and dad brought up the rear. They waddled around the side of the building and out to the pond in back for a dip. These cute critters had the whole staff up out of our seats to watch the show!

On the way to the pond.

The goose family goes for a swim.

Baby birds have arrived!

Wednesday, May 12th, 2010

Our resident finch are now the proud parents of six babies. The first hatched yesterday and now the entire brood is hatched. Mama bird is busy gathering food for her little ones. Welcome baby birds!

The little peepers have hatched!

Why no reform for Fannie and Freddie?

Tuesday, May 11th, 2010

How can we take those in Washington D.C. in charge of financial reform seriously when they don’t include Fannie Mae and Freddie Mac in their discussions? When the dust settles, we will have dumped $145 billion in taxpayer money into these two government-sponsored enterprises with no end in sight.

Fannie Mae just asked the government for another $8.4 billion in aid after posting an $11.5 billion first quarter loss. This comes just a week after Freddie announced its own request for another $10.6 billion. Both companies warned of additional future losses requiring more government bailout dollars, which will be unlimited after the Obama administration raised the $400 billion debt limit late last year. With the promise of apparently endless bailout dollars, what incentive do Fannie and Freddie have to reform themselves? None!

Government subsidies for failing business practices will only promote additional failing practices. It provides incentive for companies to take their focus off improving their products and fixing problems and places it on to lobbying Congress for more money. The original justification for bailing out these giants was the American dream of home ownership for every American. We should keep in mind that the American dream is not about home ownership alone. It’s about the values associated with reaping what you sow in a just world.

Fannie and Freddie have created a positive perception of themselves as a homeowner’s friend and they have generated substantial political clout with strong contributions to political campaigns, but they are potentially the most dangerous type of enterprise. They allow private banks and mortgage companies to take substantial risks, pocket any profits for themselves, then dump the investments to Fannie and Freddie and count on taxpayers to take care of the losses.

Fannie and Freddie need to be broken into smaller private mortgage entities in order to eliminate the market distortions they create. There are many other reasonable ideas to consider, but one thing is for sure… it is disingenuous and irresponsible to leave them out of financial reform discussions.

Tony Larson, Publisher