Where is Pierce County headed in 2023? Here’s what economic index, economist say

Pierce County’s economy took a noticeable hit in 2022, one that set back one annual measurement for the first time in 12 years.

Dr. Neal Johnson leads Sound Resource Economics, a consulting practice serving business and municipal clients. He is the author of the 2023 Pierce County Economic Index (PCEI) report, of which The News Tribune obtained an advance draft.

The report notes that the index’s streak of “12 consecutive years of gains appears to have ended in 2022, with the annual index estimated to have fallen 1.5 percent.”

The index draws from various data points, including employment and jobs, personal income, taxable retail sales, housing/real estate and Port of Tacoma/Northwest Seaport Alliance activity.

According to the report, “While each of the first three quarters of 2022 showed year-over-year declines, the PCEI did eke out a 1 percent gain from 2021 Q4 to 2022 Q4.”

The report added that the index is forecast “to rise 1.6 percent in 2023, with a gain of 2.2 percent for the 2022 Q4 to 2023 Q4 comparison.”

The PCEI is a key part of the annual Horizons Economic Forecast, hosted by the Tacoma-Pierce County Chamber. This year’s event at the Greater Tacoma Convention Center on Jan. 26 is the first in-person Horizons gathering since the pandemic, with the previous two years’ events presented as recorded video.

The News Tribune sought additional insights this week from Johnson. Answers edited for length.

Q: Are we in a recession?

A: We aren’t currently in a recession, and the forecasts are mixed. Some see a negative growth in real GDP in the first and second quarters of this year, and others put it later in the year (second and third quarters or third and fourth quarters) or not at all.

Nationally, real GDP growth was negative in Q1 and Q2 of 2022, but it wasn’t (or hasn’t) been declared a recession. The definition of a recession is two consecutive quarters of negative growth. The forecasts seem to be in the same range as what was seen in early 2022, so they might not be labeled a recession until after the fact, if ever.

Q: What’s the outlook if we do enter a recession?

A: The forecasts that call for a recession say it will be short and mild. From what I see, the primary cause of a recession ... is the drop in new housing construction, which was first hamstrung by supply constraints and very high prices, and is now hindered by increasing interest rates.

The high interest rates are courtesy of the Fed, which is trying to control inflation by putting a damper on demand that is sensitive to interest rates.

Q: What do you see happening locally in construction?

A: What I see locally is still a desire to build new housing. This is based on building permits issued. But the actual construction spending has been much lower than would be expected given those building permits. This is based on 2022 Q1 and Q2 data; more recent data isn’t available yet. That indicates some construction has been canceled or delayed due to higher construction materials prices.

If those supply issues get resolved, then prices fall, which should boost construction.

Q: How is the current economic climate different from previous downturns?

A: The primary difference between now and, say 2008-09, is the current slowdown is a supply-side problem, whereas recessions are more typically caused by demand-side weakness.

Q: What are the problems with another possible federal relief package?

A: Neither monetary policy nor fiscal policy is really suited for dealing with the supply-side issues.

Talk of another federal economic relief package is misplaced, in my opinion, as that would run counter to what the Fed is trying to achieve. (It) would possibly reduce the incentive of people to return to the labor force, and perhaps direct spending into sectors where demand needs to cool.

More details from the report

According to PCEI projections for this year:

EMPLOYMENT: Pierce County is projected to add 3,900 jobs, with the most gains in education and health care and construction sectors, with professional and business services and finance set to shrink by a combined 1,200 jobs.

PERSONAL INCOME: Total real personal income is set to rise just over 2 percent this year, with real personal income per capita rising just above 1 percent. Total real personal income is estimated to have dropped 1.01 percent last year, with real personal income per capita falling 2.1 percent. The report noted that personal income per capita was at $64,530 in 2022 dollars. “The decreases in personal income reflect the absence of economic stimulus packages in 2022 compared to early 2021.”

RETAIL SALES: The report predicts 2.5 percent growth for non-construction sectors combined, and 11.2 percent growth in the construction sector.

HOUSING/REAL ESTATE: The report predicts an “easing of mortgage rates through 2023, and some retraction in real housing values.” It also suggested that “downward pressures on rents should continue,” through the year.

PORT OF TACOMA/NWSA: The report notes that “traffic on the West Coast was down, traffic on the East Coast was up, and the NWSA faired a bit worse than other West Coast ports.” It theorized the Panama Canal expansion was taking some of the West Coast business, among other potential factors. The report added that the NWSA forecasts “3.87 million TEUs (20-foot equivalent units) in 2023 ... a 12.5 percent increase over estimated 2022.”