Geoscience Reference
In-Depth Information
8.6
Regional Economic Cycles
The term “economic cycle” conjures up an image of a wave that rises and falls with
regularity. But that analogy is misleading, since economies mainly go up. The
Washington economy experienced only six annual declines in employment
between 1970 and 2010. During the six down years, the economy lost a total of
312,000 wage and salary jobs (186,100 in the Great Recession), while during the 34
up years, the economy created a total of 2,028,100 jobs.
Nevertheless, economies do cycle, though this is only apparent when measured
in terms of growth rates (Fig.
8.3
). Accordingly, an economic cycle might best be
described as a period of slow growth followed by a period of rapid growth. Since
1970 Washington has had three full economic cycles (four going back to 1960).
There would have been another complete cycle last decade if its recovery stage had
not been aborted by the Great Recession.
To understand the nature of regional economic cycles, it is helpful to consider
three causal factors: (1) external forces (namely, fluctuations in the U.S. and world
economies); (2) volatile regional industries; and (3) the internal workings of the
regional economy that tend to amplify the cycles.
U.S. economic cycles appear to follow the calendar. With the exception of the
last decade, each cycle since 1960 has lasted about 10 years. Slow growth in the first
5 years of the decade has been followed by rapid growth in the last 5 years. The
timing of U.S. economic cycles with respect to the calendar is of course coinciden-
tal, but it is no fluke that Washington economic cycles have followed the same
temporal pattern. Since the United States is the largest market for Washington
exports—and exports are a key to regional economic growth—there is a strong
correlation between national and state output and employment growth. In other
words, economic conditions in the United States, whether good or bad, tend to play
themselves out in Washington.
This does not imply that national and regional economic cycles always look
alike. A large and volatile industry, like aerospace, can significantly shape a
regional economic cycle. In 1969, Boeing airplane orders dried up during a shallow
national recession, resulting in the loss of 64,000 aerospace jobs over a 2-year
period. Helped by an otherwise strong economy, Washington shed only 82,100 jobs
during the Boeing Bust. Nevertheless, it suffered a much deeper downturn than the
nation. In contrast, the state added 469,300 jobs between 1985 and 1990. With
37,900 new hires, Boeing and its aerospace subcontractors directly and indirectly
accounted for one-third of the total employment expansion.
growth rate of population—the regional rate relative to the national rate—over the prior eight
quarters. Currently, the estimated elasticity of the Seattle consumer price index with respect to the
U.S. consumer price is 1.025 (t-value
29.3). The population term captures the fact that the Puget
Sound inflation rate may deviate from the U.S. rate if the regional economy is growing substan-
tially faster or slower than the national economy. Such times are likely to have differential impacts
on national and regional home prices and apartment rents. The long-run elasticity of the relative
growth rate of population is 0.453 (t-value
¼
¼
2.6).
