Geoscience Reference
In-Depth Information
Annual Percent Change
6
5
4
3
2
1
0
-1
-2
2005-10
1985-90
1990-95
1995-00
2000-05
1970-75
1975-80
1980-85
Washington
United States
Fig. 8.3
Washington and U.S. employment
Regional economic cycles triggered by external forces are usually amplified by the
internal workings of the economy. This occurs most commonly in industries that
produce capital goods for local use, such as the homebuilding industry. In accordance
with the accelerator principle, when a regional economy turns up, the demand for new
homes increases, which in turn intensifies the expansion.
8
Since the demand for
housing depends on the region's economic growth rate, it can be very unstable.
For example, the number of Washington residential building permits fell 65.9 %
between 1979 and 1982 only to increase 102.0 % between 1982 and 1985.
Another sector of the economy that is sensitive to economic cycles is state and
local government (Conway
2013b
). Lacking an income tax, Washington's biggest
tax base is taxable retail sales. Since consumer durables and new residential and
nonresidential construction comprise one-third of the tax base, sales taxes were
hard hit by the Great Recession, greatly disrupting government operations. Between
2007 and 2010, while nominal Washington personal income rose 3.6 %, current-
dollar taxable retail sales—and thus sales tax revenue—plummeted 15.3 %.
Adjusted for inflation and population growth, Washington state government tax
revenue declined 17.5 % between FY 2007 and FY 2012. This meant that state
8
To depict the accelerator effect, estimated models of housing construction include both demand
and supply factors. The explanatory variables in the housing construction equation in the original
version of WPSM (Conway and Howard
1980
) included population, income, an interest rate
spread, construction costs, and housing stock. The forecasting equation also incorporated a
speculative demand variable (the percentage change in the Seattle housing price less the mortgage
rate), since it was observed that a rapid increase in house prices had triggered a housing demand for
investment purposes (e.g., home-flipping). The speculative demand variable was not only statisti-
cally significant with the correct sign, but its inclusion aided the model in tracking the 1975-1977
Washington housing boom.
