Week in Review: Boeing stumbles, Obama-nomics and Yang said what?

First published Nov. 9, 2008

You’re kidding, right? I mean, seriously, Jerry Yang did not get down on his knees to beg Steve Ballmer to buy Yahoo last week, not after he stone-cold rejected Ballmer’s feelers back in May (when Yahoo shares were more than double what they are now).

Now the question is, does Microsoft still want Yahoo? Redmond put out a statement saying “no.” Analysts said the truth is probably more nuanced than that – Microsoft probably would do a deal for Yahoo’s search division, but certainly not the whole company, and it would probably be a lot easier to get that deal done if Yang were out of the picture.

Stay tuned.

Meanwhile, Boeing Machinists got back to work last week, after ratifying a four-year contract by a 74-to-26 margin the weekend before. That was the good news.

On the other hand, Boeing last week also:

• Acknowledged problems with incorrectly installed 787 fasteners are going to delay the new jet’s first flight even further. There was also a report that Machinists returning to work in Renton found problems with some fasteners installed by suppliers on 737s.
• Issued a call for improved union relations, then got a resounding “no way” from leaders of SPEEA, the engineers’ union, after presenting them with an initial contract offer. Boeing says it will deliver its final offer on Tuesday, but the union’s calling for talks to continue beyond that to try to resolve wide differences
• Saw its stock take a hit when one analyst speculated that Boeing and Airbus will end up with 200 “whitetails” (the industry term for a plane that’s completed but not sold – so there’s no name to paint on the tail) because of issues with financing. This comes even though CEO Jim McNerney said in plain English during last month’s earnings call that he expects zero whitetails in the coming year.

And Commercial Airplanes chief Scott Carson gave a surprisingly soft-key assessment of Washington’s business climate. After all the speculation about the company being on the verge of pulling up stakes in disgust over intransigent unions, the Cougar-in-Chief instead gave only a measured warning that “location is a choice,” before urging the Legislature to increase funding for higher education (particularly in engineering fields, where Boeing faces worker shortages) and calling for long-term partnerships between business, labor and government statewide. For those of us expecting a reprise of Alan Mulally’s famous “we suck” speech, this was not it.

Finally, the election. Certainly, Barack Obama’s election last Tuesday marks a huge cultural milestone in United States history. For me, at least, it shows that just maybe we Americans are starting to live up to our promise to ourselves that all men are created equal. We’re not there yet, not by a long shot, but for one night last week, Martin Luther King’s dream was redeemed.

On an economic level, I suspect that Obama’s election also represents the high-water mark of the Milton Friedman market orthodoxy ushered in by Ronald Reagan 28 years ago. For all his soaring eloquence and John Dean’s 50-state strategy, Barack Obama is president-elect because the economy went in the tank this fall, and voters decided they couldn’t trust John McCain and his free-market foot soldiers to fix it. This shift toward “’70s-style economic populism,” as one analyst put it, if it indeed comes to pass, will have profound consequences in all sectors of our economy. Look for more regulation of capital markets, and perhaps roadblocks to outsourcing, which will have a double-edged effect in this trade-dependent state.

In the here and now, I suspect Obama and the Democrats are going to present us with an old-school Keynesian stimulus package this winter: they’ll spend our dollars for us, probably to fix roads and bridges and funnel more money to states. (Although Nancy Pelosi is also arguing for tax cuts for individuals, too.)

We can oppose these things on a philosophical level. But let’s be pragmatic: Western Washington’s roads and ferries are a mess, and anything that generates more federal transportation dollars is a good thing, both as a long-term investment, and as a job-creating measure in the short term. We’re also facing a real problem, as laid-off workers flood our community colleges, even as the state cuts their budgets. Federal aid would come in really handy right now, while making us stronger for the future.

It’s interesting – and important – to note that Obama won counties east of the Cascade Curtain. “You can take this as a sign of creeping liberalism, and maybe that’s a small part of it,” said Wenatchee World editorial page editor Tracy Warner, “but more likely people are simply fed up with the government and want something different.”

Obama represents change, and change is indeed coming – maybe more profound change than any of us expect.

Regional Report: Good news, bad news – King County’s C-minus economy

First published Nov. 9, 2008

As we discussed last week, King County is one of the strongest links in the Washington state economy – perhaps even the nation. That doesn’t mean that things are booming.

The best news comes from the September state jobs report, which shows how much King County’s key industries have grown over the past year. Software companies have added 4,700 workers – growth of better than 10 percent. Aerospace companies added another 700, which represents a slowdown, but is still growth. And the professional services sector – lawyers, accountants and computer techs – also has shown very strong growth of 8.9 percent, representing 8,300 new jobs.

Pay in these sectors is high: Software employees, for example, are the state’s best-paid, making an average $96,000 a year, which was up 11.8 percent. We’re adding significant numbers of people at those wage levels, and that’s driving the local economy. Overall, King County added 36,900 jobs between September ‘07 and September ‘08, a healthy 3.1 percent growth rate.

That’s the good news. The bad news comes from the state’s taxable retail sales figures. Overall, total sales activity fell 1.4 percent in King County in the most-recent quarter – a fact that has statewide ramifications, given that roughly 40 percent of all sales taxes are collected in King County. Residents in some of east King County’s toniest software-dominated communities put the clamps on their spending during the second quarter. Sales tax collections were down 13.5 percent in Issaquah and 11.3 percent in Kirkland; Bellevue’s total was down 5.6 percent. (Seattle itself showed a 3.3 percent gain.)

Amid all this, the housing market is holding on. You probably heard that Smart Money magazine and the Urban Land Institute both rated Seattle’s real estate market the best in the nation. But the ULI gave Seattle a 6.15 score out of 9, which is basically a C-minus. Several built-on-spec buildings are coming online in Seattle with no tenants; that, combined with the pullback at Starbucks and demise of WaMu’s headquarters, will not be good for the commercial real estate market. But our most-recent statewide housing data shows that both home prices and housing starts are sliding, not collapsing. Home prices countywide slipped about 4.3 percent (to $450,000), while starts were down 5.3 percent. Construction employment actually inched up 1.4 percent (or 1,100 jobs). (I’ll talk more about this Tuesday on KCTS-TV’s “About The Money.” It starts at 7:30 p.m.)

Looking ahead, King County’s third-quarter numbers will be weak and the fourth-quarter might be worse. We saw some of that last week, when the Northwest Multiple Listing Service reported the median King County home price fell below $400,000 in October. No surprise – with the credit market freeze and the Boeing strike, it took a brave soul (with a good credit rating) to consider buying a house, and most of us are cutting spending.

King County will have to absorb the Weyerhaeuser and Alaska Airlines layoffs in the months ahead. Local government employment also will be down. But with Boeing’s Machinists back at work and the software industry holding steady, King County has two strong pillars supporting its economy. With the ramp-up on the Alaskan Way Viaduct and SR 520 bridge – and the Sound Transit expansion – we should see gains in construction. King County won’t be booming in 2009, not with the global economy in the tank, but things could be an awful lot worse.

By the Numbers: Rents up, vacancies steady

First published Nov. 9, 2008

The statewide rental vacancy rate (at least as far as the 18 counties surveyed by the Washington Center for Real Estate Research) is 4.1 percent, less than half the national average of 10.7 percent. The rental market typically is tied to the job market – when major employers are hiring (Microsoft, Boeing) they bring in workers from outside the region, and those people have to live somewhere. And with the upheaval we’ve had in the real estate markets, more people are opting to rent.

Given that, “rental prospects are currently strong, with potential buyers remaining on the sidelines to see if home purchase prices might decline, while others find that tougher mortgage lending requirements and higher mortgage rates make homeownership infeasible at the present time,” the report says.

Not all markets are created equal, of course. Cowlitz County – where, as we’ve often discussed the economy is bad shape – saw year-over-year declines in average rents, with average rents falling 5.3 percent, to $534. (The survey found most units are one-bedroom apartments; two-bedroom, one-bath units are the next most common.) Likewise, Clark and Skagit counties, where the economy has been softening, reported rents that were essentially flat. (Clark was unchanged at $721; Skagit was up three bucks to $733.)

Oddly, Yakima County reported a 2 percent drop (to $526) in average rents, even though vacancy rates fell (from 3 percent to 2.7 percent). The first person with a logical explanation for that gets a one-year subscription to the magazine.

But booming counties saw rents rise and vacancies fall. King and Snohomish counties, where job growth has been steady despite the national turmoil, reported rent increases around 9 percent. (King was up 8.5 percent to $1,026, Snohomish was up 9.3 percent to $933.) Spokane also reported a strong market, with average rents up 8.2 percent, to $622.

Rents in the Tri-Cities were up 7.1 percent (to $601), but vacancy rates fell in half, to 4.2 percent from 8.8. Kitsap County also had a sharp decline in vacancies (falling to 4.2 percent from 7.8); rents there were up 4 percent to $815.

Some of the smaller counties that we don’t normally track saw big gains. Walla Walla County saw average rents shot up 13.7 percent year-over-year, going to $582, and Whitman County reported an 8.7 percent gain, to $634, even though vacancy rates increased to 8.2 percent from 5.8.

Week in Review: The Boeing Strike of 2008, plus Microsoft bets on lucky 7

First published Nov. 3, 2008

Boeing Machinists are back to work this morning – probably. The union was set to vote on Boeing’s revised contract offer Saturday, and most observers expected them to approve it. It wasn’t a slam dunk, however. My friends at The Herald in Everett were running an unscientific reader poll, which – as I write this – was showing a deep split, with only a bare majority predicting the contract would be accepted.

But let’s assume that union leadership was able to sell the deal to its membership, and the Machinists are back. That is nothing but good news for the regional economy – particularly in Snohomish County, which got rocked in October by layoffs that will put 880 non-aerospace manufacturing workers out of work. The region needs Boeing paychecks, and the sooner the better.

So who won the strike? Outside western Washington, a lot of observers are calling this a clear victory for the union. The Wall Street Journal said that “the Machinists won key concessions” on the use of non-union workers and on benefits. One labor expert told MSNBC.com that the strike strengthened the union. “Broadly, this gives a shot in the arm to labor,” Philip Dine, the Washington, D.C.-based author of State of the Unions. The Washington Post talked to an East Coast labor relations professor who said the deal is one that would be envied by workers in other unionized industries.

“In the context of steel and auto workers, it’s a big achievement,” said Clark University professor Gary Chaison. “In the context of a clothing or grocery worker, it would be beyond their wildest hopes.”

But closer to home, The Seattle Times’ editorial board called the strike “senseless.”

“This was worth burning up how many billion dollars?” Times leadership asked incredulously in an editorial.

During negotiations, angry Machinists often seemed more interested in sticking it to the man than in negotiating a good deal, the Times said. And management “pushed the union toward a strike by making demands it knew were impossible … It was an issue of life and death, management said, except that it apparently wasn’t, because in the end it was about where the contractor should drop off the assembled aircraft parts.”

Some investors were brutally bashing Boeing last week. “Boeing undercut the value of its shares when it could have settled on a similar deal a month ago,” complained a blogger at one investor news site. “While Boeing management has been fiddling around, the company’s stock has dropped to $42, near a 52-week low … Giving into the union would not have cost it much in profits.”

Yet go-to analyst Richard Aboulafia thinks that it was the union that was short-sighted. This strike, he told clients last week, will be the last straw that pushes Boeing to move its manufacturing outside Puget Sound. “Over the next 10 years, (Boeing) will move to southern states with weaker unions and right-to-work laws that diminish union power. As the car companies realized, it’s easier to train flexible workers than it is to work with experienced but inflexible workers.”

I guarantee you we’ll hear more about that over the next few months – maybe as soon as this week, when Boeing Commercial Airplanes chief Scott Carson delivers a speech to a Seattle-area pro-business group (or maybe not – Boeing still has to settle a new contract with its engineers, after all). It will definitely be discussed down in Olympia starting in January.

Personally, I think that management came out of this pretty good, given that the union had all the leverage going in. That said, Boeing’s stock price fell about 25 percent ($15 a share) during the strike, which represents the destruction of close to $11 billion in market cap – capital Boeing will sorely miss in the next couple quarters, as it goes into the financial markets to raise cash to help its customers finance jet deals. Penny-wise or pound-foolish? You be the judge.

And with all this, I have the sense that this strike didn’t really resolve anything. The settlement represents a tactical compromise between labor and management, not joint agreement on a future strategy. You’re reading it here first – Boeing and the Machinists will be back in 2012 to fight over outsourcing and benefits again.

Elsewhere last week:

Microsoft – The Colossus of Redmond gave some peaks into its new Windows 7 software, which will replace the oft-maligned Vista in about 2010. Initial reviews were decidedly mixed, with many saying changes Microsoft is touting are merely cosmetic and don’t address the core problems many users have with Vista.

Starbucks – Barista-in-chief Howard Schultz was upbeat, saying that sales may have bottomed out in the recently concluded quarter. “We did see a slight improvement,” he told reporters at a meeting in New Orleans (which, by the way, is the port where Latin American coffee beans enter the United States).

Washington Federal – The Seattle-based bank became the first in the Northwest to accept money from the Treasury Department’s bank bailout fund – $200 million of it. CEO Roy Whitehead maintained his bank didn’t actually need the money, but saw it as a cheap way to add capital it can use to grow its business. “We’re going to have a chance to pick up assets, deposits, branches and human talent at prices we haven’t seen in a long, long time.”

State of the State: Last four years were good, but the next four will be a challenge

First published Nov. 3, 2008

Tomorrow’s Election Day, so we’ll ask Ronald Reagan’s time-honored question: are Washington residents better off today than we were four years ago? If you’re in King County, the answer is a qualified yes.

The number of people working in King County has increased by 103,370, which is growth of almost 11 percent. As we’ve discussed before, King County has been one of the national leaders in job creation in recent years.

More people means more shoppers. King County retail activity has grown by more than 28 percent since 2004, from $9 billion to $11.3 billion.

If you owned your home in 2004, you’ve done well. The typical 3-bedroom, 2-bath home is now worth about 40 percent more. (Median prices have climbed from $322,000 to $450,000.) Perhaps even more reassuringly, that home’s value has slipped only 4.3 percent from the peak of the market in spring 2007, at a time when many parts of the country are seeing much greater declines. California home values, for example have fallen about 16 percent during the past year.

The one place King County doesn’t stack up is pay. State wage data shows the average King County paycheck is up 14.8 percent since 2004, to $1,080 a week. That’s nice, but it wasn’t enough to keep up with inflation – the Consumer Price Index rose 16.7 percent during the same period.

The state overall has done pretty OK too, since 2004.

• Home values are up 30 percent to a median of $291,900 in the second quarter.
• Statewide retail sales are up about 27 percent, to $29.1 billion in the second quarter.
• Total employment (farm and non-farm) is up 9.4 percent, to 3.3 million people in September.
• Average pay for workers statewide is up 18.6 percent, to $899 a week in the first quarter.

All in all, not so bad, eh? But now let’s ask the question Barack Obama’s been hammering away at – how are we going to be four years from now?

My crystal ball doesn’t see that far out (probably because it’s socked in here today and raining). But clearly, the next four quarters are going to be tough. Two of our major economic indicators – home prices and retail sales – declined statewide in the most-recent quarter. We’re continuing to create jobs, but at a slow pace, and some areas are in decline. Average wages are increasing, but not keeping up with inflation. And the credit crisis is hitting some industry sectors – forest products, construction, banking, auto sales and boat building – hard.

There are places bucking the trend. King County posted 3 percent job growth in September. Yakima’s housing market is booming, and the Tri-Cities are going strong. But many other communities are struggling, with flat labor markets and declining retail sales.

The past four years have been good for Washington, but clearly, we’re not immune from the broader economic crisis, and whoever comes out ahead in tomorrow’s elections will have a big challenge ahead.

By the Numbers: Pay gains not keeping up with inflation

First published Nov. 3, 2008

The average Washington worker got a 3.7-percent pay raise to start 2008, according to newly released state pay data, which shows the average worker took home $899/week in the first quarter, or roughly $46,750/year.

Now, a 3.7-percent wage gain is nothing to sneeze at. But it represents a noticeable slow-down compared to average wage gains over the previous two years (4.1 percent between Q1 ‘06 and Q1 ‘07; 8.8 percent between Q1 ‘05 and Q1 ‘06). It also came at a time when inflation – specifically higher prices for food and fuel – was starting to climb toward 5 percent. So even with those gains, many Washington workers feel like they’ve lost ground, even as their pay goes up.

A few sectors seemed to be immune from the economic problems that were just starting to affect the state as this data was collected. For example, average pay in the information sector (i.e., software) continued to skyrocket, climbing 11.8 percent in the first quarter, to $1,846/week or roughly $96,000/year. And even as overall employment in construction started to tail off in the first quarter, construction worker pay grew by 5.9 percent, to an average of $908/week or about $47,000/year.

On the other hand, business managers saw their paychecks decline in the first quarter, likely as the result of smaller bonuses tied to weaker 2007 performances. Average manager pay dropped 5.8 percent, to $1,836/week, or about $95,500/year.

Consumer belt-tightening also seems to be reflected in falling pay for arts and entertainment workers, who saw average wages fall 5.5 percent, to $539/week or about $28,000/year. (The data, we should note, reflects average weekly pay and not necessarily full-time pay.) The combination of fuel price increases and the national economic slowdown was no doubt a factor in a 0.3-percent drop in pay for transportation and warehouse workers. Their pay slipped to $876/week, or roughly $45,500/year.

And pay for technical and scientific workers seems to have leveled off, going up only 1.8 percent, to an average of $1,308/week ($68,000/year) after showing double-digit gains for much of last year.

On a geographic basis, King County – which has more software and management jobs than anyone else – continued to have the highest average wages. Pay in the county climbed 4.1 percent to an average of $1,124/week or $58,400 a year.

However, rural counties saw some of the biggest average pay gains over the year:

• 7.2 percent in Ferry County, to $587/week, or $30,500/year.

• 7.1 percent in Klickitat County, to $637/week or $33,100/year.

• 6.5 percent in Grant County, to $616/week or $32,000/year.

Still, some places saw wages stagnate or fall. Lewis County paychecks were down on average 4 percent to $621/week; Wahkiakum County pay fell 1 percent to $503/week, and Snohomish County – home to tens of thousands of well-paid aerospace workers – reported pay slipping on average by 0.4 percent, to $895/week ($46,500/year).

Week in Review: Earnings week — Boeing down, MSFT up, banks all over the map

First published Oct. 24, 2008

Boeing — Negotiators for the company and Machinists union resumed talks on Thursday, which was the 48th day of the current strike. CEO Jim McNerney was upbeat talking to analysts and reporters the day before.

“There have been some informal discussions that I think have indicated a constructive head set on both sides,” he said. “I think there’s a way forward.”

(The union side was much more cynical, saying, “we hope Boeing comes to the bargaining table to resolve this strike, rather than simply giving the CEO a convenient answer to what this company is doing to resolve it.”)

McNerney repeated his vow to not “agree to any terms in a contract that would restrict our ability to do our business and respond quickly to global market dynamics and customer needs.” But he added that “I think there’s a way to work with the union to meet some of their goals.”

What could that be? I suspect he threw out a clue as he praised the Machinists as “very fine workers. They do a good job and I’m anxious to get them back to doing a good job, and they can compete for any work that we’ve got.”

My guess is Boeing will offer the union a clause that will allow it 90 days or so to make counterproposals to any management plan to outsource any work done by Machinists – a right the union has had in previous contracts. We’ll see whether that’s enough.

Strike aside, the conference call also pointed out problems Boeing’s having with its assembly processes. CFO Jim Bell said that the Machinists strike cost Boeing 35 cents a share during the third quarter – but delivery delays caused when a vendor failed to deliver aircraft galleys on time meant another 25 cents in lost revenues. Boeing also has had to increase R&D spending on its 747-8 program. Boeing was still profitable on the quarter, but its earnings fell from $1.44 a share to 96 cents.

Amazon - Shares of the online retailer got hammered, despite announcing a 31-percent jump in sales and quarterly profits that beat Wall Street expectations. The problem? Management expects this will be a weak Christmas.

Microsoft – The Redmond colossus reported stronger-than-expected profit growth, and surprised Wall Street by saying that while it expects the next quarter will be down, it won’t be down that much. It now projects a profit of 51 to 53 cents a share next quarter. Original projections were 55 cents.

“People were expecting much worse,” Morningstar analyst Toan Tran told CNBC. “If you are a Microsoft investor you should be happy that Microsoft thinks they will weather the storm relatively well.”

Corporate customers are continuing to buy software and server licenses, Microsoft said.

Red Lion – The Spokane-based hotel chain said major shareholder Columbia Pacific Opportunity Fund of Seattle has dropped its buyout bid.

The Office – Seattle’s commercial real estate market was named the nation’s best by the Urban Land Institute and accountants PricewaterhouseCoopers, who surveyed some 700 commercial real estate pros nationwide.

Seattle rated a score of 6.15 on a 1-to-9 scale, where 9 was considered “excellent.” The report called Seattle “sturdy” – like a good pair of hiking boots, I guess.

“Sturdy” should not be confused with “hot.” As The New York Times noted, Seattle vacancy rates are going up, what with WaMu’s demise and Starbucks’ contraction, and several spec-built buildings will soon come on line, without tenants. (That giant sucking sound you hear might be Russell Investments getting pulled north from Tacoma to fill some prime office space, as we discussed last week.)

Still, there was a little good news last week as two biotechs announced plans to move into buildings in South Lake Union.

Banks – Among the regional banks, results were mixed. Most startling was Frontier Financial’s report of a $17.8 million loss for the quarter, the result of having had to put some $42 million in loan-loss reserves to cover expected defaults. That 38-cent-a-share loss compares to a 46-cent-a-share gain in last year’s third quarter. Back in June, Frontier cut its dividend to 6 cents a share (from 18), and last week, executives cut their own pay by $8.5 million.

One blogger notes that short-sellers have been loading up on Frontier and other Washington community bank stocks, taking about 20 percent of the outstanding shares.

Elsewhere, Horizon Financial in Bellingham reported a loss, while one-time Frontier merger target Washington Banking managed a 20-cent-a-share profit. Tacoma’s Rainier Pacific reported losses, as did Cascade Financial in Everett – although Cascade reported that was because of a 93-cent-a-share hit it took on the value of its shares in Fannie Mae and Freddie Mac; without that, it would have been profitable.

The state’s largest regional bank – Spokane’s Sterling Savings – eked out a 10-cent-a-share profit for the quarter, down from 51 cents in Q3 ‘07. Sterling CEO Harold Gilkey put out a statement summarizing the situation for most state lenders, saying his results “reflect some dislocations in the Pacific Northwest economy caused by a variety of factors, including global disruptions to the financial system and the Boeing union strike. These events created a slowdown in the sale of (homes) and thereby affected our borrowers and elevated our credit costs.

“The Pacific Northwest is insulated,” Gilkey concluded, “but not isolated, from the broader economy. Still, the Pacific Northwest remains relatively strong.”

Regional Report: Cowlitz economic troubles only get worse

First published Oct. 24, 2008

The latest bad news for Cowlitz County: Its signature employer, Longview Fibre, has shut down one of its paper-making machines and is laying off 90 workers.

Forest products industries have been hit very hard by the credit crisis, and nowhere is that more true than in Cowlitz County. Over the past 12 months, 400 sawmill workers have lost their jobs – a crushing 31-percent decline – along with another 400 paper workers, which represents 15 percent of the original workforce. (That’s not counting the most-recent Longview layoffs.) Another 200 construction jobs have gone away too. The only major gains were in the category of “administrative support, waste management and remediation,” but 300 new office clerk and janitorial jobs will only go so far to make up for the lost manufacturing paychecks.

These cuts are rippling through the economy with serious effects. A Kelso bowling alley is back in bankruptcy court, unable to pay a mounting back tax bill. Thieves and vandals – officials think meth addicts seeking scrap metal are to blame for much of it – have done so much damage to one developer’s building that he’s unable to move forward with plans to build a shopping center around it. Local development officials say the credit crisis has sunk efforts to attract two new companies that would have created 300 jobs.

The housing market is soft, with sales off 25 percent in the most-recent quarter, and median home prices falling 4.3 percent, to $175,000. Local real estate numbers for September showed a year-over-year uptick – the first in three years – but still, homeowners are dropping asking prices another 5 percent this month, as part of one brokerage’s national sales campaign that hopes the “sale” prices will stimulate buyers.

Retail sales also are weak, with the latest state Revenue Department reports showing an 8.1 percent decline in Longview sales and a 3.3 percent decline in Kelso. Countywide, sales were down 8.5 percent – well worse than the state average (down 2.4 percent). And the latest state wage data shows that Cowlitz County paychecks grew only 2.6 percent on average over the most-recent 12-month period – not enough to keep up with inflation.

Not surprisingly, the economy has emerged as a key issue in state and local elections this fall. Here more than most places in Washington, residents are asking candidates, what are you going to do to create jobs, and how will you help businesses prosper? The atmosphere is tense and political, to the point that an optometrist advertising those cool “Sarah Palin glasses” got blasted for her efforts by angry neighbors.

Declining tax revenues are jeopardizing one of the assets that could help Cowlitz County the most. Lower Columbia College is dealing with a 3-percent budget cut, even as enrollment spikes 17.5 percent, as laid-off workers try to retrain for new jobs. Cowlitz County won’t be able to break the timber cycle unless it can diversify its economy, and to do that, it must have a workforce with a broad range of skills.

College president Jim McLaughlin recently foreshadowed arguments we’ll hear in Olympia come January. “The state needs us in these times,” he said. “We’re the solution, don’t starve the solution.”

By the Numbers: Job growth could be worse

First published Oct. 24, 2008

Washington’s economy continues to add jobs, but at an increasingly slower rate, according to the latest state employment report.

The report has two pieces of good news:

1. Our 0.9-percent job growth is better than the nationwide average (nationally, employment fell by 0.7 percent over the past year).
2. While we’re clearly slowing, we’re still doing better than we did during the post-9/11 recession, when total employment statewide fell for 20 months in a row.

Plus if you look close at all the data, you’ll see two very important numbers: 4,500 and 13,200. The first one’s the number of new software jobs created in Washington over the most-recent 12-month period, jobs that pay, on average, about $96,000 a year, according to another recently released state report. The second is the number of new jobs in education (both public and private) created in September, as the kids went back to school. Those jobs helped ease high unemployment rates in problem areas around the state.

So that’s the good news. There’s plenty of bad.

The credit crisis started in the housing sector, and the industries related to those continue to shed jobs. Construction, in particular, is tough, with employment falling by 10,400 jobs year-over-year. Employment in financial services is down by 1,600 people, and real estate fell by another 600. The rural parts of the state continue to be hit hard with cutbacks in wood products manufacturing (down by 2,000 or 10.5 percent), logging (down 500 people, or 9.8 percent) and paper manufacturing (down 1,000, or 9 percent). Auto dealers shed another 500 people, and boat builders 700 more – and this was before last week’s announcement that the Brunswick boat factory in Arlington is closing.

The report also doesn’t show the affects of the Machinists union strike against Boeing – apparently the workers were on the job long enough in September to be counted as regular employees. Take all 25,000 of them out of the employment picture and September’s employment growth looks much, much worse.

The numbers do highlight the divide between metro Seattle and the rest of the state. King County had a 4.6-percent jobless rate, added 36,900 jobs between September ‘07 and September ‘08, and got virtually all the state’s growth in those high-paying software jobs – the kinds of jobs that can drive a local economy, even if the national economy is weak.

Meanwhile, rural areas like Cowlitz County (which we discuss elsewhere this week) continue to lose workers. Nearly 31 percent of the wood manufacturing jobs there have gone away over the past year, along with about 15 percent of paper-making jobs. That’s dragging down the entire Cowlitz economy.

We’re already starting to see cuts in state government employment, as agencies start to deal with expected budget shortfalls. There are 1,100 fewer state workers, a drop of 0.8 percent. Local government employment, for now, is up 2.2 percent.

Week in Review: WaMu, Microsoft, wheat – and did we mention Boeing?

First published Oct. 17, 2008

Boeing’s labor issues continued to make headlines last week. But before we dive into that, let’s consider news from some other key industries.

First, finance. It was probably inevitable, but it emerged last week that federal agencies – including the FBI – are investigating allegations of fraud involving Washington Mutual’s mortgage lending business. Shareholders also are taking action, with class-action suits alleging a range of misfeasance, from dubious accounting practices to improper insider sales by executives dumping stock before the news got worse.

Also inevitable – WaMu’s collapse is becoming a case study. Long-time real estate writer Tom Kelly describes the rise-and-fall of our one-time Friend of the Family in this two-part series. “You wonder,” he writes, “what the Rodeo Grandmas are saying now.”

(I don’t know what the Grandmas are saying, but in Tacoma, the smart money’s saying that when JPMorgan finally fires the remaining headquarters staff, WaMu’s then-empty downtown Seattle office space will be filled by Tacoma’s Russell Investments, which has been noisily looking for a new home for months. Officially, all Russell’s saying is that it’s putting off any decision on a move for 12 months – just enough time to see what comes open in downtown Seattle.)

Second, software. Those Microsoft-Yahoo! rumors are back. Some investors took CEO Steve Ballmer’s comments last week that a merger “would make sense economically” to mean he’s still interested in doing a Yahoo! deal and pushed shares up 10 percent. Redmond moved quickly to quash the speculation, but the rumor is still out there.

Third, wheat. You think the stock market’s been volatile? I chatted with WSU ag economist Doug Young last week. He notes that prices for soft white wheat (the main variety grown in Washington) have fallen from over $15 a bushel in January to as low as  $4.85 recently. That’s a drop of about 60 percent – the Dow’s merely down 40 percent.

Big crops worldwide have eased last year’s food panics – and pushed down prices. That’s good news for those of us who eat, but bad news for growers, who are seeing prices below the cost of production. (High fuel prices mean it costs about $7.30 to grow that bushel that sold last week on the spot market for around $5.10.) Some growers seem to be responding by holding onto their wheat, hoping prices will rise again. All in all, it’s a sharp reversal from a year ago, when prices soared and eastern Washington prospered.

Now, Boeing. As you probably heard, the renewed talks with its Machinists union collapsed last week (more on that later), but there were optimistic words coming out of a meeting with the unions for engineers and technicians.

Formal talks begin Oct. 28, but SPEEA union officials announced progress after a preliminary meeting last week. “There was more substantive talk about issues during this two-hour meeting than we’ve had with Boeing since committees started meeting eight months ago,” said Ray Goforth, the union’s executive director. Still, those preliminary talks were “at times heated and confrontational,” the union said, and they didn’t address some of the key sticking points – like outsourcing.

Last week’s renewed talks between Boeing and the Machinists fell apart over outsourcing, both sides said.

Boeing’s argument – which has undeniable merit – is that it shouldn’t be paying Machinist-scale wages to materials handlers. Assembly workers are some of the world’s most-skilled laborers, worthy of top-of-the-line pay; materials handlers are essentially warehouse workers, and with new bar-code technology, much of their work can be automated.

In addition, allowing vendors to handle parts inventories and deliveries, the way New Breed Logistics does on the 787, can be more efficient operationally: it eliminates the hand-off that occurs when a supplier delivers a part at the factory gate to a Machinist union worker who takes it from there.

And my guess is that there’s a financing advantage as well. I don’t know the details of Boeing’s contract with New Breed, but it shouldn’t be hard to arrange it so that the vendor keeps custody of the part – and, more importantly, carries it as inventory on its books – right up to the moment it’s delivered to the assembly line. That keeps Boeing’s inventory number down, at least as far as the accountants are concerned, which improves Boeing’s efficiency ratios, which is something that Wall Street watches closely and rewards.

So that’s all well and good. But here’s the catch. On a strictly cash basis, it doesn’t really matter all that much whether a Machinist or a non-union contractor is handling those parts. The average Machinist makes $54,000 a year in base pay; the average base pay for warehouse and transportation workers in Washington – according to just-released state wage data – is just over $45,000 a year.

Now let’s say – because of the technology and efficiency gains – you’re able to replace those 2,000 union workers with 1,000 non-union vendors. And let’s say those vendors have far lower benefits (costing an additional 10 percent per worker rather than the 20 it costs to give benefits to the union). That’s a savings of $80 million a year, or $240 million over three years – or less than the $300 million in revenues Boeing’s foregoing every three days during the strike, which now seems doomed to last for more than two months.

The union is taking fire in some quarters for taking a self-defeating stand on outsourcing, and for good reason. By fighting for those 2,000 jobs, it risks losing all 27,000, should Boeing decide to up and move production somewhere else.

But if Boeing’s management is willing to indefinitely defer a couple billion in revenues to win a few hundred million in labor cost savings, then we also have to wonder whether Chicago is being equally pennywise and pound-foolish.