2022 Economic Forecast: Spokane region has mostly recovered job losses from pandemic, future labor growth tied to population

Spokane County has mostly recovered job losses as a result of the pandemic, but future employment growth will be dependent upon a continuing influx of new residents, a local economist says.

Nonfarm employment in the Spokane metropolitan statistical area – which includes Pend Oreille and Stevens counties – was 252,800 in September, compared with 259,400 in February 2020, roughly a month before the area first felt the pandemic’s economic impact.

While nonfarm employment in the Spokane region is nearly 3% below pre-pandemic levels, the number of jobs generated by Amazon has not yet been factored into the total, which will be revealed later this month by the Washington state Employment Security Department, Grant Forsyth, Avista Corp.’s chief economist, told those attending Greater Spokane Incorporated’s annual economic forecast on Tuesday.

“Add those estimated numbers in there from those reports and it looks like Spokane is actually back to where we were in February 2020,” Forsyth said . “So the message really is, regionally we’re back. We have fully recovered. That’s what the evidence suggests.”

The forecast was held virtually and in-person at the Spokane Convention Center in partnership with the Spokane Journal of Business.

Forsyth pointed out that Kootenai County has recovered jobs faster than the Spokane region. Nonfarm employment in Kootenai County was 68,000 in February 2020, compared with 71,500 in September.

In Kootenai County, job recovery was stronger than in Washington in the leisure and hospitality sector, largely because of pandemic-related policy differences between the two states, Forsyth said.

Manufacturing jobs are down 8% in the Spokane area and it’s anticipated those jobs will not be fully recovered based on historic economic patterns, Forsyth said.

“When we’ve seen a recession, manufacturing almost never reverts back to its previous employment level,” Forsyth said. “Manufacturers, because of competitive pressures and so forth, tend to do a lot of restructuring as a result of a recession. And that restructuring means less labor going forward. I think we’re going to see that again.”

Expansion of the Spokane region’s labor force is heavily tied to population growth and in-migration to the area, Forsyth said.

“Our labor force is going to grow roughly at the same rate as population and so if we want to understand some longer-term challenges the region has, we really need to look at what is driving population growth,” he said. “And I cannot emphasize this enough – how important in-migration has become to the region in terms of population growth.”

Inverted square root recovery

The U.S. appears to be in an inverted square foot economic recovery from the pandemic, said Steve Scranton, chief investment officer and economist at Washington Trust Bank.

“(The) first half of the year, we spiked up. Now, we’re coming on the downside of the leg and then ultimately, we’re going to level off going forward, especially by the end of 2022,” Scranton said. “The question is, at what level do we level off?”

Scranton said vaccine distribution inequality is a headwind in national and international economies.

“The developed countries got the vaccines first. They are further along in that process,” Scranton said. “The developing countries – which are the usually the suppliers of our raw materials – they are just now starting to get the supply of the vaccine ramped up to them and getting the vaccination program in full gear.”

A labor shortage in the U.S. could result in businesses cutting hours of operation or shifting to automation in their operations, Scranton said.

A shortage of truck drivers and chassis – which are used to ferry shipping containers from dockside terminals – will likely contribute to continuing supply chain issues in the coming months, Scranton said.

“I’m going to simply say the supply chain issue will eventually get better,” he said. “But we’re not going to just flip a switch and say, ‘Three months from now, everything is good.’ So, you need to plan for that.”

A bright spot is an uptick in construction of warehouses and distribution centers as businesses seek more space for inventory storage amid supply chain issues, Scranton added.

Are wage increases sustainable?

A growing number of businesses are offering hiring bonuses and increasing starting wages in an effort to attract workers, some of whom have exited the labor market to take care of family or are shifting careers.

“People realigning their careers are saying, ‘I’ve been at this job for 20 years and the increases in my wage are minimal. Now, I have more skills than I did 20 years ago,’” said Vange Ocasio Hochheimer, associate professor of economics at Whitworth University. “They are really engaging with the labor force in different ways by going somewhere else where the wage is higher.

“So, is this sustainable? I don’t know. It depends on the magnitude of workers moving from job to job. But, I think that is something for employers to think about.”

A free market is driving an increase in wages, which are likely to remain constant even in changing economic conditions, said Scranton, of Washington Trust Bank.

“I think a lot of this is correcting and wages are sticky. It’s pretty hard to tell somebody that I gave you a 5% wage increase because inflation is 5% and next year, that inflation was actually down 2%, so I’m going to cut your wages 2%,” he said. “It’s not going to happen.”

Forsyth said an increasing number of workers are re-evaluating their careers during the pandemic. Some of those workers who were laid off during the outbreak received extended federal unemployment benefits that replaced their income, he added.

“That first round of extended unemployment was sometimes 150% of their actual working pay and for a lot of people, they finally had enough money to have a little bit of savings to fully pay their bills,” Forsyth said. “That really, I think, changed people’s perspective about, ‘What am I doing in my current occupation? Is there something better some place else where I can kind of try to replicate that boost in pay I got from the extended unemployment benefits?’”Amy Edelen can be reached at (509) 459-5581 or at amy@spokesman.com.