Like the nation’s, Spokane’s 2023 economy exceeded expectations

A year ago, Avista chief economist Grant Forsyth counted himself among those who thought the Spokane area would enter a recession during 2023.

Forsyth said that at the time, he gave the local economy a 70% chance of experiencing a pullback.

“Yeah, I was pleasantly surprised,” Forsyth said of the prediction that didn’t come true. “The region showed a lot more resilience than I had expected. How much resilience do we have going forward? That’s going to determine whether we have a soft landing” or experience a recession in 2024.

National headwinds point to several concerns: The flow of venture capital for a lot of startup businesses has slowed to a trickle, data points show that consumers have burned through available savings and consumers have virtually stopped buying things like RVs and boats.

“I’m probably a bit more conservative than other forecasters,” Forsyth said. “I still think a recession is about 50-50, but a majority of forecasters are predicting that we avoid a recession in 2024, as well.”

Spokane’s economy has shifted over the years and now heavily relies on the region’s health care system, along with a large number of public employees and the strength of nearby Fairchild Air Force Base.

But troubling signs remain, Forsyth said.

“We had about 2% employment growth” for Spokane this year, he said. “I feel comfortable that we will be below that in 2024.”

Businesses in the Lilac City also face the same concerns as the national economy. Tensions with China, the uncertainty of the war in Ukraine and internal political tensions in the U.S. could flare up and cause unforeseen problems.

“All of this creates an uncertainty that could cause businesses and consumers to pull back sharply,” he said.

But he also said the Federal Reserve has offered some hope that it may cut interest rates that could loosen things up in a stagnated local housing economy.

“For a while, consumers were able to sustain those higher rates,” Forsyth said. “Now we are getting to the point where it’s causing them to pull back, especially for those purchases that are not necessary – those kind of luxury items.”

The job market seemed rather impervious to the constraints on lending.

“The fact that the labor market was so robust probably gave consumers some room to continue spending,” he said.

Health care remains the largest job creator in Spokane.

“Even though we had a pretty good year in employment growth, there are sectors I’m worried about, and health care is one of them,” Forsyth said. “Washington state data still shows a big shortage of health care workers.

“It’s not just nurses. This is occurring not just here, but across the country. At the same time, we have a rapidly aging population. That doesn’t put the industry in a good position.”

He noted that had local powerhouses like Providence Sacred Heart Medical Center and Providence Holy Family Hospital been able to fill all open positions, it would have boosted Spokane’s 2% job growth.

“The military is an important employer. They are not immune to these recruitment issues just like the private sectors are dealing with,” he said.

During the COVID-19 pandemic, investors threw money at promising young companies. But that funding has mostly evaporated. Some 250,000 workers at tech companies of all sizes lost their jobs this year across the country.

Tom Simpson, president and CEO of Ignite Northwest, which mentors and supports emerging companies in the region, said he hopes for better results in 2024.

“There’s always a lag between the private markets and the public markets,” he said. “The public markets crashed after 2021, but the private markets took a while to catch up.”

While 2021 was the high-water mark for venture capital investing, those opportunities remain.

“We have seen a lull over the last 18 months. Investors were being very careful,” Simpson said. “But now that the market is recovering, I think we’ll see the pace of investing in emerging companies return. I expect an increase in 2024 over what we’ve seen.”

Forsyth said lowering borrowing rates will be the key. The high interest rates have stifled the local housing market, which has stabilized into home prices that generally exceed the level for first-time buyers to find an affordable house, he said.

If the Fed lowers rates, “that will provide us some cushion to getting us to that soft landing,” Forsyth said.