Spokane economy next year likely to grow at slower pace, but these are still ‘uncertain times’

Shrugging off the election, regional economists told a crowd of Spokane business leaders Wednesday that promises heard in campaigns are slow to get traction. It was part of their message that positive economic growth is expected next year, but at a slower pace than this year.

There are a few trouble spots in the region: the continued high cost of housing and soaring costs for insurance. And they warned that if the Trump Administration places high tariffs on imported goods, the Northwest’s economy would be affected.

The economic forecast expects lending interest rates to decline some, perhaps not as fast as financial markets predict. Mortgage rates likely will stay between 6% and 7%.

“Embracing Growth in Uncertain Times” was the title of the annual economic forecast breakfast at the Spokane Convention Center, organized by Greater Spokane Inc. and the Spokane Journal of Business.

While the U.S. economy looks solid based on Gross Domestic Product or unemployment rates, “if you are the everyday American, the small business or business that is struggling with inflation, the economy is bad,” said Vange Hochheimer, Whitworth University economics and finance professor.

It leads to what she said were two perceptions about the economy: good for some but bad for others.

Grant Forsyth, Avista Corp. chief economist, said he sees good signs in the region’s economic outlook next year, and “nobody is talking recession.”

Spokane-Kootenai employment growth slowed significantly this past spring, and more so on the Washington side, but he thinks that was driven by business leaders’ uncertainty around ballot initiatives.

Health care was the biggest driver in the region’s jobs market, but it faces another pressure nationwide, he said. “We’re getting old, and we love our health care.”

He measured local employment data against “good news” in regional leading indicators, such as low unemployment claims and steady building permits.

“All look good in terms of signaling no recession and probably a return to employment growth going into the future, but probably at a lower level than we’ve seen coming out of the pandemic,” Forsyth said. “A big regional problem outside of employment is still housing. Housing inflation – the rate of growth – has clearly moderated, but unfortunately, the price level for housing remains incredibly high. I strongly suspect that is not going away.

“We don’t have affordable housing anymore, not even close.”

He cited Spokane-area seasonally adjusted monthly data on home listing prices at $400,000 to $500,000. “That is not affordable based on median family income and the current level of interest rates.”

More people are going to apartments, but rent costs rose significantly beginning in spring 2022, about a 14% increase.

“It’s going to take years for people’s income to catch up with that kind of change,” he said.

While it’s more moderate this year, many people are still struggling. An influx of new apartment units might impact vacancy rates for slightly lower rents, he said.

Steve Scranton, Washington Trust Bank chief economist, said U.S. employment growth January 2023 through September 2023 averaged 264,000 jobs a month, and for the same period this year, it averaged 188,000 a month.

“Jobs are still growing, but they are slowing,” he said. “My outlook for 2025 is that we will continue to see positive economic growth but at a slower pace.”

While the Federal Reserve sees a trend of steadier inflation, he said consumers are hit by certain higher prices.

“What I would highlight especially, auto insurance is up 16.3% year over year,” he said. “That’s real to a consumer. … if the consumer starts to get pressured more by further price increases, that can affect their ability to keep spending.”

Forsyth sees two other forces on affordable housing: rising insurance rates and maintenance costs.

“We have big problems with the insurance market all across the United States,” he said. “I’m increasingly concerned about an outright insurance market failure, where people either can’t possibly get insurance for what it costs or there’s none to be had in the first place.

“The ability to buy a house, it’s more than the purchase price. You have to pay for insurance, if you can get it, and pay for the maintenance. It’s no longer particularly affordable for a lot of people.”

In 2023-24, new housing permits “still look good,” despite higher interest rates, Forsyth added.

“That gives me some confidence that the slowdown in employment we’re seeing won’t be necessarily permanent. Commercial permits are up.”

Hochheimer said Spokane’s labor shortage is smaller than nationally, but the needs are highest for health care practitioners, sales-related jobs, office and administrative, and health care support. Labor costs have skyrocketed.

Small businesses are struggling, she added.

“Small businesses are under pressure because of the cost of labor and other inflationary issues. This is disproportionately affecting small businesses.”

Another issue is employees receiving a living wage, roughly $28.70 an hour in the Seattle area. In the state, 52% of employees make less than $28 an hour.

Consumer spending accounts for about 70% of U.S. economic activity. Based on national indicators, consumers are still spending, Scranton said.

There is momentum going into 2025, he said, with money entering the economy from the Inflation Reduction Act, infrastructure activity and the CHIPS and Science Act, aimed to ramp up U.S. production of semiconductors. A Micron project in Boise just broke ground.

“There are jobs being created there,” he said, “and we’re seeing ripple effects from suppliers.”

He pointed to concerns, however, including some employers in the past two years cutting hours for employees who receive hourly pay.

“Businesses have been afraid to lay people off,” he said, because they’d heard a recession was possible. If they laid off employees, it would be costly to hire them back if business activity picked up.

“Instead of laying somebody off, they’re cutting everybody’s hours. Their bills are not dropping or they’re going up, so then every reduction in time that’s worked is a reduction in their paycheck.

“When they stop spending, that ripples up to the rest of the economy. The other thing I pay a lot of attention to is the number of people working multiple jobs. We are near record highs.

“This is the group that doesn’t get caught in the national headlines, because those in the upper incomes are still spending strongly. You have to go beneath the headlines and discover there are some cracks there we need to pay close attention to.”