2008-2009 Report

2008-2009 Report
Pierce County Economic Index • 1
Pierce County Forecasters

Dr. Bruce Mann Dr. Douglas Goodman

Professor of Economics Professor of Economics
University of Puget Sound University of Puget Sound

Bruce D. Mann, Ph.D., has been Douglas E. Goodman, Ph.D., has

a professor of economics at the been a professor of economics at
University of Puget Sound since the University of Puget Sound since
1975. Dr. Mann came to the Tacoma 1977. He came from the University
area from Indiana University where of Illinois where he received his
he received both his master’s and master’s and doctorate degrees. Dr.
doctorate degrees in economics. He Goodman's teaching responsibilites
completed his undergraduate work focus on monetary economics and
at Antioch College in Yellow Springs, econometrics. His research interests
Ohio. Dr. Mann's research interests are in the areas of finance and
include urban and regional economics. applied economics.

Publisher: David Graybill

Project Manager: Gary Brackett
Design: Christina Kitchens
Photography: Chip Van Gilder, Joe Andrade, Aiden Bradley, Chamber Staff and the Port of Tacoma
Printer: Print NW
©Copyright 2008 Tacoma-Pierce County Chamber. All rights reserved.
Table of Contents

4 | Executive Summary

5 | PCEI Economic Forecast

6-7 | Pierce County Economic Performance

8-9 | Labor Activity & Unemployment

10-11 | Retail Sales Activity

12-13 | Personal Income

14-15 | Housing and Real Estate

16-17 | Port of Tacoma

18-19 | Data Tables

20-21 | Special Thanks & PCEI Sponsors

22 | Manufacturers Directory
Consumer Demographics

23 | Save the Date

Because of the lag in publication of economic data, each PCEI Report forecasts for a period covering the
last two quarters of the current year (2008) and the full calendar year ahead (2009).

Pierce County Economic Index • 3

Executive Summary
The Tacoma-Pierce County economy
will most likely avoid the worst of the
impacts from globally contracting
housing markets, eroding credit markets,
spreading worldwide financial crises,
falling consumer confidence levels and
now, increasing layoffs.
The Pierce County economy’s main
economic engines – military and health
care – will remain fairly strong through
this forecast horizon. Other foundational
sectors, business services, aerospace
support, and trade will be weak, if not
anemic.
The strong health care and military
sectors provided a counter-cyclical
support that offset some of the negative
national forces. Economic growth
bettered expectations by more than a
full percentage point gaining 2.8% for
2008. When 2008 ends, the PCEI (Pierce
County Economic Index) will reach an
all-time high at just over 190 (1980 =
100).
Growth in the first quarter of 2009 will
be at a virtual standstill. For the year as
whole, the PCEI in 2009 will drop by
1.4% from its 2008 record high level. This
will be the first year-over-year decline
in the PCEI since the mild slowdown of
1991. The recession of 2009 will be the
deepest in thirty years.
On an annual basis, nonetheless, both
2007 and 2008 will be very solid years for
attracting new workers to Pierce County.
The 2008 gain of 2.75% means more
than 10,500 new workers will join the
County’s labor force. The 2009 downturn
in economic activity will slow labor force
growth dramatically.
The weaker second half of 2008 pushed
the annual rate of job growth to just 1.2%
in 2008, still an increase of 3,500 jobs.
Weak job growth will continue into 2009.
Net job losses are anticipated for the first
half of 2009. Job growth will turn positive
in the second half of the year.
The most recent high-water mark for
the unemployment rate was eight plus
percent in 2002 and 2003. Weaker local
job creation combined with strong labor
force growth pushed the Pierce County
unemployment rate up during 2008.
The unemployment rate will move up
to 6.3% as 2008. For the year, the Pierce
County annual unemployment rate will
average 5.9%. The 2009 annual average
Pierce County unemployment rate of
6.7% will be eight-tenths of a percentage
point above 2008.
The 2008 holiday shopping season will
be disappointing for area merchants.
Retail spending will drop $42 million in
local spending compared to the fourth
quarter of 2007. For the year as a whole,
retail spending will fall 4.3% below the
2007 pace.
Improvement will start slowly. For
2009 dollar retail volume will be up
by 1.8% over 2008. The 2009 holiday
shopping season will be modestly better
than in 2008. Even this improvement in
spending will not match the inflation
rate. This means $105 million more
dollars for county merchants.
In 2008 income will increase by 7.6%
over 2007. This means an additional
$2.0 billion dollars of income in 2008
for Pierce County residents than they
had in 2007. However, the outlook
for 2009 is not as bright. With an
economic downturn, Pierce County’s
total personal income will move up very
modestly, by just 3.9%
The population in Pierce County has
been increasing faster than personal
income. The result is that per capita
income growth lags the increase in the
total dollars of income.
The slide in single-family housing
activity that began as expected in late
2006, continued through 2007 and
2008. The Housing Index (measuring
the volume – not value - of new or used
homes for sale or sold) rate of decline will
slow as the year closes. Negative pressures
on the local single-family market will start
to ease up as 2009 progresses. The 2009
Housing Index will be back to its 2002
level.
Multi-family housing activity often moves
just opposite to what happens in the
single-family market. Not surprisingly,
then, the Pierce County apartment market
has been fairly strong over the past few
years. During this forecast horizon, one
new feature will impact the multi-family
market. The supply of units will increase.
The increase in demand will not be as
strong as the supply side increases. Thus,
the multi-family market will soften a
little, although it will still remain in a very
healthy condition.
Commercial space vacancy rates should
continue moving up with rent increases
moderating during this forecast horizon.
The weak local economy will dampen
demand for retail space in particular.
Over the forecast horizon the industrial
market will become a bit weaker. The
increasing supply will not be matched by
demand.
Overall, container volume for major U.S.
container ports as a whole is expected
to decline 6.5% in 2008 compared with
2007. However, the severity of the impact
has been less for the Port of Tacoma than
for any other U.S. West Coast container
port. As of September, YTD (year to
date) volume for the Port of Tacoma had
declined 2.3%, while the average volume
for the U.S. West Coast had declined
7.5%. Overall, the Port of Tacoma will be
well positioned for future growth as the
U.S. economy regains momentum in late
2010 and 2011.
Pierce County
Economic Forecast
A NEW SET OF ECONOMIC
FORCES HIT THE LOCAL AREA
Contracting housing markets, eroding
credit markets, spreading worldwide
financial crises, falling consumer
confidence levels and now, increasing
layoffs all are contributing to turbulent
times for the world’s globally inter-linked
economies. While the Tacoma-Pierce
County economy will most likely avoid
the worst of the impacts from these
events, the local economy will suffer.
On “the glass is half full” side, two of
Pierce County economy’s main economic
engines – military and health care – will
remain fairly strong through this forecast
horizon. The “half empty” side of the
outlook is that the other foundational
sectors, business services, aerospace
support, and trade, will be weak, if not
anemic.
If not a recession, the U.S. economy is
in the midst of a significant economic
slowdown. The slowing national economy
will put downward pressure on the local
economy. Whatever stimulative monetary
and fiscal policies come from the federal
level, the impacts are not likely to provide
much fuel to power the local economy
during this forecast horizon.
In addition, some unique local forces
will add downward pressure. Soft
economies throughout the world will
dampen international trade flows. The
Boeing strike will generate negative ripple
effects throughout the region as local
suppliers see orders cancelled, delayed
and reduced. Local area incomes will
not increase much, depressing consumer
confidence and curtailing spending.
Restructuring and staff reductions at
Weyerhaeuser will adversely affect the
county. It was Washington Mutual that
made national headlines, but everyone
in the financial and real estate industries
will continue to experience problems.
Employment growth in the financial and
manufacturing industries will be almost
non-existent during this forecast horizon.
Finally, the sharp declines in asset values
will continue to erode retail spending as
households rebuild portfolio value.
High gas prices over the summer had
both good and bad impacts on the Pierce
County economy. On the one hand,
“staycations” kept households and their
spending in the Puget Sound region,
providing a boost. On the other hand,
visitors cancelled trips to the Northwest,
hurting local hotels, restaurants and
shops. Relative to the nation, the negative
impacts were less severe here, as this sector
is a smaller (but growing) component
of the economy. In the same vein, higher
prices for home heating fuels will exact
only a moderate toll on the local area’s
economies – a plus due to locally mild
winters and preponderance of hydro
power. Energy prices may moderate over
this forecast horizon, but it is not likely
they will return to pre-2008 levels.
Additional problems may come from
the relocation announcements by some
major employers. Russell Investments may
choose to move out of the Tacoma urban
core. DaVita’s need for more space may
also lead them to look outside the area.
Given the large amount of attractively
priced space throughout the region,
competition will be intense. Since both are
major employers, these possibilities create
uncertainty in the already weak real estate
industry.
Finally, governments will face significant
budget issues. Tax revenues will decline.
Demands for services will increase. Since
state and local governments are required
to balance their budgets, the most likely
scenario will be spending cuts and small
tax increases. Both will add downward
pressure on the Pierce County economy.
PIERCE COUNTY ECONOMIC
PERFORMANCE
The Pierce County economy continued
moving upward during the last half
of 2007, although not as robustly
as expected. In part this was due to
contracting construction activity.
Housing inventories started to
accumulate, industrial space inventory
growth slowed new developments and
some public sector projects hit snags. The
growth of military spending moderated,
as troop levels stabilized. And, as
expected, trade flows through the port
did not rise as much as in the past. For
the year, the PCEI, an overall measure
of inflation-adjusted economic activity,
moved up by just one and a third percent,
about one-half a percent less than
expected.
The strong in-migration and job creation
that started late in 2007 produced solid
gains for the local area. Downward
pressures from the national economy did
not hit the local area with much force. In
the first quarter of 2008 local economic
growth started to accelerate. Upward
momentum built during the second
Pierce County Economic Index • 5
Pierce County Economic Index
and third quarters and Pierce County’s
economic growth was stronger than
expected. The economy improved by
almost 3.5% during the second and
third quarters of 2008, besting last year’s
forecast of 2.25%.
Fourth quarter economic growth in 2008
will slow modestly. The PCEI will move
up by two and a quarter percent. The
current financial crises will have only
moderate effects on the Pierce County
economy in 2008. However, cautious
consumer spending, especially due to
the housing market weakness and asset
value erosion, will moderate growth. A
strengthening dollar will offset some of
the softness in trade that will come from
our trading partners’ weaker economies.
Continued spending by the military
and an expanding health care sector will
provide some boost to the area.
For the year as a whole then, 2008 will
be good. The fuel price increases and
financial crises did not hit the local
economy as fast or as hard as they did
other areas of the country. The strong
health care and military sectors provided
a counter-cyclical support that offset
some of the negative national forces.
Economic growth bettered expectations
by more than a full percentage point,
with the PCEI gaining 2.8% for the year.
When 2008 ends, the PCEI will reach
an all-time high at just over 190 (1980
= 100).
By the first quarter of 2009 the effects
of the national economic weakness will
begin to take a toll on the Pierce County
economy. Growth in the first quarter of
the year will be at a virtual standstill. The
PCEI will move up by just over one-tenth
of a percent relative to the first quarter
of 2008. Concerned consumers, cautious
employers and a depressed housing
market will keep spending and income
growth in check.
The impacts from local layoffs, the Boeing
strike, bank consolidations and closures
and lower stock values will spread
through the entire Puget Sound area, not
sparing Pierce County. Local construction
spending will remain at a reduced level,
as some developers turn cautious and
others find financing difficult to secure.
The buoyancy provided by the health care
and military sectors will barely counter
national and regional forces.
The second quarter of 2009 will see
the start of negative growth for the
local economy. Deteriorating regional
conditions will combine with a national
downturn to offset any local economic
strength. The PCEI will fall by 1.5% in the
second quarter. The decline will worsen
in the third quarter, when the PCEI will
fall by 2.5%. While the economy will
still be contracting in the fourth quarter,
the downward slide will moderate. The
PCEI will move down by one and three
quarters percent in the fourth quarter. By
the “two consecutive quarters of decline”
characterization, the local economy will
be in a recession as 2009 comes to a close.
For the year as whole, the PCEI in 2009
will drop by 1.4% from its 2008 record
high level. This will be the first year-
over-year decline in the PCEI since the
mild slowdown of 1991, when the index
fell by just one-half of one percent. The
recession of 2009 will be the deepest in
thirty years.
195

185

170

160

Pierce County Economic Index • 7

Labor Activity and Unemployment
Labor Force
As expected last year, labor force growth
in Pierce County continued strong
through the middle of 2008. The increase
in workers to the area in 2007 exceeded
the forecast by more than one percent,
with the civilian labor force moving up
by almost three and a quarter percent
during the year. Strong in-migration
rates brought new workers to the area, as
local economic conditions bested other
economies in the region.
The magnetism of a good economy
continued to pull migrants into the
area during 2008. Attractive housing
opportunities proved to be a lure for
new and existing households. Amenity
enhancements, such as town center
developments, improved shopping
districts and good transit options
increased the appeal of the smaller
urban locations throughout the county.
Annualized civilian labor force growth
continued in excess of three percent
during the first three quarters of the year:
3.25% in the first quarter, just over 3.4%
in the second and 3.1% in the third.
Labor force growth will slow significantly
to just one and a quarter percent during
the fourth quarter of 2008. Weak housing
markets throughout the region will inhibit
households’ ability to sell homes and
move to Pierce County. Concern over
economic conditions will discourage some
from coming or encourage others to move
out in search of better opportunities.
On an annual basis, nonetheless, both
2007 and 2008 will be very solid years for
attracting new workers to Pierce County.
The annual gain in workers during 2007
was 3.2%, which translates into just over
12,000 new workers. The 2008 gain of
2.75% means more than 10,500 new
workers will join the County’s labor force.
The 2009 downturn in economic activity
will slow labor force growth dramatically.
Tight housing finance conditions will
keep in-migration rates depressed. And,
bad employment news coming from
Weyerhaeuser and Boeing will reduce
incentives to move to, or stay in, the
area. The labor force will grow by about
1% in the first quarter of 2009, then
by one-half a percent in the second
quarter, followed by 1.7% in the third
and ending the year with an increase of
three-quarters of a percent. For the year,
the labor force will increase by just 0.6%,
or just 2,400 new workers.
Employment
Even though the overall performance
of the 2007 Pierce County economy was
not as strong as forecast, job growth
exceeded expectations. For the year
as a whole, 3.6% more jobs became
available in the county, well above the
forecast increase of 1.7%. In part this
resulted from the past investments
in infrastructure and productivity
improvements.
Also, the strong job growth reflects the
particular nature of the local economy,
with health care and the military
creating new employment positions. In
addition, job growth was helped by the
developments in many of the smaller
urban centers such as DuPont, Bonney
Lake and Sumner. This strong growth
was consistent throughout the year, with
gains of 3.3% in each of the first three
quarters and 4.3% in the fourth quarter.
During the year almost 10,000 new job
opportunities appeared in the county.
Solid gains in employment, albeit not
quite as robust, continued in the first
half of 2008. The annualized rate of job
growth was 2.9% in the first quarter
of the year. This rate fell to just over
2% in the second quarter of the year.
Beginning in the third quarter of 2008,
the impacts from a slowing economy,
diminished expectations and financial
uncertainty hit local employers. The
number of third quarter jobs was just
three-quarters of one percent above the
2007 level.
In the fourth quarter of the year job
growth will turn negative, with a decline
of just over one percent from the year
before. The weaker second half of the
year pushed the annual rate of job growth
to just 1.2% in 2008, still an increase of
3,500 jobs.
Weak job growth will continue into 2009.
Employers will avoid adding payroll
expense until market uncertainties
dissipate. Layoffs will keep net job
creation down. Trade-related and
construction industry employment will
be especially weak during the year. The
tourism sector will see below average
growth as travel to the area declines
and regional competition for travelers
intensifies.
Net job losses are anticipated for the first
half of 2009. During the first quarter, the
annualized rate of decline will be just
over one percent. The number of jobs in
the second quarter will fall at just under
a one percent annual rate. Job growth
will turn positive in the second half of the
year. Employment will rise by just under
one percent in the third quarter, and then
job growth will improve to 1.5% during
the fourth quarter. For the whole year,
though, the employment will remain
basically unchanged from 2008 (up by a
scant 0.1%).
Unemployment
The most recent high-water mark for
the unemployment rate was eight plus
percent in 2002 and 2003. This followed
the economic slow down of 2001. As job
growth outpaced labor force increases,
the rate dropped below six percent in
2004, and then fell to a low of 4.75% in
2007. The strong growth in employment
opportunities came from Pierce County rate will rise moderately, there should
employers and from strong regional be minimal downward pressure on
economies in the Puget Sound region. wages and labor costs under 6% for the
past decade. An unemployment level
Weaker local job creation combined with in the 5% to 6% range indicates, for
strong labor force growth pushed the most local economies, a good balance
Pierce County unemployment rate up between job growth and increases in
during 2008. The rate increased to nearly the labor force.
5.6% in the first quarter, then moved up
slightly to 5.7% in the second quarter, and
jumped to 6.1% by the third quarter. The
jump in the third quarter was due to the
slowing local economy while the labor
force continued to show large gains. The
unemployment rate will move up to 6.3%
as the year ends, primarily due to reduced
employment opportunities. For the year
2008, the Pierce County unemployment
rate will average 5.9%, up from the 2007
rate of 4.7%.

Sluggish job growth, both in Pierce

County and in the surrounding areas,
will keep the local area unemployment
rate elevated in 2009. The average
unemployment rate in the first quarter
will be 6.9%. Then, as labor force
growth moderates, the rate will decline
in the second quarter to 6.7%. Slower
labor force growth and expanding job
opportunities will move the rate down in
the second half of the year. The rate will
fall to 6.6% for the third quarter, and end
the year at 6.4%. The 6.7% annual average
Pierce County unemployment rate in
2009 will be eight-tenths of a percentage
point above 2008.

While the unemployment rate will

increase, the level of unemployment
will be uncharacteristically low for a
recessionary period. In prior downturns
the rate would reach the eight to ten
percent level. The local unemployment
should not reach that plateau unless the
recession lasts for a protracted period or
deepens due to national forces. Since the

Pierce County Economic Index • 9

Retail Sales Activity
As 2007 moved into the second half
of the year, retail sales spending
slowed substantially. In the first half
of the year, dollar sales increased at
about a 4.25% rate. Growth slowed
to less than one percent during the
third (0.6%) and fourth (0.3%)
quarters. For the year, retail spending
grew by just 2.2% over 2006. Since
prices rose at a faster rate, the volume
of goods and services moving off
local merchants’ shelves (real retail
activity) declined by 0.6% in 2007.
Pierce County’s relatively slow
2007 economic growth was partly
responsible for this sluggish
spending. Another contributing
factor was the increasing regional
competition for retail dollars.
Finally, the drop off in new housing
purchases also contributed to the
sales slowdown.
The impacts from a weak housing
sector continued to dampen retail
spending in the county during
2008. Consumers exercised caution
during the first half of the year.
Retail dollar volume fell during
the first quarter of the year by 5%
compared to the year earlier level.
This pattern continued during the
second quarter as retail spending was
5.5% below the same period in 2007.
High gas prices started to impact
retail spending in the summer
of 2008. New and used vehicle
purchases declined. Also during
the summer, financial uncertainty,
declining portfolio values and lack
of confidence made consumers
cautious. Retail spending in the third
quarter was off by 4% on a year-over-
year basis.
Financial concerns will persist and
the local housing markets will remain
slow during the fourth quarter of
2008. Uncertainty about future
conditions and worries about job
prospects will also dampen spending
as the year comes to a close. The
holiday shopping season will be
disappointing for area merchants.
Rather than up by 4.4% as forecast
last year, dollar retail spending will
be off by 2.6%, a drop of $42 million
in local spending compared to the
fourth quarter of 2007.
For the year as a whole, retail
spending will fall 4.3% below the
2007 pace, well off the 4.4% growth
forecast last year,. This means $262.7
million fewer dollars will go to local
area merchant’s cash registers than
did in 2007. Real retail activity, after
adjusting inflation, will be off by
8.5% compared to 2007.
Dollar retail spending will start to
rebound in early 2009. Eventually
households do have to replace and
repair what wears out, breaks and
depreciates. An improving housing
market will mean new spending
for home furnishings, repairs and
upgrades. Attractive interest rates
and improved liquidity will stimulate
purchases of durable goods, such as
cars and appliances.

Improvement will start slowly. Retail

spending moves up by just six-tenths
of one percent in the first quarter of
2009. Dollar volume will increase by
just over 2% in both the second and
third quarters of the year. However,
these increases will be less than the
rate of inflation, so real retail activity
will continue to fall – down 3% in
the first quarter, a 1.5% decline in the
second and off 0.7% during the third
quarter.

The 2009 holiday shopping season

will be modestly better than in
2008. Fourth quarter retail spending
will be up by 2.4% over the 2008
rate, moving spending back to the
level reached during the holiday
season in 2007. Compared to 2008,
Pierce County merchants will see
an additional $37 million dollars in
their tills. Even this improvement in
spending will not match the inflation
rate, and real retail activity will fall by
a modest 0.4% in the fourth quarter.

For the year as a whole, dollar retail

volume will be up by 1.8% over
2008. This means $105 million more
dollars for county merchants. For the
third year in a row, the dollar volume
increase will not keep pace with
inflation, so real retail activity will be
off by 1.5% for the year.

Pierce County Economic Index • 11

Personal Income
Total Personal Income
Total personal income in Pierce County
increased in 2007 by 4.8% over 2006, a bit
below the anticipated 5.2%. During 2008
total personal income growth acceler-
ated, as the economy improved. In 2008
income will increase by 7.6% over 2007.
This means an additional $2.0 billion dol-
lars of income in 2008 for Pierce County
residents than they had in 2007.
However, the outlook for 2009 is not as
bright. With an economic downturn,
Pierce County’s total personal income
will move up very modestly, by just 3.9%.
Most of this dollar growth will be due to
inflationary effects, not new jobs or im-
proved productivity. Local households
will see their incomes increase by $1.2
billion – one of the smallest increases
over the past thirty years.
Higher prices eroded some of the total
personal income gains in 2007. In
inflation adjusted terms, total personal
income rose by 1.9% over 2006. Real
total personal income gained 2.9% in
2008, better than the expected 2.5%.
This was the result of the stronger than
expected 2008 local economy. Most of
this growth will come from higher wages
and salaries going to already employed
workers, not from any significant
increase in the number of workers. In
addition, some of this income growth
will be the result of increases in transfer
payments (welfare, veterans, and retirees),
not labor market earnings.
In real (inflation adjusted terms) total
personal income will move up by only
one-half of one percent in 2009. This will
be the smallest annual gain in inflation-
adjusted personal income in thirty years.
Per Capita Income
The population in Pierce County has been
increasing faster than personal income.
The result is that per capita income
growth lags the increase in the total
dollars of income. In 2007, per capita
income moved up by 3.6%, about one
half a percent slower than expected. The
better economic condition pushed the
rate of per capita income growth in 2008
up to 6.5% -- well ahead of last year’s
forecast of 4%.
Not unexpectedly the downturn in the
economy will significantly erode the
growth of per capita income for 2009.
The county-wide average income will
move up by only 1.3%, increasing by just
$500. Both in terms of the growth rate
and the dollar amount, 2009 will be the
weakest for per capita income growth in
thirty years.
In 2006, the average income for Pierce
County residents was $35,800. In 2007
the average gained $1,300 moving up
to $37,100. The increase for 2008 was
$2,400, pushing the per capita level to
$39,500. The average income of a county
resident in 2009 will move up to just over
$40,000.
Much of the dollar gains will be eroded
by higher prices. In inflation adjusted
terms, per capita income gained only
three-quarters of one percent in 2007.
Real per capita income moved up by 1.9%
in 2008. In 2009, real per capita income
will decline by 1.9%, since the inflation
rate will exceed the growth in per capita
income. This will be the biggest drop
and only the second decline in Pierce
County real per capita income over the
past thirty years.

25000000

20000000

15000000

10000000

5000000

Pierce County Economic Index • 13

Housing and Real Estate
Single-Family
The slide in single-family housing activity
that began as expected in late 2006,
continued through 2007 and 2008. The
decline deepened through the second half
of 2008. Sales and new listings of single-
family homes fell due to both weak local
conditions and national mortgage and
liquidity problems. While the sub-prime
problem in Pierce County was not as
severe as in other parts of the county, local
lenders, buyers and financial agents all
became more cautious as industry-wide
problems rippled into the local economy,
buyers lost confidence and sellers faced
lower prices.
Sales activity fell in each quarter of 2007
– down by 4% in the first quarter, 7% in
the second, 10% during the third, and by
13% in the fourth quarter. These declines
were in line with last year’s outlook. For
the year as a whole, the Housing Index in
2007 was 8.7% below the 2006 level.
For the year, the Housing Index
(measuring the volume – not value - of
new or used homes for sale or sold) will
register its largest annual decline ever,
down by 17.6% from 2007. Single-family
sales activity continued its downward
move during 2008. The declines got
worse, with the Housing Index falling by
17% in the first quarter 2008, then by 21%
in the second, and by 18% in the third
quarter of the year. The rate of decline
will slow as the year closes, with a 14.5%
fourth quarter drop in the Index.
Negative pressures on the local single-
family market will start to ease up as
2009 progresses. Financial relief from
national initiatives to help lenders
and homeowners will bring some
buyers back to the market. Current low
prices will entice other buyers into the
market. Improvements in national and
international lending and credit markets
will re-establish a flow of funds at
reasonable rates for financing. However,
adverse local economic conditions
will offset some of these positive
developments, especially early in 2009.
Single-family sales activity will decline
through the first half of 2009. Compared
to similar periods in 2008, the Housing
Index will be down by 10% in the first
quarter and then off by a modest 1.5%
in the second. Market improvements
will start to have positive impacts by the
summer of 2009. Activity in the second
half of the year will start moving up
slowly – the Housing Index will be up by
0.6% in the third quarter, then by 1.6%
in the fourth quarter of 2009.
On an annual basis, the weak first
half of 2009 will more than offset the
improvements of the second half of the
year, and the Housing Index will fall by
2.5%. The 2009 Housing Index will be
back to its 2002 level.
Multi-Family
Multi-family housing activity often
moves just opposite to what happens in
the single-family market. As single-
family activity slows, households turn to
the apartment market. When financing
is not available or houses are not
affordable, households stay in, or move
into, multi-family units.
Not surprisingly, then, the Pierce County
apartment market has been fairly strong
over the past few years. By the fourth
quarter of 2007 the vacancy rate was
4.5%, below the 5% normal measure
of a good market. The Pierce County
vacancy rate remained below 5% into
2008 – 4.4% in the first quarter, 4.6% in
the second and 4.3% during the third
quarter of the year. Over this same time
period rents have been increasing at a
moderate rate.
During this forecast horizon, one new
feature will impact the multi-family
market. The supply of units will
increase. To some extent this will be
the result of new construction. What
will be new, however, will be the shift of
units from the condominium side of the
market to the apartment side. This influx
of new-to-the-market units will help keep
rents in check and increase the vacancy
rates modestly.
On the demand side of the market, the
number of households searching for
apartment units will continue to increase,
both because of a slowing economy and
the inability to finance home purchases.
However, the increase in demand will not
be as strong as the supply side increases.
Thus, the multi-family market will soften
a little, although it will still remain in a
very healthy condition.
Commercial
The commercial office market remained
fairly stable during 2007. While the
vacancy rate rose somewhat during the
first half of the year, the rate moved
back down to just under 7% in the third
quarter and then up to 7.3% during the
fourth quarter of the year. Absorption
rates were good during the second half of
the year, and the number of new square
feet coming to market was moderate.
Class A space, especially in the urban
centers, remained the tightest segment.
The vacancy rate moved up a bit to about
7.7% during the first half of 2008. Rents
held steady across geographic and quality
segments of the market. Absorption by
medical care providers was particularly
strong during the first half of the year.
Geographically, the west side of Tacoma
and University Place were the strongest
markets. While vacancy rates moved up
in the third quarter to 8.6%, the Pierce
County rates were among the lowest in
the region. Rents also moved up by about
6% to 10%, depending on quality and
location. Class A space in downtown
Tacoma continued to be a very tight
market segment.
Vacancy rates should continue moving
up with rent increases moderating
during this forecast horizon. The weak
local economy will dampen demand for
retail space in particular. The market for
medical space should continue to be the
strongest sector, especially as new facilities
in Gig Harbor and the Puyallup area
come on line. With an increasing amount
of vacant space throughout the region,
especially in King County, competition for
tenants will make this a “renters’ market”
over this forecast period.
Industrial
space needs for manufacturing and
distribution will not grow much.
The biggest user, IKEA, already has
met its space need. If the Microchip
Technology site is redeveloped and
brought to market, this will add
another significant amount of space.
The increasing supply will not be
matched by demand, so vacancies
should move up with no upward
pressure on lease or rental rates.

A large amount of new space came

to market during the third quarter of
2007. This kept the vacancy rate at
10.7%, one of the higher rates in recent
periods, but down from the second
quarter. Absorption of space started to
improve during the second half of the
year. Vacancies fell a bit during the fourth
quarter, ending the year in the 9% to 11%
range.

During the first half of 2008 a fairly large

amount of new space came to market.
However, increases in demand kept the
vacancy rate fairly steady at around
10%. The weakest areas, also the areas
with largest new supplies of space, were
around the Port of Tacoma and Fife areas.
The Lakewood sub-market continued to
register the lowest rates in the region.

Much of the available space in the

Fife area was leased up by the third
quarter of 2008, and this sub-market
area experienced fairly tight conditions
(vacancy at 2.5%). In other market areas
vacancy rates increased over the first half
of the year. Mainly this was due to a large
of amount of new space coming to market
in the Sumner, port and Frederickson
areas.

Over the forecast horizon the industrial

market will become a bit weaker. The
Pierce County Economic Index • 15
Port of Tacoma
Prepared by Josh Adams,
Business & Economic Analyst
Economic & Industry Trends
The slowdown in the U.S. economy has
produced a ripple effect throughout much
of the world. As U.S. consumers continue
to cut back on discretionary spending
amid a worsening financial crisis, imports
from Asia and other parts of the world
have seen a substantial decline. This
decline in imports is expected to continue
through the holiday season, a time of year
which under more normal conditions is
known for its increase in shipping activity,
and well into 2009.
Over the first half of 2008 a strong export
market helped to mitigate the declining
container trade as the weakened U.S.
dollar made U.S. exports more attractive
to consumers in other countries.
However, in the last couple of months
this trend has subsided as the U.S. dollar
has increased in value and as Asian and
European economies have in general lost
momentum in the wake of a likely U.S.
recession.
Overall, container volume for major U.S.
container ports as a whole is expected
to decline 6.5% in 2008 compared with
2007 as both foreign and domestic
consumers cut spending, retailers more
carefully manage inventories and shippers
reevaluate their supply chain decisions.
Also contributing to the decline in trade
is high oil prices. While the price of oil
has taken a sharp and welcome decline in
recent months, it is expected to remain
high over the mid to long-term and will
therefore be a determining factor in
supply chain management decisions.
From an industry perspective, the current
economic downturn and higher fuel
costs will impact U.S. container ports as
import and inland point cargo shrinks
and as over-capacity on various trade
routes leads to route changes, reduction
in frequency of port calls and other cost
cutting measures. Also, competition
among ports for carrier business will
continue to intensify as port origin/
destination combinations are reassessed
and as new port developments in British
Columbia and on the East & Gulf Coasts
take advantage of shorter Trans-Pacific
transit times and all-water East Coast
routes via the Panama Canal.
The Port of Tacoma, like all other
ports, has been impacted by the above
mentioned economic factors and
industry trends. However, the severity
of the impact has been less for the Port
of Tacoma than for any other U.S. West
Coast container port. As of September,
YTD (year to date) volume for the Port
of Tacoma had declined 2.3%, while the
average volume for the U.S. West Coast
had declined 7.5%. This is due in large
part to aggressive and focused efforts
by the Port to retain existing customer
business as well as secure new customers.
Cargo Activity
By year-end 2008, the Port’s container
business is forecasted to decline 2.9
percent, following a 6.9% decline in
2007, as the Port continues to feel the
effect of a weakened US and global
economy. In January 2008, the Port added
one new service, softening the impact of
the decline in volume from the previous
year. Despite the current downward shift,
from 2002 to 2006 the Port enjoyed 40%
growth in its container business.
The Port of Tacoma is home to the two
premium carriers serving the Alaska
market – Totem Ocean Trailer Express
(TOTE) and Horizon Lines. Horizon
also provides a weekly service to Hawaii.
In 2008, the Port will see its first annual
decline in domestic container volume in 5
years, with a year-over-year drop of 3.4%.
Over the 5-year period prior to 2008,
this business saw average annual growth
of 1.5%. The Alaska/Hawaii business
accounts for about 25% of the Port’s total
container volume, and has a significant
economic impact on the local community
as most of this cargo is stored in the Puget
Sound area prior to shipment.
The Port’s breakbulk business will reach
approximately 120,000 short tons in
2008, down 3.0% from 2007. This is
following a decline in 2007 of 3.9% over
2006. Breakbulk consists of items too
large or awkward for efficient shipment
in containers. Military shipments are
a significant part of this business, and
the relationship between Fort Lewis and
the Port of Tacoma is important for the
military, Port and local community. Non-
military breakbulk cargo consists of heavy
machinery/equipment and steel.
While Tacoma is home to the state’s
largest auto port, business saw a decline in
2008. The Port will handle approximately
170,000 units, down 3.0% from 2007. This
is following upon 3 years of consecutive
growth where the Port’s auto business
grew 28.7%.
Grain exports are projected to reach 6.5
million short tons this year, an increase of
10% from last year. A major contributor
to this export growth was the weakening
of the U.S. dollar in relation to other
currencies throughout much of 2008,
which helped to fuel an increase in
global demand for imported agricultural
commodities.
announcement of NYK coming to
the Port mid-year 2012. The Port is
working hard to plan and build the
facilities and infrastructure required
for the future. This is seen not only
in the development of the East Blair
Peninsula, but also in a planned
wharf extension for one of the Port’s
existing customers and road and rail
infrastructure investments throughout
the port. Overall, the Port of Tacoma
will be well positioned for future
growth as the U.S. economy regains
momentum in late 2010 and 2011.

Looking ahead in the short-term, 2009 is

forecast to see a further drop in volume
for the Ports container service, as the
effects of economic recession continue to
be felt and the Port’s customers reevaluate
their services, vessel rotations and ports
of call. For 2009, overall container
growth will decline a further 6.4% from
2008 levels, due mostly to decline in
transpacific trade. The Port’s Auto and
Breakbulk lines of business are expected
to remain flat with 2008 levels and grain
is projected to decline by about 6% as
international demand for U.S. exports
remains soft.

Over the mid to long-term, the Port

continues to have the assets that are
in short supply – land next to deep
water with efficient inland connections.
Commencement Bay is deep and port
waterways are able to handle the largest
containerships in the world. Most existing
terminals can be densified and land is
available for new terminals. This was
demonstrated back in July 2007 with the
Pierce County Economic Index • 17
Data Tables

2008-2009 PCEI Summary and Forecast

Note: Data used to construct the charts, graphs and tables ∙ Pierce County, Washington
Non- Taxable *Housing
PCEI Percent
Agricultural Retail Sales Activity
Year Quarter Index Unemployment
Employment (millions Index
1985=100 Rate
(x1000) of $) 1990=100
2002 Qtr 1 166.476 238.47 8.80 990.52 166.68
2002 Qtr 2 166.836 243.27 8.30 1099.81 165.96
2002 Qtr 3 167.165 245.90 7.67 1171.09 172.05
2002 Qtr 4 167.615 246.77 7.43 1223.73 175.72
2003 Qtr 1 167.735 244.17 8.50 1050.97 183.63
2003 Qtr 2 168.286 248.20 8.37 1168.21 190.05
2003 Qtr 3 168.913 249.23 8.27 1231.57 193.50
2003 Qtr 4 168.265 251.20 7.60 1295.69 196.10
2004 Qtr 1 168.479 248.23 8.10 1134.75 192.07
2004 Qtr 2 169.662 255.20 7.17 1249.02 196.33
2004 Qtr 3 171.289 255.60 6.53 1304.51 198.86
2004 Qtr 4 173.905 260.23 6.17 1409.78 204.95
2005 Qtr 1 175.893 257.27 6.63 1228.79 213.52
2005 Qtr 2 177.701 263.47 6.00 1363.43 220.88
2005 Qtr 3 179.468 265.20 5.67 1464.91 230.83
2005 Qtr 4 180.682 269.13 5.20 1511.46 237.71
2006 Qtr 1 181.073 266.70 5.43 1332.30 236.50
2006 Qtr 2 182.226 272.13 5.20 1481.41 237.22
2006 Qtr 3 183.143 272.33 5.13 1544.78 231.89
2006 Qtr 4 183.529 275.60 4.63 1596.35 227.54
2007 Qtr 1 184.453 275.67 5.10 1411.88 226.25
2007 Qtr 2 184.342 281.53 4.60 1518.67 220.37
2007 Qtr 3 184.780 281.47 4.73 1553.89 207.81
2007 Qtr 4 186.138 287.57 4.53 1601.37 197.51
2008 Qtr 1 188.482 283.73 5.57 1340.92 188.29
2008 Qtr 2 190.610 287.40 5.73 1434.08 174.21
2008 Forecast Qtr 3 191.297 283.57 6.13 1488.94 170.44
2008 Forecast Qtr 4 190.296 284.55 6.28 1559.19 168.87
2009 Forecast Qtr 1 188.749 280.66 6.89 1349.46 169.42
2009 Forecast Qtr 2 187.699 284.72 6.70 1463.73 171.64
2009 Forecast Qtr 3 186.600 286.00 6.64 1518.95 171.54
2009 Forecast Qtr 4 186.967 289.00 6.41 1596.47 171.54
Key local economic variables for Pierce County, Washington as of November, 2008.
Quarterly Data figures from First Quarter
2002 through Second Quarter 2008 are
actual data. Forecast of quarterly figures
are from Third Quarter 2008 through
Fourth Quarter 2009.
*Housing Activity Index: A volume of
new or used homes for sale or sold. A
value of 166.68 means the number of
homes for sale or sold is 66.68% above the
1990 average of the number of homes for
sale or sold.
TEUs = Twenty-Foot Equivalent Units.
This is a standard measure of containers,
which come in a variety of lengths that
are converted to this standard for data
compatibility.
The short ton (ST) is a unit of weight
equal to 2,000 lb. (around 907.18474 kg).
Annual Data are actual data from 2002
to 2007 for Total Personal Income.
The forecast of annual figures for Total
Personal Income are from 2008 through
2009.
Annual Data are actual data from 2002
through 2007 for the Port of Tacoma
Containerized Cargo. The forecast of
annual figures for the Port of Tacoma
Containerized Cargo is from 2008-2013.
The Pierce County Economic Index
(PCEI) is sponsored by BCRA, Brown
& Brown Insurance of Washington,
Colliers International, Puget Sound
Energy, Regence BlueShield, Tacoma
Public Utilities and Venture Bank. The
Tacoma-Pierce County Chamber presents
the PCEI Report annually at the Horizons
Economic Forecast Event.
Pierce County Economic Index • 19
Special Thanks
The 2008 Pierce County Economic
Index (PCEI) Report was presented to
the community at the Horizons 2009
economic forecast event. Complementing
the conference were presentations by
several individuals and a sharing of
expertise and information by others.
A special thanks to the event’s keynote
speaker, Dr. Martin Regalia, Vice President
for Economic and Tax Policy and Chief
Economist, U.S. Chamber of Commerce.
Dr. Regalia appears on national television
news and debate programs, testifies
before Congressional committees, authors
articles and publications on a variety of
economic topics, and speaks to many
groups across the country. Our special
thanks to Dr. Regalia for his enjoyable
delivery of a complex and challenging
topic at a complex and challenging
time.
A complementary workshop featured
insights by professionals in our
community. The workshop: “Money &
Credit,” offered insights on the current
credit crunch and international money
availability. It was moderated by Bruce
Marley, Venture Bank with panelists:
Jason Bloom, Washington Association
of Mortgage Professionals/Washington
State Mortgage Broker Commission/
Elliot Bay Mortgage; Kerry Keely,
Evergreen Business Capital; Erik
Ristuben, Russell Investments.
A new feature of the Horizons event this
year was the production and distribution
of real estate 2020 reports by the
professionals at Colliers International.
The following reports and the individuals
that produced them are:
• Eric Cederstrand, Tom Brown
- Downtown Tacoma Tax Incentives
• Connie Boyle - Retail and the
Expanding Lacey Market
• Kim Marvik and Hillary Bridge -
Gig Harbor’s Transformation into
a City
• John Powers, Sr. Managing Director
- 2020 “Green” Forecast Report
Also, a special thanks to “the Tokens
improv!” (www.tokensimprov.com)
for their outstanding improvisations in
support of the Chamber’s premier event.
A very special thanks is extended to
University of Puget Sound, for their
active support of Dr. Bruce Mann and Dr.
Douglas Goodman, authors of the PCEI.
The University of Puget Sound is an
independent predominantly residential
undergraduate liberal arts college with
selected graduate programs building
effectively on a liberal arts foundation.
The University, as a community of
learning, maintains a strong commitment
to teaching excellence, scholarly
engagement, and fruitful student-faculty
interaction.
PCEI Sponsors

Pierce County Economic Index • 21

Industry Publications

Manufacturers Directory

What’s your market? Is it Washington State? Puget Sound? Pierce County? The
Chamber can provide you with a directory of manufacturers scoped to your needs.

The Chamber offers a CD that includes data in a searchable format by company,

product codes and location. Information includes address, phone and fax numbers,
as well as email and website if available. Plus, an online demonstration can be
arranged before you purchase.

You can choose to use this service for just one year for a low price, or opt for a
renewable subscription for an annual fee.

For more information or for a copy of the Manufacturers Directory, call Gary Brackett, 253-627-2175, garyb@tacomachamber.org.

Consumer Demographics

Did you ever wonder about the potential customers

surrounding your place of business? Would the customer
base in another location match your product line? Is your
competitor’s geographical customer base different than
yours? What are their buying habits?

The Chamber can develop consumer demographic information by various radii, drive times or geographical areas, track trends and
chart projections for several comparable areas. As a service to our members, the Chamber offers this information in a downloadable
format in various templates. The results can be emailed to you.

Call Gary Brackett, garyb@tacomachamber.org for a phone consultation at 253.627.2175 about site location analysis and market
research.
Save the Date

December 10, 2009

7 a.m. to 10 a.m.
Greater Tacoma Convention & Trade Center
Please plan to join us.

Pierce County Economic Index • 23

950 Pacific Avenue, Suite 300 PO Box 1933
Tacoma, WA 98401
p | 253.627.2175 f | 253.597.7305

www.tacomachamber.org