by THE INLANDER STAFF & r & & r & & lt;span class= "dropcap " & W & lt;/span & all Street's in a panic, one of the largest investment banks in the country has folded, inflation is rising and the dollar is steadily slumping against foreign currency. Whether economists can agree that the United States is experiencing a recession or not, it's clear that hard times have arrived.
Yet, 2,500 miles west of Wall Street, things are still relatively quiet. Many small and local businesses in Spokane this week told The Inlander that they haven't yet started to feel the effects of the country's economic downturn.
"On our project, we're dealing with a bunch of national retailers that are really feeling it," says former auto king Chud Wendle, who resigned as president of Wendle Motors in August to develop the company's car lot across from Northtown Mall into a 71,000-square-foot retail shopping center. But, he adds, "Spokane's still chugging along pretty well."
Andy Dinnison agrees. The owner of Boo Radley's, a novelty gift shop in downtown Spokane, says that despite a "shitty-weather winter," the shop had a good Christmas. "Our numbers are fine," he says.
Same goes for Saunders Cheese Market, which hawks gouda and gruyere from a storefront on South Washington Street. "We had a great Christmas, and that is a big part of our revenue for the year," says co-owner Kim Morin, who reports a 60 percent increase in profit for November and December. That may be surprising, considering widespread reports about the rising prices of food, shipping and oil -- not to mention that fancy cheese would probably be the first-cut item on family budgets in tight times. "We are not currently feeling the effects [of the downturn]," Morin says. "Our shipping prices haven't gone up since we opened [in 2006]. Our cheese price went up probably three months after we opened -- like two, three cents a pound. Not that crazy."
On top of these anecdotes, Forbes magazine this week named Spokane among the top 10 big cities in the country for "business and careers," putting it solidly in the company of Atlanta, Raleigh, N.C., and -- yes -- Boise.
So, whence does Spokane draw its economic strength in such troubled times?
Real estate professor Don Epley says the Spokane area is strong because it's in the middle of nowhere. "One of the things that's unique about Spokane is that it's a relatively small [urban area] that sits there by itself. The service area to Spokane is probably about 150 miles in any direction. If you're in Pullman, if you want specialized medical services, where do you go? If you want opera, a decent meal, you name it, where do you go?"
Epley was a professor of real estate at Washington State University for eight years before he moved in 2005 to teach at the University of South Alabama in Mobile. While at WSU Spokane, he garnered media attention for tailoring national economic indicators to the particularities of Spokane. One of these peculiarities, he says, is the area's isolation. "It's sufficiently diversified to take care of itself," he notes. "What's going on at the national level will not impact it as much because it's got good enough diversification going on to provide for its own service base. I think that's an important point to look at."
He wonders, though, whether Spokane will be able to keep up its tourism dollars in tight times. "Can it be maintained as gasoline goes up and people spend less money on travel?" he asks.
Pam Scott thinks so. The communications coordinator for the city's Convention and Visitor's Bureau says she believes the national economy is working to Spokane's advantage. "What we've seen is that with the weaker dollar, the Canadians are flooding in to shop here," she says, adding that national trends suggest the rising price of gasoline is going to keep most American tourists traveling domestically this summer. "And so if they've seen some of the first-tier cities, hopefully they'll want to explore second-tier cities like Spokane. ... We actually have a very positive outlook."
Roy Fisher, front desk manager at the Montvale Hotel, says profits are up over last year and no preparations are being made for any impending recession. "We're planning to do business just like we always do."
Glenn Crellin, director of the Washington Center for Real Estate Research at WSU, says part of the reason Spokane is protected from recession is that most recessions have been driven by manufacturing, and Spokane has already shed many of its manufacturing jobs. Besides, he says, this recession is about the housing market, and Spokane's is still in good shape. "We don't have the significant level of foreclosure activity that we're seeing in other parts of the country. Mortgage credit is available for folks who have good credit. Local lenders are less prone to using some of the mortgage instruments that are creating a lot of problems [elsewhere]," he says. What's more, he says, "Folks [have been] buying homes locally because they were looking for a place to live. In Las Vegas, they intended to flip them."
Still, he notes that it's important to keep an eye on some of the leading economic indicators -- especially the unemployment rate. "The crystal balls are [still] real cloudy," he says.
Gavin Cooley, the chief financial officer for the city of Spokane, says unemployment -- along with sales tax revenue and new construction -- are the most crucial indicators. And what he's seeing now isn't all good. "[I'd] not seen any decreases in sales tax in quite some time. [It'd] been very robust increases every single month. Suddenly at the end of 2007, I started getting some warning shots across my bow," he says. Growth rates over much of last year were anemic, but remained positive. Then in December, the city saw a 5.1 percent decrease over the prior year. "That's a real warning to me," he says. On top of this, new private construction has slowed way down. Nationally, he notes that consumer confidence is plummeting while inflation continues to rise.
Like others, though, he points to the stabilizing power of a strong regional economy (Seattle has among the strongest home and commercial real estate markets in the country) and is proud that the city has been able to put nearly 20 percent of its general fund expenditures into its reserves. "Five, six years ago, we had none," he says.
But the forecast for the future continues to be mixed.
"I'm bunkering down. I'm putting away water. What did we do for Y2K?" jokes Andy Dinnison at Boo Radley's. He says he's keeping an eye on the national situation but for now, he's not overly worried. "In my business, people still need their small indulgences. And they still have birthdays, and they still have anniversaries. Knock on wood."
-- JOEL SMITH
ECONOMICS 101 - The Dollar
& lt;span class= "dropcap " & W & lt;/span & hy is the once-mighty American dollar getting so weak?
It's true: In 2002, an American dollar would buy you $1.57 in Canadian currency; today our greenback is worth just 98 cents north of the border. One basic reason for the decline is that, since the government isn't taking in enough money to pay the bills, we keep printing more dollars. And the more dollars that get pumped into the American economy -- as in the recent taxpayer-backed $200 billion bailout of the financial markets -- the less valuable they get.
The world is noticing how many dollars are getting printed, and nations and institutions are starting to have second thoughts about collecting them. Some countries are starting to base their trading on the euro instead of the dollar. If that happens on a large scale, and the dollar loses the primacy it has held since the 1950s, the devaluation could get much worse. One saving grace is that those nations to whom we owe money, or who like to trade with us, have an incentive to keep the dollar as strong as possible.
-- Ted S. McGregor Jr.
Lumber Gets Nailed
& lt;span class= "dropcap " & I & lt;/span & t's the nails that aren't being driven that the lumber industry is feeling right now. A harsh winter and a national slump in the housing market have conspired to drag lumber prices down to the lowest they've been in years: $238 per thousand board feet for framing stock, forcing some mills in the Northwest and Canada to scale back production while others have shut down permanently.
"I doubt there is a mill profitable in this marketplace," says Marc Brinkmeyer, owner and president of Riley Creek, a lumber company with three mills in North Idaho. "I don't see how lumber prices can go much lower," he says, explaining that lumber is a commodity and that its price is set by the functioning of the market and reported in trade publications such as Random Lengths. Prices have been deteriorating throughout 2007, he says. The swing shift at Riley Creek's Moyie Springs plant was laid off about a year ago, and hours have since been reduced by about 25 percent at their mills in Laclede and Chilco.
"It's simply supply and demand in the commodity world," Brinkmeyer says, citing the subprime debacle as one reason for low demand. "The other is that we've had a much stronger winter than in recent years," he says, which has restricted construction. About one-third of his company's product goes to markets east of the Mississippi.
Due to fallout from the subprime mortgage crisis, housing inventory is at record levels in some parts of the nation. As a result, builders are slowing production. The U.S. Census Bureau and Department of Housing and Urban Development reported earlier this month that single-family housing starts and building permits fell in February to the lowest rate since 1991. That marks 11 straight months of decline and a rate of residential construction activity 40 percent lower than in February 2007. The severity of the decline varies by region, with Western states being hit the hardest.
On March 17, Stimson Lumber told the 60 employees at its DeArmond mill that operations would stop in May, permanently. It will also be shutting down a plant in Montana. The Oregonian recently reported that no less than 18 sawmills are shutting down throughout the Pacific Northwest. There have also been heavy casualties among Canadian mills.
"We're not talking about layoffs," says Lloyd McGee, speaking for Vaagen Bros. Lumber in Colville. "Curtailments are temporary, until production gets fired up again.
"There are cycles like this," McGee adds. "It usually takes a couple of years for a good rebound." The company is in "wait-and-see mode," he says, focused on getting through the year. As a stopgap measure, Vaagen Bros. has turned to wood chip production.
As sawmills slow down, byproducts such as sawdust and wood chips become scarce, and their price goes up. Sawdust is compressed into pellets and logs to fuel stoves, and the paper industry needs chips for pulp. Both are also used extensively as bedding for livestock. According to the Wall Street Journal, sawdust prices have quadrupled in some markets since 2006. McGee says that Vaagen Bros. is chipping certain species of logs that would usually be cut into lumber, just to fill the demand from paper mills.
"It does not help the lumber industry," he says, "but the chips are in demand so Vaagen Bros. is responding to that. It keeps us busy, but it's not saving our market."
Lumber mills aren't the only ones feeling the pinch. The logging companies that they subcontract with are not only finding fewer jobs available, they are dealing with increased diesel costs.
"Everybody's worried because the market is dropping," says Sherri Hansen, owner and general manager of Hansen Logging in Chewelah. "The demand's not there, and there's less work for the logging companies.
"But it's the fuel prices," she continues. "They're scaring everybody. It's devastating, even if you have a job, when you can't get enough revenue to pay for those fuel increases. ... Competition is going to get fierce, and it will put a few [companies] out of business -- there's no doubt," she says. In 2007, the company paid an average of $2.85 per gallon for diesel. Now it's paying $4.19 per gallon.
"It's the main cost to our company," Hansen says. "We need fuel in every piece of equipment to operate." With a fleet of 14 trucks that average 4.6 miles per gallon, her company burns 375,000 gallons per year. "We don't have anyone to pass that on to," Hansen says. "The mills can only pay so much per ton for those logs." With 30 years in the business, she and her husband are hoping that their reputation and relationships will keep them afloat during the lean times. "We're out there aggressively looking for work, just like everyone else," Hansen says.
-- Mick Lloyd-Owen
ECONOMICS 101 - The Fed
& lt;span class= "dropcap " & W & lt;/span & hy has the Federal Reserve Bank been cutting interest rates so much lately?
Yes, it has been quite a run of cuts since last summer, and it can be argued that the Fed had no choice. They had to keep markets healthy, many say, as the impacts of bad loans made during the housing boom were hitting financial institutions. Their recent rescue of Bear Stearns was a dramatic move that staved off a painful financial crisis -- but they had to cut rates on a Sunday afternoon, something never before done in the history of the nation.
Others argue, however, that financial markets must be allowed to ebb and flow naturally, and if you bail out every firm that made a bad investment, the Fed is only putting off -- and making worse -- the day of financial reckoning that will, with a scientific certainty, come anyway.
As we watch to see which argument proves true, the Fed may be down to its last few moves -- it cannot simply keep pumping new cash into the system and cut rates forever without risking even worse inflation. If a recession comes (or is already here), the Fed may have put itself in such a tenuous position that it can only watch. (TSM)
ECONOMICS 101 - Inflation
& lt;span class= "dropcap " & W & lt;/span & hy do those talking heads on CNBC continue to insist inflation isn't out of control?
If you agree with the way the United States government and the Federal Reserve Bank calculate inflation, it isn't out of control. But it's a trick of the math, as they gauge the increasing cost of living by using so-called "core inflation" figures instead of the more comprehensive consumer price index. The difference? Core inflation leaves out energy and food costs. And as we all experience every day, both are getting more expensive very quickly. Wheat, for example, has gone from between $3 and $4 a bushel in 2003-04 to anywhere between $12 and $16 today. A barrel of oil, meanwhile, has gone from $25 in September 2003 to over $110 for the first time ever this month.
As long as the dollar stays weak, and if the Fed continues to lower interest rates, inflation and consumer prices are at risk to rise even more. (TSM)
ECONOMICS 101 - The Deficit
& lt;span class= "dropcap " & W & lt;/span & hy does our government keep spending money it doesn't have?
Some, like Vice President Dick Cheney, have said deficits don't matter. That would seem to make it OK for the United States to spend its way out of any mess -- on expensive new undertakings ranging from tax cuts to tax rebates (coming to your mailbox soon) to a new Medicare drug benefit to a five-year (and counting) invasion and occupation of Iraq. But to spend that money, we have to borrow it -- that means we pay interest on repaying it. In 2006, the United States paid more than $400 billion in interest alone to countries and lenders from around the world.
There is a limit, however, to how much debt any nation can shoulder without triggering a depression, and we may be getting to that limit (although economists can't agree on where that line should be drawn). That's bad news, because deficit spending is typically a tool used to weather a recession. So if indeed we are entering a recession and we've already deficit spent as much as we can, the government's options for combating this recession will be limited. (TSM)
SURVIVING: Six Ways to Prepare Yourself
& lt;span class= "dropcap " & S & lt;/span & o whether or not you think the dreary economic predictions are off base, it's not a bad idea to prepare for the worst -- the same way you might load up on baked beans and batteries ahead of a major blizzard. In the end, whether it snows or not, it never hurts to have some extra canned peas on the shelf.
To shore up your money, here are a few tips, which financial planners say are wise in good times or bad:
& lt;ol &
& lt;li & Build an emergency fund. The bigger one you have, the better insulated you are from any crisis, such as losing a job or a national recession. "It should equal your living expenses for three to six months," says Greer Bacon, a certified financial planner at Asset Planning and Management in Spokane. "If you have that emergency cash reserve plus unemployment, that should get you through the low point." Whether you put your money in some sort of savings account -- or under a mattress -- you should be able to access it quickly. & lt;/li &
& lt;li & Cut spending. It's time to distinguish between wants and needs. Do I really need an HD-TV right now? Or can I wait? "Changing times call for a changing budget," says Kim McGrigg, spokeswoman for Consumer Credit Counseling Services. "There are a lot of things we consider necessities -- our many phones, electronic gadgets -- that are really wants. ... Another culprit is eating out on a regular basis. Food is one budget area that is easy to manipulate." & lt;/li &
& lt;li & Pay off high-interest debt. Prioritize debts, tackling the ones with the worst interest rates first. For most people, this means credit card debt. "We hear a lot about the housing crisis, but not enough about the debt crisis," McGrigg says. "We owe more than we ever have. ... The more you pay off now, the more cash flow you'll have later." & lt;/li &
& lt;li & Stay put. This is probably not the best time to make big changes in your life, like changing jobs or buying a house (at least not before selling the one you're in). When layoffs come, the first to go typically are the most recent hires. "Now is definitely not a great time to job hop," Bacon says, "unless you have a great plan to move to another employer." & lt;/li &
& lt;li & Make yourself essential. Seek out extra training or more education to make sure you're valuable to your employer. "It also might make sense to review your job situation," McGrigg says. "If you are worried about the position, now would be a great time to get training for a new career." & lt;/li &
& lt;li & Don't panic. And don't make rash decisions -- about investments, jobs, housing. "Now is the time to exercise really good judgment and not be swept away with emotion," Bacon says. "Calm down and take a good objective look at the situation before you make a decision." & lt;/li &
& lt;/ol &
-- JACOB H. FRIES
ECONOMICS 101 - The Future
& lt;span class= "dropcap " & A & lt;/span & ll this talk of recession and the shrinking dollar is a huge bummer -- are things really that bad?
Digging deep into the American economy is a bit like getting a body scan -- your doctor will find something, no matter how healthy you might feel. As we found out after 9/11, the American economy is an impressively resilient force, but now we are seeing the rogue viruses, atrophied muscles and over-stressed organs of our collective tissue.
Still, despite the poor choices we have made via our leaders and despite the things that are truly out of our control, we have the most productive, educated workforce in the world. We have the resources, manufactured and natural, to command the world's attention as a trading partner. And we still have an innovative business ethic and a democratic ideal that serve as the world's role models. Now, new leadership is coming that will likely have to grapple with these issues in a more responsible and economically sound manner.
To play out that medical analogy a bit more, sometimes it takes a heart attack to wake the patient up to the fact that he needs to change his unhealthy lifestyle. (TSM)