DISCOVERY LEADS TO RECOVERY

2009-2010 Report

Pierce County Economic Index ¦ 1

PCEI Forecasters
Bruce D. Mann, Ph.D.
Professor of Economics
University of Puget Sound
Bruce D. Mann, Ph.D., has been a professor of
economics at the University of Puget Sound
since 1975. Dr. Mann came to the Tacoma area from
Indiana University where he received both his master’s
and doctorate degrees in economics. He completed
his undergraduate work at Antioch College in Yellow
Springs, Ohio.
One of Dr. Mann’s particular areas of teaching
interest and research deals with the operations of local
economies. He has published research related to the
impacts of local government subsidies to businesses,
financing for housing and rent control issues.
Dr. Mann has been active in local community
affairs as a consultant for the City of Tacoma, Pierce
County government and numerous civic groups and
associations. He has been a member of the Puget
Sound Regional Council advisory group on long range
forecasting and a board member of the Upper Tacoma
Renaissance Association.
Credits
Publisher: David Graybill
Project Manager: Gary Brackett
Graphic Designer: Christina Kitchens
Photography: Chip Van Gilder, Philip Palermo, Port of Tacoma and Chamber Staff
Printer: J & D Printing
©Copyright 2009 Tacoma-Pierce County Chamber. All rights reserved.
2 ¦ Pierce County Economic Index
Douglas E. Goodman, Ph.D.
Professor of Economics
University of Puget Sound
Douglas E. Goodman, Ph.D., has been a professor
of economics at the University of Puget Sound since
1977. He came from the University of Illinois where
he received his master’s and doctorate degrees.
Dr. Goodman’s teaching responsibilites focus on
monetary economics and econometrics.
His research interests are in the areas of financial
markets and institutions, personal finance,
macroeconomics and applied econometrics and
forecasting. In addition to these activities, Dr.
Goodman has been active in consulting for both
public and private groups.
In 2007 he was awarded a Burlington Northern
Curriculum Development Grant to devise a new
course called “Economic Data and Analysis”. This
applied course is designed to promote understanding
of economic statistics.
Printed on environmentally
responsible managed forest
resources
Methodology labor sectors of the economy, as well as local income.

The Pierce County Economic Index (PCEI) is unique
to Pierce County and an exceptional business tool
rarely duplicated in other communities. The forecast
is constructed from more than 25 local, regional and
national data sets.
The model developed for the Pierce County Economic
Index is reconfigured and recalibrated each year to take
advantage of new information, data and conditions. In
addition to the statistical method, the forecast includes
judgmental factors.
These factors include extensive analysis of the year’s
local economic events, a review of the prior forecasts
and consideration of national and international
activity. The combination of the statistical and the
judgmental approaches allows each year’s forecast to
capture past performances as well as a forward-looking
method to present an understanding of current
conditions and likely short-term future outcomes.
The PCEI itself is used to forecast the overall
economic condition for the county. The statistical
model is also used to forecast activity in the retail and
This procedure has proved to be very reliable
and has generated forecasts that have been statistically
accurate. The data sets were chosen for their tested
relevance, timely availability and consistency of
reporting. Authors of the PCEI, Drs. Bruce Mann and
Douglas Goodman, professors of economics at the
University of Puget Sound (UPS), present the forecast
in a general conference session.
In addition to the PCEI, Drs. Mann and Goodman also
estimate a local Housing Index. This Index measures
the amount of sales activity for single-family homes
(detached and condominium) in Pierce County.
Data on sales and listings are the primary data sources,
but the model itself is based on the particular historical
structure of the single-family sales activity in the local area.
Because of the lag in publication of resource economic
data, each PCEI Report forecasts for a period covering
the last two quarters of the current year (2009) and the
full calendar year ahead (2010).

Table of Contents
Executive Summary 4-5
Pierce County Economic Index 6-7
Retail Sales Activity 8-9
Labor Activity & Unemployment 10-12
Personal Income 12-13
Housing and Real Estate 14-15
Port of Tacoma 16-17
Data Tables 18-19
Special Thanks 20
PCEI Sponsors 21
Industry Publications 22
Save the Date 23
Pierce County Economic Index ¦ 3
Executive Summary
The Pierce County economy did withstood some of
the negative effects from the national recession for
much of 2008. But growth did slow. Pierce County’s
slower growth was significantly better than the
national experience principally due to Pierce County’s
military and health care sectors.
The slowing Pierce County economy in late 2008
indicated more problems on the horizon. The Pierce
County slowdown became a recession in 2009.
Economic activity in Pierce County will continue
downward, but more moderately as this year comes to
a close. The recession in Pierce County will continue
through the first half of 2010. It will come to an end
during the third quarter of the year. The current
recession then, will be the deepest, longest and most
severe in the past forty years.
A recovering U.S. economy combined with expansionary
fiscal and monetary programs will help the local
economy. Most of Pierce County’s trading partners
will be growing again, helping the trade sector. But a
stronger dollar will offset some of those gains.
Single-family housing activity will improve during the
year, as mortgage markets recover and credit becomes
available. However, commercial and industrial real
estate activity will be depressed for most of 2010. The
local health care and military sectors will continue to
fuel economic activity, but at a slower rate.
The benefits of the national recovery, increased trade
flows, some new military construction spending and
a recovering housing market will be enough to offset
the negative effects of Russell Investments moving
out of the area. The recovery will strengthen in the
4 ¦ Pierce County Economic Index
fourth quarter of 2010, with the PCEI increasing at an
annualized rate of 2.6% providing a solid foundation
for the Pierce County economy as 2010 comes to a
close. A feature unique to this recession has been the
drop in non-labor market income for Pierce County
residents. This significant source of county residents’
personal income will be stagnant in 2010.
The annual average 2009 unemployment rate in Pierce
County will be 9.3%. This year-over-year increase will
be the largest on record. A difference in this recession
is that usually the county rate exceeds the state and
national rates and moves up more rapidly.
In the 2009-10 recession the Pierce County unemployment
rate started below the national and state rates, and then
moved up more slowly than they did. Employment
conditions in Pierce County remained stronger for
longer than they have been in the past.
After nearly two years of declining jobs in Pierce
County, the economy will begin to generate new
employment opportunities in the second half of 2010.
Job growth will begin in the third quarter; this growth
rate will almost double to 1% in the fourth quarter.
The turnaround in the second half of the year, though,
will not offset the job losses in the first half. The net
job loss in 2010 will mark the third consecutive annual
decline in Pierce County.
All three retail sales drivers (income, confidence and
credit) became worse during the current recession.
It is no surprise that retail spending growth in Pierce
County turned negative, and that spending fell below
last year’s forecast. For 2009, retail spending in Pierce
County will drop by 7.5%, a loss of $415 million
dollars from 2008. When adjusted for inflation, real
retail sales in 2009 will be down by about 7.5%. For
2010, dollar retail volume will exceed 2009 by 2%. A
total of $5.2 billion will be spent in the county during
2010 – up by $100 million from 2009.
For 2010, container volume will decline an additional
15.4% from 2009 levels, due solely to international
trade declines. Domestic volume will be flat. The Port’s
breakbulk and auto lines of business are projected to
have little or a very low 1% growth in 2010.

As the Pierce County recovery takes hold, total

personal income will begin increasing in 2010. Total
personal income in Pierce County will increase by
5.7% in 2010, a gain of $1.5 billion. However, much
of the added purchasing power will be eroded by
inflation. In 2010 income growth will exceed the
population increase, so per capita income will rise. The
average resident’s income will move up to $34,700, a
gain of 3.7% from 2009.

The First Time Home Buyer tax credit, a recovering

local economy, attractive financing options and
bargain-priced units will continue to push up single-
family housing activity in 2010. For this forecast
horizon, the multi-family housing market will remain
fairly flat.

The commercial real estate outlook for this forecast

horizon is mixed. The most significant challenge will
be competition from the north. Local owners will have
to be willing to make concessions.

Both in absolute terms and relative to the region, the

industrial real estate market in Pierce County was
strong through 2009. However, new demand is likely to
be soft at best, during this forecast horizon.

2010 will see a further decline in volume for the Port’s

international container business, as the major carrier
and service string adjustments made in 2009 will now
be felt over an entire year.

Pierce County Economic Index ¦ 5

Pierce County Economic Index
From 2004 through 2008 the Pierce County economy grew
at an average rate of 2.7% per year. Employment increases
provided jobs and income for the expanding labor force.
The local economy operated near full employment with an
unemployment rate near 5% each year. Change came to
the Pacific Northwest and Pierce County late in 2008 with
the national recession of collapsing financial and housing
markets and a world-wide economic slowdown.
United States economic activity sputtered early in 2007,
worsened during the year, and was officially in a recession
by the fourth quarter. U.S. economic conditions worsened
throughout 2008 as housing and financial markets virtually
collapsed. Credit markets froze, building almost came to a
complete stand-still and significant amounts of household
wealth evaporated. Increasing oil and gas prices, worsening
consumer fears and declining business investments
weakened the national economy more.
The U.S. recession crossed international borders. Global
supply chains link production processes and labor markets.
Internationally diversified portfolios meant U.S. stock
and bond losses became global with the impacts quickly
moving to Europe and Asia. Normal trade flows fell,
further weakening economies. By late 2008, almost
70% of the world’s economies were experiencing
economic slowdowns.
By late 2008 as forecast last year, the effects of the national
and international economic weakness hit the local
economy. On an annualized basis, the Pierce County
economy sputtered and then moved into a downturn
during the second half of 2008. The Pierce County
Economic Index (PCEI), a measure of overall economic
activity in the Pierce County economy, moved up at an
annualized rate of only 0.25% in the third quarter,
and then declined at an annualized rate of 2.3% in the
fourth quarter.
6 ¦ Pierce County Economic Index
Pierce County’s industrial structure moderated some
of the effects of the national downturn. The health care
and military sectors, two of the largest local economic
engines, remained fairly strong throughout all of 2008.
Local health care employment continued to increase,
research facilities maintained their workloads and
providers expanded capacity with major new investments
in Puyallup and Gig Harbor. Military transformation and
activity in Iraq and Afghanistan kept military payrolls,
infrastructure spending and personnel levels high at Fort
Lewis, McChord Air Base and Madigan Army Medical
Center. Finally, Pierce County’s financial sector avoided
serious problems for most of 2008.
The slowing Pierce County economy in late 2008
indicated more problems on the horizon. One sign of
weakness was that in the fourth quarter of 2008 Pierce
County activity declined by 0.5% from the third quarter
when activity normally increases due to the holidays’
seasonal effects. Another sign was the drop in retail
spending– a third-to-fourth quarter drop in dollar
retail sales had not happened in the past thirty years.
By the fourth quarter of 2008, the unemployment rate
crossed the six percent level, a rate not experienced
since late 2004. All of these indicators suggested a
Pierce County recession.
The Pierce County economy withstood some of the
negative effects from the national recession for much of
2008. But growth did slow. In 2008 the PCEI moved up
by only 1.9% – short of last year’s forecast rate of 2.8%.
Pierce County’s slower growth though, was significantly
better than the national experience, as real gross domestic
product moved up by only 0.4% in 2008. Pierce County
outperformed the nation principally due to its military
and health care sectors.
The Pierce County slowdown became a recession in 2009,
as forecast last year. The PCEI declined at an annualized
rate of nearly 4.5% in both the first and the second
quarters, a steeper decline than forecast last year. The
recession deepened in the third quarter, with the PCEI
moving down at an annualized 5.5%. Economic activity
in Pierce County will continue downward, but more
moderately, as the year comes to a close. In the fourth
quarter 2009, the PCEI will drop by 2.5%. For the year as
a whole, the PCEI will be down 3.1% over 2008. This will
be the largest year-over-year drop recorded by the PCEI,
a clear indication of the depth and severity of the current
economic recession.
The Pierce County economy moved into the recession
later and more slowly than the national economy did.
An expanding health care sector with increased spending
at local military installations cushioned the downturn.
Few significant problems at most Pierce County financial
institutions kept the national financial collapse from
having major impacts locally. Finally, commercial and
industrial real estate activity remained healthy, generating
income and employment, even as residential housing
market activity came to a virtual standstill.
The recession in Pierce County will continue through the
first half of 2010. It will come to an end during the third
quarter of the year. A recovering U.S. economy combined
with expansionary fiscal and monetary programs will
help the local economy. Most of Pierce County’s trading
partners will be growing again, helping the trade sector.
But, a stronger dollar will offset some of those gains.
The net effect for trade activity will be slower declines
than in 2009. Single-family housing activity will improve
during the year, as mortgage markets recover and credit
becomes available. However, commercial and industrial
real estate activity will be depressed for most of 2010. The
local health care and military sectors will continue to fuel
economic activity, but at a slower rate.
On an annualized basis the PCEI will fall by about 3.25%
percent in first quarter of 2010 primarily due to the slow
national recovery and reduced international trade flows.
This will hurt local manufacturing and port-related
economic activity, two significant sectors of the Pierce
County economy. Health care spending will continue to
provide some support, but even this sector will slow – due
in part to uncertainty from concerns over health care
reform. In addition, much of the current local investment
in facilities will be completed by mid-2010. Not much new
health care investment is on the horizon. The winding
down of activity in Iraq will keep expenditures at local
military installations in check. The recovery will start
in the third quarter of 2010. The PCEI will move up at
an annualized rate of 1.3%. The benefits of the national
recovery, increased trade flows, some new military
construction spending and a recovering housing market
will be enough to offset the negative effects of Russell
Investments moving out of the area.
The recovery will strengthen in the fourth quarter of
2010. The PCEI will increase at an annualized rate of
2.6%. Access to mortgage financing, the impacts of federal
stimulus programs, increasingly optimistic consumers
and new employment opportunities will provide a solid
foundation for the Pierce County economy as 2010 comes
to a close.
For the year as a whole though, the drag of the first half of
the year will more than outweigh the second-half recovery.
The PCEI will show a very small year-over-year decline
of 0.2%. For the first time since at least the mid-1970s
the PCEI will register back-to-back annual declines. The
current recession then, will be the deepest, longest and
most severe in the past forty years.
A feature unique to this recession has been the drop in
non-labor market income for Pierce County residents.
Almost 30% of the area’s personal income comes from
non-labor sources. These include social security payments,
retirement fund pay-outs, veterans’ benefits, welfare
payments, dividends and interest income. With no
inflation adjustments (cost of living increases), low interest
rates and reduced asset values, income from these sources
will either decline slightly or at best, remain constant
during this forecast horizon. This means a significant
source of county residents’ personal income will be
stagnant in 2010.
Finally, employment opportunities in the county will
shrink in many industries. Labor income growth in 2009
was weak and will remain slow in 2010. Some government
assistance (especially extended unemployment insurance)
will help, but not enough to offset the sluggish growth of
labor earnings. Stagnant non-labor and labor incomes will
keep consumer spending, an important contributor to
Pierce County’s economy, in check through most of this
forecast horizon.
Pierce County Economic Index ¦ 7
Retail Sales Activity
The three most important drivers of retail spending
are income, confidence and credit. All three of these
drivers deteriorated during the current recession. It is
no surprise then, that retail spending growth in Pierce
County turned negative; and that spending fell below
last year’s forecast.
Retail market conditions eroded sharply in 2008.
Home equity borrowing came to a halt. Households
lost homes to foreclosure. New home sales declined.
Increased mortgage payments drained income from
retail activity.
The local recession cost people jobs and income. Higher
gasoline prices redirected consumer spending to the gas
pump and away from other local area retailers.
The national recession and falling consumer
confidence kept tourists and visitors away from the
Pacific Northwest and Pierce County.
As forecast last year, the second half of 2008 retail
spending fell by an annualized rate of 9% in the third
quarter and then by 15% in the fourth. Holiday season
spending in 2008 was the weakest since 2003.
For 2008 as a whole, retail spending declined by
8.6%, the largest annual dollar decline on record.
This drop meant $525 million fewer dollars for
county merchants.
Although inflation was not a serious problem in 2008,
some of the dollar retail volume was due to higher
prices. When the effects of price increases are removed,
real retail activity (the volume of merchandise moving
out of stores) dropped by 12% in 2008.
Retail spending activity in 2009 continued declining
although at a more moderate pace. In the first half of
8 ¦ Pierce County Economic Index
2009, dollar spending at Pierce County’s retail stores
fell in each quarter by 11% from 2008 levels.
A smaller drop in spending occurred in the third
quarter, with dollar volume down 7% from the 2008
level. (To keep data comparable, third and fourth
quarters 2009 data were adjusted for the “cash for
clunkers” program.)
By the fourth quarter of 2009, retail spending will start
increasing – but by only 0.5% compared to the holiday
season in 2008. The 2009 fourth quarter turnaround, while
not spectacular, will be good news for local merchants.
However, the 2009 holiday shopping season will still
be weak. While dollar volume will be up in the fourth
quarter, real (inflation adjusted) sales will be off by
about 1.6% from the 2008 holiday season.
For 2009, retail spending in Pierce County will drop by
7.5%, a loss of $415 million dollars from 2008. When
adjusted for inflation, real retail sales in 2009 will be
down by about 7.5%.
An improved economy, a stronger housing market and
low interest rates will increase retail spending in Pierce
County throughout 2010.
On an annualized basis, retail spending will rise by
0.1% in the first quarter of the year, by 3% in the
second, by 2.5% in the third, and by 2% in the
fourth quarter.
For 2010, dollar retail volume will exceed 2009 by 2%.
A total of $5.2 billion that will be spent in the county
during 2010 – up by $100 million from 2009 – putting
local merchants back up to where they were in 2004.
Inflation will more than wipe out the dollar gains in
2010. Real retail activity, the amount of merchandise
leaving stores, will decline by 1.8% in 2010 compared
to 2009.

The real (inflation adjusted sales) volume of activity in

each quarter of 2010 will be below the corresponding
quarter of 2009 with real sales in the 2010 holiday
season down 1.5% from 2009.

Pierce County Economic Index ¦ 9

 Unemployment
Labor Activity and Unemp y
Unemployment
From 2004 through 2007 the Pierce County labor market
operated at full employment as job growth kept pace
with the number of new workers entering the labor
market. The measured amount of unemployment (in
the 4% to 5% range) was due to a normal amount of
turnover in a fully employed economy. But labor market
conditions took a decided turn for the worse during 2008.
A recession means rising unemployment. No surprise
then, that Pierce County’s unemployment rate has
been moving steadily upward since 2008. Early in 2008,
Pierce County’s unemployment rate started increasing.
This was in line with last year’s forecast, although the
increases were smaller than expected. During the first
half of 2008 the unemployment rate in Pierce County
moved from 4.5% to 5.3%.
While the national unemployment rate moved up
sharply (to 6.1%) during the third quarter of 2008, in
Pierce County the unemployment rate moved up more
modestly to 5.7%. As 2008 ended the national, state and
local unemployment rates started moving up rapidly. In
the U.S. the rate reached 6.9% in the fourth quarter. At
the state level unemployment measured 6.2%. And in
Pierce County the fourth quarter rate reached 6.4%.
Unemployment continued to increase in the first half of
2009. During the first quarter the national rate hit 8.1%,
and in Washington State unemployment reached 9.1%.
In Pierce County the unemployment rate increased to
9.4% in the first quarter of 2009. A nearly one-half point
increase moved the local unemployment rate to 9.8% in
the second quarter, above the state rate of 9.1% and the
national level of 8.1%. Pierce County’s unemployment
rate eased to 9.0% in the third quarter of 2009. It will
remain at this rate as 2009 ends. The annual average
2009 unemployment rate in Pierce County will be 9.3%,
10 ¦ Pierce County Economic Index
up three-and-one-half points from the 2008 annual
rate. This year-over-year increase will be the largest on
record. Some of the increase will be due to job losses.
Equally important will be the increase in local labor
supply as the number of workers increase.
The recession will keep unemployment high in 2010. In
the first quarter the local unemployment rate will reach
9.75% and then will begin to decline. The county’s
rate will drop by about one-half point in the second
quarter to 9.3% and then move to 9.0% in the third
quarter. The Pierce County rate will drop to 8.8% in
the fourth quarter. The annual average unemployment
rate in 2010 of 9.2% will be just about unchanged from
2009 – but, in 2010 the unemployment rate trend will
improve. A difference in this recession is that usually
the county rate exceeds the state and national rates
and moves up more rapidly. In the 2009-10 recession
the Pierce County unemployment rate started below
the national and state rates, and then moved up more
slowly than they did. Employment conditions in Pierce
County remained stronger for longer than they have in
the past. In part this was due to the locally strong health
care and business service sectors, and in part by the
stability of military and government employment.
Employment and Jobs
From 2004 through 2007 the Pierce County economy
created new jobs at an average rate of 3% per year.
Early signs of the recession’s impacts became evident
late in 2007 as the rate of job growth slowed to 2.7%
in the fourth quarter. Job growth, already slowing,
slowed more in the first quarter of 2008, when new
employment opportunities increased by only 1.3%.
On an annualized basis, job growth came to a virtual
halt during the second quarter of the year. In the
third and fourth quarters of 2008 the number of jobs
in Pierce County declined at an annual rate of 0.4%
in the third quarter and then by 1.9% in the fourth
quarter. Businesses became cautious in hiring, expansion
plans were put on hold and housing construction
jobs disappeared. For the year as a whole employment
growth was stagnant, with the number of local jobs
declining by 0.2% over 2007.
The rate of job loss accelerated in the first three quarters
of 2009, with employment falling on an annualized
basis by 3% in the first quarter, 4.2% in the second and
then by 4.5% in the third quarter of the year. Jobs will
continue disappearing during the fourth quarter, but at
a slower rate. In the fourth quarter 2009 employment
will drop at an annualized rate of 3.7%. These four
consecutive quarterly declines will match the length of
the mid-1980s recession experience, but the number of
jobs lost in 2009 will exceed the mid-1980s jobs loss.
On an annual basis, the number of jobs in Pierce County
will decline by 3.9% in 2009, about 11,000 fewer jobs
than in 2008. This will be the largest one-year drop in
employment on record both in percentage and absolute
amounts. Employment losses will continue into the first
half of 2010. In the first quarter 2010, the annualized
rate of decline will be 2.2% -- 6,000 fewer jobs than in
the first quarter 2009. A more moderate decline of 0.3%
(on an annualized basis) will occur in the second quarter
of the year, eliminating almost 1,000 employment
opportunities compared to the year-earlier level. After
nearly two years of declining jobs in Pierce County,
the economy will begin to generate new employment
opportunities in the second half of 2010. Job growth will
begin in the third quarter, with an annualized rate of
increase of just about 0.5%. This growth rate will almost
double to 1% in the fourth quarter 2010.
working age population. However, two additional
factors led to continued labor force growth. The
national financial market collapse eroded the savings
of many people. To rebuilt savings, some individuals
stayed in the labor force longer and others re-entered
the labor force from retirement. And, as workers lost
jobs, other persons in those households entered the
labor force to replace lost income.
In 2007, Pierce County’s labor force grew at the fairly
steady rate of 3.45% during the year. Since the effects
of the recession had not yet taken hold, enough jobs
were created to keep the unemployment rate in check.
The low unemployment rate and job opportunities
attracted new workers here. When the Pierce County
economy began weakening in 2008, the rate of in-
migration slowed. As forecast last year, civilian labor
force growth eased from about 3% in the first quarter
to just 2% by the fourth quarter of 2008. For the year
as a whole, the local labor force increase was 2.75%,
adding 10,500 more job seekers in Pierce County. Even
with the recession taking hold in the local economy, the
rate of labor force growth did not slow in 2009. As new
entrants moved into the labor force, either as migrants
or replacement earners, the labor force grew by nearly
3% in the first quarter.

The turnaround in the second half 2010 though, will

not offset the job losses in the first half. For the entire
year employment will be down by 0.25% (about 650
fewer jobs). The job loss in 2010 will mark the third
consecutive annual decline in Pierce County.

Labor Force
In addition to losing jobs, a larger county labor force
also pushed up the unemployment rate. As forecast last
year, Pierce County’s labor force continued growing
at fairly substantial rates in 2007 and 2008. In part,
this resulted from a normal increase in the size of the
Pierce County Economic Index ¦ 11
Labor and Personal Income
Labor Activity and Unemployment (Cond’t)
The rate of increase of new job seekers continued at an
annualized rate of 2.6% during the second, third and
fourth quarters. For 2009, 10,700 new workers, a gain
of 2.7%, entered Pierce County’s labor markets looking
for work.
The number of workers in local labor markets will
continue increasing in 2010, but at a slower pace. Each
quarter of 2010 will see about 2% more people searching
for work in Pierce County.
The recession will discourage some in-migration, and
the higher unemployment rate will keep some local
residents out of the labor force. Younger potential
workers in particular, will opt to stay in school rather
than look for work. Other unemployed workers will
become discouraged and withdraw from the labor force.
In 2010, the net increase in new job seekers in Pierce
County will be 8,300.
One result of a recession then, is more people in labor
markets and fewer jobs, increasing the unemployment
rate. The combined jobs loss in Pierce County for 2009
and 2010 will be 11,500.
The number of people looking for work will increase by
19,000, some of whom will find employment outside the
county.
If one-third of the new job seekers are able to find
employment outside the county, that will leave about
5,000 more people unemployed by the end of 2010.
On average in 2010 there will be about 40,000 to 45,000
unemployed workers in Pierce County – almost twice as
many as in 2007.
12 ¦ Pierce County Economic Index
Personal Income
From 1977 through 2007 Pierce County households’
total personal income increased at an average annual
rate of 8.2%. When inflationary effects are removed,
the gains were 4.1% annually from 1987 to 2007 and
3.6% in the 2000 to 2007 period.
When measured on a per person basis, the personal
income gains have also been solid. Per capita
personal income for Pierce County residents
increased at an average 6.2% rate per year between
1977 and 2007.
When the effects of inflation are stripped away, real
per capita personal income gained 2% annually
between 1977 and 2007.
In 2008, personal income growth also slowed to just
over 4.1% from 2007. Adjusted for inflation, the
growth in real total personal income was only 0.3%
in 2008.
Much of the slower income growth in 2008 was due
to a reduction in non-labor incomes, the effects of
the financial market collapses and low interest rates.
The Pierce County recession in 2009 means fewer
jobs, lower wages and reduced work-hours, pushing
down total personal income.
In 2009, total personal income in Pierce County will
fall by 2.8% -- a loss of $800 million dollars. Most
of the decline will be the result of reduced labor
market earnings.
Non-labor incomes will rebound somewhat due
to extended unemployment benefits, improved
financial conditions and improved pension pay-outs.
Inflationary effects will be minimal in 2009, so the drop
in real total personal income will also be about 2.7%.
Population growth from more military families (with
substantial non-monetary compensation) and other in-
migrants in 2009 will lower Pierce County’s per
capita income.
The average income of a county resident will drop to
$33,700 in 2009 from the 2008 level of $35,000, a decline
of 3.9% for the year. When the effect of inflation is
removed, the drop in 2009 real per capita income will
also be 3.9%.
As the Pierce County recovery takes hold, total
personal income will begin increasing in 2010. Total
personal income in Pierce County will increase by
5.7% in 2010, a gain of $1.5 billion.
However, much of the added purchasing power will
be eroded by inflation, as real total personal income
will increase by only 1.7%, about half of the county’s
long-term average experience. In 2010, income
growth will exceed the population increase, so per
capita income will rise. The average resident’s income
will move up to $34,700, a gain of 3.7% from 2009.
However, inflation will wipe out the gain, as real per
capita income will drop by 0.8% from 2009.
The typical Pierce County resident’s purchasing
power - real income, in 2010 will be back to its
2005 level.
Pierce County Economic Index ¦ 13
Housing and Real Estate
Single-Family
The decline in activity in the Pierce County single-
family housing market that began in late 2006 became
worse in 2007 and continued in 2008. Foreclosures
depressed activity and pushed prices down. The number
of sellers with distressed loans further weakened market
conditions. Lenders were reluctant to offer mortgages
to any but the most credit-worthy borrowers. In each
quarter of 2008 single-family sales activity fell below
the corresponding level in 2007. Activity (as measured
by the Housing Index; determined by sales activity, not
value) for 2008 dropped by 18%, the most severe annual
decline on record.
A slower single-family sales market continued for most
of 2009, although the declines in activity moderated
as the year progressed. The Housing Index for Pierce
County dropped by 14% in the first quarter. It then fell
by 7% in the second quarter, steeper than anticipated
due to the soft local economy and continuing problems
in mortgage markets.
By summer 2009, financing for home buyers was more
accessible. Foreclosure rates were moderating. Some
buyers were taking advantage of attractively priced units.
And, some sellers were desperate to make a deal. Of
course, federal programs – the takeover of Freddie Mac
and Fannie Mae and the anticipated housing tax credits
– provided strength. Improvement in the sense of a less
steep drop in activity, continued in the third quarter as
the Housing Index moved down by just 3%.
Single-family sales activity will start increasing in the
fourth quarter of 2009. The Housing Index will move
up by 4% over fourth quarter 2008. Improved credit
conditions will bring buyers back to the market. Vacant
units will be priced to attract buyers. The First Time
Home Buyer tax credit will stimulate demand.
14 ¦ Pierce County Economic Index
This fourth quarter turnaround however, will not be
enough to offset the prior nine months of decline, and
the Housing Index will be down by 5.5% for the year,
but still better than 2008. The tax credit, a recovering
local economy, attractive financing options and bargain
priced units will continue to push up single-family
housing activity in 2010. The first half of the year will
be the strongest with the Housing Index advancing by
11% in the first quarter and then 13% in the second.
As the tax credit disappears and with fewer bargains on
the market, sales will moderate in the second half of
the year. The Housing Index will increase by 10% in the
third quarter and then by 6% in the fourth quarter of
2010. For the year, the Housing Index will move up
by 9.8%.
Multi-Family
Thanks to Tom Cain, Apartment Insights
for assistance.
With troop levels increasing, the economy faltering,
and the single-family housing market collapsing, the
demand for apartments and multi-family housing
in Pierce County remained strong through 2008. By
summer, the multi-family market was in its strongest
position ever. Rental income provided good returns
for owners, vacancy rates were below 5% and rent
concession offers were minimal.
A year later, by the summer 2009, market conditions
started to deteriorate. Troop deployments meant fewer
families remained in the area. Vacancy rates in markets
near Pierce County’s major installations increased to the
8% range, concessions became more common and rents
stopped increasing. Hardest hit were areas in Spanaway,
Lakewood, University Place and South Tacoma. Pierce
County’s improving job and employment outlook and
the stricter requirements for financing home purchases
will provide some help to the apartment market in
2010. But an improved single-family housing market,
high troop deployment rates, and no projected increase
in the size of the military will soften demand for multi-
family units. Financing for new construction will be
very difficult to put together, as lenders will remain
cautious about financing new commercial real estate
projects. So on the supply side, not much new product
will come to the market in 2009 or 2010.
For this forecast horizon then, the multi-family housing
market will remain fairly flat. Demand for units will
increase modestly, perhaps enough to keep the vacancy
rate below 10%. Owners will have difficulty raising
rents, so investment returns will continue at current
levels at best.
Commercial
The Pierce County commercial real estate market
remained fairly strong through much of 2009. Vacancy
rates remained basically unchanged through the third
quarter of the year. From 2008 through mid-2009,
counter to the regional pattern, net absorption of
rentable space remained positive in Pierce County and
rental rates held firm.
The economic downturn will be the major factor
weakening the regional office and commercial space
market. By the third quarter of 2009, the regional
vacancy rate will reach 12%, with most sub-markets
experiencing negative absorption rates. As 2009
closes, the biggest drag will be the significant amount
of space available in Seattle and south King County.
The competition to fill this space will be intense
through 2010.
The commercial real estate outlook for this forecast
horizon is mixed. The most significant challenge will
be competition from the north. The choice of Russell
Investments to move from downtown Tacoma to Seattle
is just the most visible result. With Seattle vacancy rates
possibly reaching 20%, landlords there will be willing to
deal for tenants. Options for quality class-A space will
be alluring. Some available space in Tacoma’s central
business district will provide competition to King
County. The space vacated by Russell Investments will
be attractive, as will the new Pacific Plaza development.
However, local owners will have to be willing to
make concessions.
The most difficult part of the commercial market will
be retail. This sector has been hard hit by the recession.
With cautious lenders and weak demand, rents and
vacancy will suffer throughout 2010.
Industrial
Both in absolute terms and relative to the region, the
industrial real estate market in Pierce County was strong
through 2009. Warehouse and distribution facilities
continued to drive the market. IKEA, Whirlpool, Green
Mountain Coffee and others increased demand for
space. Developers responded and provided facilities
quickly. However, new demand is likely to be soft at best,
during this forecast horizon.
Industrial space speculative building in Pierce County
came to halt in late 2009; and there are no signs that
this will change during 2010. Currently there is enough
vacant space to meet the needs for most medium and
smaller users. In addition, significant amounts of space
remain available in the Kent Valley, a close competitor
for the Pierce County market. Finally, financing will
be available only to developers who have strong pre-
construction leases in place.
For the first time in five years, the outlook for the
industrial real estate market in Pierce County is not
bright. Over this forecast horizon vacancy rates will
move up, rent soften and regional competition will
intensify. Since much of the space in Pierce County is
fairly new and flexibly designed, the county should be
able to compete favorably and retain current tenants.
Pierce County Economic Index ¦ 15
Port of Tacoma
Thanks to Josh Adams, Business & Economic
Analyst, Port of Tacoma
Shipping Industry
Much like the U.S. and global economy in general, the
shipping industry also took a major hit in 2009. Over
the first half of the year cargo volumes dropped off the
cliff, with everyone in the supply chain feeling the pain.
After reducing rates to unsustainably low levels in an
effort to maintain market share and volumes, 17 of the
major public shipping companies lost a combined $6
billion U.S. dollars in the first six months of 2009.
Subsequently, over the last several months carriers
have begun instituting rate hikes in an effort to cover
operating costs and stay afloat until the economy turns
around and growth in cargo resumes.
Further complicating problems in the shipping industry
is the issue of overcapacity. The excess supply of space
on vessels has drastically exceeded the supply of goods
to fill that space.
Making this situation even worse is a glut of new ship
orders placed in the bountiful years but scheduled to
come online over the next several years. It is estimated
that it may take up to five years for the supply and
demand of vessel space to return to equilibrium.
Similar to the general economy, consumer confidence
is the key to a real return to growth for the shipping
industry. Until consumer confidence and personal
consumption returns, the shipping industry is going to
continue to experience weak volumes and growth rates.
Total container import volumes from Asia to the U.S. are
16 ¦ Pierce County Economic Index
projected to decline 16.4% to 12.7 million TEU’s (20-
foot Equivalent Units, a standard for container size) in
2009, their lowest number in five years. 2010 and 2011
will be years of very moderate growth, ranging from 1
to 2 percent.
Cargo Activity
Over the course of 2009, the Port of Tacoma directly
felt the effects of a shipping industry scrambling to cut
costs and capacity by whatever means necessary.
In June, one of Tacoma’s major container lines left
the Port, to be followed two months later by another
major carrier cutting one of its three service strings
calling in Tacoma.
The overall impact of these cuts, along with the impact
of the general economic recession, will contribute to
a projected decline in container volumes of 19.7% for
the year.
While the Port’s domestic business, which serves the
Alaska and Hawaii markets and accounts for about
30% of the Port’s total container volume, has proven
more resilient than its international services, it too felt
the effects of the recession in 2009.
By year-end, the Port’s two premium domestic carriers
will see a decline in their domestic trade volume of
9.0%, as the effects of the recession have caught up
with the Port’s Alaska and Hawaii trades.
The Port’s breakbulk business was down significantly
in 2009. Breakbulk, which consists of items too large
or awkward for efficient shipment in containers, is
composed largely by military and project cargo.
The military moved less cargo than expected, and
project cargo declined as the global recession caused
credit to tighten and project money to dry up. Overall,
breakbulk will reach approximately 96,000 short tons,
a drop of 19.2%.

Auto imports for 2009 are projected at 110,000 autos,

down 31% from 2008, as weak consumer demand has
stymied the movement of autos through dealerships
for much of the year.

2010 will see further decline in volume for the Port’s

international containers business, as the major carrier
and service string adjustments made in 2009 will now
be felt over an entire year.

For 2010, container volume will decline an additional

15.4% from 2009 levels, due solely to international
trade declines. Domestic volume will be flat. The Port’s
breakbulk and auto lines of business are projected to
have little or a very low 1% growth in 2010.

Pierce County Economic Index ¦ 17

Data Tables

2 0 0 5 - 2 0 1 0 P C E I 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
2005 Qtr 1 179.135 257.27 6.67 1228.794 213.52
2005 Qtr 2 181.105 263.47 6.03 1363.428 220.88
2005 Qtr 3 182.291 265.23 5.67 1464.911 230.83
2005 Qtr 4 183.618 269.40 5.13 1511.460 237.71
2006 Qtr 1 184.927 266.57 5.47 1332.298 236.50
2006 Qtr 2 186.851 272.63 5.20 1481.413 237.22
2006 Qtr 3 187.892 273.77 5.10 1544.780 231.89
2006 Qtr 4 188.755 278.07 4.57 1596.354 227.54
2007 Qtr 1 190.035 275.67 5.03 1411.882 226.25
2007 Qtr 2 191.116 281.73 4.60 1518.671 220.37
2007 Qtr 3 192.269 282.13 4.67 1553.893 207.81
2007 Qtr 4 193.894 285.50 4.50 1601.366 197.51
2008 Qtr 1 194.763 279.33 5.33 1340.916 188.29
2008 Qtr 2 195.876 282.40 5.30 1434.081 174.21
2008 Qtr 3 196.006 281.10 5.67 1411.258 170.44
2008 Qtr 4 194.881 280.00 6.43 1373.646 164.83
2009 Qtr 1 192.680 270.73 9.40 1182.046 160.54
2009 Qtr 2 190.438 270.47 9.83 1266.311 161.55
2009 Forecast Qtr 3 187.750 268.40 9.00 1316.523 165.54
2009 Forecast Qtr 4 186.572 269.66 8.94 1380.310 171.38
2010 Forecast Qtr 1 186.394 264.84 9.74 1183.556 178.37
2010 Forecast Qtr 2 188.327 269.59 9.27 1303.305 182.59
2010 Forecast Qtr 3 190.195 269.92 9.00 1349.734 181.44
2010 Forecast Qtr 4 191.413 272.31 8.83 1410.032 181.44

Forecast

18 ¦ Pierce County Economic Index

The Pierce County Economic Index (PCEI) is
sponsored by First Citizens Bank, Puget Sound Energy,
Regence BlueShield and Tacoma Public Utilities.
The Tacoma-Pierce County Chamber presents the
PCEI Report annually at the Horizons Economic
Forecast Event.
TEU’s = 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.
ST= The short ton is a unit of weight equal to 2,000 lb.
(around 907.18474 kg).

Key and Legend
Key local economic variables for Pierce County,
Washington as of November, 2009.
PCEI Quarterly Data figures from First Quarter 2005
through Second Quarter 2009 are actual data. PCEI
forecast of quarterly figures are from Third Quarter
2009 through Fourth Quarter 2010.
Annual Data are actual data from 2001 to 2007 for
Total Personal Income. The forecast of annual figures
for Total Personal Income are from 2008 through 2010.
Annual Data are actual data from 2005 through 2008
for the Port of Tacoma Containerized Cargo. The
forecast of annual figures for the Port of Tacoma
Containerized Cargo is from 2009-2014.

*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 66.38% above the
1990 average of the number of homes for sale or sold.

Pierce County Annual Data

Total Personal Income Percent Port of Tacoma Containerized Percent
Year Year
2005$ (x1000) Change Cargo (TEU’s) Change
20,277,460 4.43% 2001 2005 2,067 14.96%
20,767,268 2.42% 2002 2006 2,067 0.00%
21,055,729 1.39% 2003 2007 1,959 -5.22%
21,612,519 2.64% 2004 2008 1,861 -5.00%
22,430,317 3.78% 2005 2009 1,496 -19.61%
23,675,428 5.55% 2006 2010 1,266 -15.37%
24,604,952 3.93% 2007 2011 1,279 1.03%
24,684,849 0.32% 2008 2012 1,304 1.95%
24,018,358 -2.70% 2009 2013 1,331 2.07%
24,431,474 1.72% 2010 2014 1371 3.01%

Forecast Estimate

Pierce County Economic Index ¦ 19

Special Thanks
thanks
The 2009 Pierce County Economic Index (PCEI) Report
was presented to the community at the Horizons 2010
economic forecast event.
Complementing the conference were presentations
by several individuals and a sharing of expertise and
information by others.
Dr. John Mitchell
M & H Consultants
A special thanks to the event’s keynote speaker, Dr. John
Mitchell, M & H Economic Consultants. John has been
making economic presentations on the nation and the
region for 40 years.
John is a member of the Western Blue Chip Forecast
Panel. He received his B.A. degree from Williams College
and his M.S. and Ph.D. degrees from the University
of Oregon.
He is a fellow of the College of Arts and Sciences at
the University of Oregon and a member of Phi Beta
Kappa. He was a professor of economics at Boise State
University for 13 years, before joining U.S. Bancorp in
July of 1983.
He was Chief Economist of U.S. Bancorp until July of
1998 and served as Economist Western Region for
US Bank until July of 2007.
He wrote U.S. Bancorp’s regional publications including
the Update, The Business Barometer, Northwest Portrait,
US Territory, Oregon Tidbits and was a columnist for
Oregon Business Magazine.
He currently writes Sterling Bank’s Economic Newsletter.
He currently speaks to conventions and business
20 ¦ Pierce County Economic Index
groups around the nation and contributes to several
newsletters. He was a business analyst for KPTV
in Portland.
Dr. Bruce Mann
Dr. Douglas Goodman
University of Puget Sound
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.
Jonathan Hensley
Regence BlueShield
Jonathan Hensley, President, Regence BlueShield
served as this year’s emcee, a rotational duty among
the sponsors.
At Regence BlueShield, Jonathan is responsible for
performance of increasing memberships, provider
contracting, government and community relations.
Jonathan served as vice president of Regence
BlueShield from 2004-2007. Prior to being
named in his current position, he was CEO of
UnitedHealthcare’s Pacific Region.
Jonathan is recognized as an established leader in the
health care field, with 25 years of sales and industry
leadership experience.
He holds a bachelor’s degree in political science from
the University of North Carolina at Greensboro.
PCEI Sponsors
An active member of the community, Jonathan serves
on the board of the Seattle-King County chapter of
the American Red Cross. He chairs the American Red
Cross’ development committee.
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.

Contact Gary Brackett, garyb@tacomachamber.org or for

a phone consultation at 253.627.2175 about a customized
Manufacturers Directory for your market area.

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 customers’ 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 or for a

phone consultation at 253.627.2175 about site location
analysis and market research.

22 ¦ Pierce County Economic Index

Save the Date

Plan to join us!

Thursday, December 16, 2010
Greater Tacoma Convention & Trade Center

1 2 . 1 6 . 2 0 1 0
Pierce County Economic Index ¦ 23
 950 Pacific Avenue, Suite 300 PO Box 1933
Tacoma, WA 98401
p | 253.627.2175 f | 253.597.7305
tacomachamber.org
24 ¦ Pierce County Economic Index