State's Chief Economist Warns Of Slowdown

Despite the fact that wages have basically been stagnant while daily expenses such as gasoline have been, shall we say, upwardly mobile, the state continues to rake in record revenue.

Chang Mook Sohn, the state's chief economist, said today that his outlook for tax collections for the 2007-09 biennium shows ever increasing revenues that lawmakers use to pay for public schools, colleges, prison and most other state programs.

Despite $3-a-gallon gasoline, consumers are still on a spending spree, Sohn said. That translates into higher sales and real estate tax collections for the state.

However, people are spending more money than they're making, which Sohn finds worrisome because it can't continue indefinitely. Consumers appear to be cashing out some of the value of their homes to fuel their spending, he said.

"Clearly, the consumer is over-extended," Sohn said.

Yes, it is called a negative savings rate. Spending more than is earned is no big deal anymore. Hey, the government does it all the time, so why shouldn't consumers do it, too?

Of course, the fuel for the consumer spending spree (and by extension the state revenue boom) is likely to dry up soon. Surprisingly, Mr. Sohn is very frank about that distinct possibility .

State coffers will swell by more than $959 million over the next three years, erasing a projected state deficit that had worried the governor and legislators.

Still, even with that good news, revenue officials raised warning flags, predicting that a slowdown in the construction industry will drag down the state's economic expansion before long.
...
The state's sizzling construction and housing sector is ripe for a major correction and other factors could hammer the state and national economies in the next few years, said ChangMook Sohn, the state's chief economist.

Sohn said the state isn't expected to dip into a recession, but that signs of a slowdown are on the horizon.

"We can't assume that this hot economy can continue into the next biennium," he told the forecast council, a bipartisan panel of legislative and administration financial experts. "My worry is that even this number could be too optimistic."

His biggest concern is that the state's recent economic and revenue expansion has been heavily dependent on a single sector of the economy, the construction and housing industry.

That sector accounts for about 7 percent of the overall state jobs, but the construction and housing surge in recent years has accounted for 20 percent of the job growth, he said.

That's not sustainable and the number will surely drop back to more usual numbers, he said.

But don't worry, Boeing, Microsoft, Amazon, and Valve will surely pick up every last bit of slack.

(Joseph Turner, Tacoma News Tribune, 06.15.2006)
(David Ammons, Seattle P-I, 06.16.2006)