By Jim Cline
The latest monthly report from the Washington State Economic and Revenue Forecast Council reports on some modest improvements. The Council’s August Report contains the following highlights:
- July U.S. employment grew by 163,000 jobs, the strongest labor market performance since February 2012.
- Second quarter GDP growth slowed to 1.5%.
- The Washington recovery remains moderately positive.
- Washington job growth is on track with the forecast while housing construction is improving faster than expected.
- As anticipated in last month’s report, revenue from the July 11 – August 10, 2012 collection period came in below the June forecast after last month’s high positive variance. Cumulatively, receipts are now much closer to their forecasted value.
- Major General Fund-State revenue collections were $45.0 million (3.8%) lower than the June forecast, but cumulative receipts for the last two months are still $22.0 million (0.9%) higher than the forecast.
The Report also identified rising home prices and stronger housing construction as one positive development:
In another sign the state’s housing market is turning around, the S&P/Case-Shiller seasonally adjusted home price index for Seattle has risen in each of the last three months. As of June 2012, Seattle home prices were above the year-earlier level for the first time since December 2007 Home prices are now up 4.1% from the December trough but still 28.1% below the May 2007 peak.
The Report also discussed an element of inflation that we have recently identified – the continued divergence between the Seattle and National All-Cities CPI numbers:
Seattle headline inflation over the twelve months ending in June 2012 was 2.7% compared to 1.7% for the U.S. city average. Core inflation in Seattle was 3.0% compared for 2.2% for the nation. The main reason for the higher inflation in Seattle is faster growth in shelter costs which are driven primarily by rents. Seattle shelter costs have risen 3.9% over the last year compared to 2.2% for the U.S. city average. The higher shelter cost inflation in Seattle adds 0.7 percentage points to Seattle core inflation which accounts for nearly all the 0.8 percentage point differential in core inflation.
The slight revenue upticks, combined with the improved housing market, could be a sign that we have turned a corner. But these modest improvements in State revenues are not likely to substantially improve the immediate fiscal outlook either for the State or for local governments. The State of Washington as well as many local governments have depleted existing reserves to the point that a stronger and more sustained growth burst will be needed before normalcy returns to the budget process. The strength and sustainability of the State recovery will depend in large part on the overall national recovery.
