Bill Virgin: Being ‘OK’ may feel great for this economy

We normally do our “state of the economy” check-in columns every six months, at midyear and year’s end, just to get a somewhat regular sense of where we’ve been, where we are and where we’re headed.

But with Boeing making a little news last week, and China continuing to be the modern equivalent of Winston Churchill’s assessment of the Soviet Union, “a riddle, wrapped in a mystery, inside an enigma,” and that whole presidential-election nonsense in which the candidates occasionally take time out from insults and threats to talk economics, it might be time to do a quarterly review of how we’re doing.

The verdict: Don’t hit the panic button — yet. But a little wariness, if not nervousness, is certainly understandable.

News reports and company confirmations from last week indicated that Boeing Commercial Airplanes plans to slice thousands of jobs through attrition, voluntary layoffs and, if necessary, involuntary layoffs. In keeping with earlier warnings, the latest round of reductions could hit managerial ranks even harder than the hourly workforce.

Boeing says it needs to reduce its ranks to cut costs to remain competitive with Airbus, and we could spill considerable ink discussing what’s going on within Boeing and the commercial aerospace sector. The issues include, just to fuel your wariness if you need more tinder, discussion of what happens to order backlogs should the global economy slide deeply into recession.

For now, let’s focus on the external economic implications of Boeing’s downsizing, because they are considerable, especially locally.

Boeing’s commercial airplane operations (in all locations) had 82,310 employees as of February. The company’s total for Washington state was 77,947 as of Feb. 25. While there may be some representation of other Boeing units within that statewide total, it’s safe to guess that the majority of those employees in the statewide total are in commercial airplanes, where the cuts are targeted.

The tally for Washington is down from 80,241 in February 2015. The state’s economy has operated with fewer Boeing jobs — in February 2010 the company employed just 72,177 in the state, and in post-9/11 2002 the company was down to as few as 61,000.

But it has also operated with a lot more — topping 87,000 in 2012, and actually hitting 104,000 in June 1998.

Losing multiple thousands of decently compensated jobs takes a lot of money out of an economy. Granted, some of those who leave Boeing will do so on a retirement or severance check, and others will go to jobs elsewhere. The net effect, however, will be to reduce the money sloshing around the region that supports other jobs, households and businesses.

That’s not a good thing given Boeing’s size and impact on the regional economy, and the fact that the aerospace sector was one of the few positives during the recession, keeping it from being worse for the Puget Sound region than it was. If you’re thinking that the non-Boeing portion of aerospace will take up the slack, not so fast. Those suppliers and vendors are under pressure from Boeing to cut costs too, and they’re scrutinizing their own budgets to see how they can meet the objectives of increasing production without increasing expenses such as labor.

Thus we confront a question that’s been around as long as we’ve had a Boeing to worry about: If not aerospace, what else have we got?

There’s always tech, but that’s more of a Seattle/Eastside phenomenon. That slice of the Puget Sound region lives economically in a bubble much like the giant bubbles Amazon is building at its South Lake Union complex. Bubbles can burst, as the tech sector well knows from painful experience, and while the industry insists this time is different, even if it is the impact for the broader region is muted.

Construction? Much of that is tech-driven at the moment, although some big public-works projects such as those funded by the gas-tax increase will prop up the sector. Ag? That’s more an Eastern Washington thing, and it’s been having its own issues lately due to the strong dollar hurting exports.

Which brings us to China, whose influence is felt in ag, trade, manufacturing, even real estate prices. How the Chinese deal with slower economic growth has big implications, most of them negative, for us.

That’s not a cheery view, and it’s decidedly less perky than the economic-outlook column that ran in late December, which wasn’t exactly full of unicorns and rainbows to start with. What’s changed is that aerospace, identified in that earlier column as being the most reliable of the sectors that eased the region through the recession, looks less so. That column said “OK” would be a “quite attractive” outcome for 2016 given what the economy was facing. Now, just a few months into 2016, “OK” is starting to look “really attractive” as a possible outcome — but more difficult to achieve.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

This story was originally published April 2, 2016 at 7:28 AM with the headline "Bill Virgin: Being ‘OK’ may feel great for this economy."