Spokane May Not Recover From Current Recession

100 Highest ranked counties by per capita income

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Not a good head line- what I mean to say is that Spokane may be unlikely to recover from the current recession, like it recovered from recessions before.

As I have presented on this web site, during the past decade, larger businesses in manufacturing, high tech manufacturing, and high tech, have left Spokane and the majority moved the bulk of their operations to cheaper locations over seas.

I hypothesized that Spokane benefited from past recessions because of its low wages/low costs of doing business. When recessions hit, U.S. firms sought ways to lower their own costs, and one way to do that was to move or expand operations to a lower cost city.

However, in the 1980s, U.S. firms began to move their manufacturing operations out of the country, to Mexico, South America and Asia. By the year 2000, U.S. companies were aggressively moving manufacturing and high level engineering design outside the U.S. to an expanding set of destinations, now also including China and India.

When business became globalized, Spokane was no longer the low cost provider. Why move to Spokane when you could save even more by moving to China or firing your software team and hiring programmers in India for 10 cents on the dollar?

One way to see if this hypothesis makes any sense is to look at the change in income in Spokane in relation to past recessions. In the following chart, the yellow line is intended to illustrate the approximate duration of U.S. recessions.  The blue line is Spokane per capita income compared to U.S. per capita income – and this discussion will focus on comparing Spokane to U.S. recessions.


In the 1973-1975 recession, per capita income in Spokane, relative to the U.S. rose rather abruptly from the start of the recession onwards. That’s interesting! Spokane was also the site of the 1974 World’s Fair Exposition, which gave the city prominent exposure.

In the 1980s, pure manufacturing operations were beginning to move offshore  – and incomes in Spokane were dropping relative to the nation. (There could be other reasons for this including how per capita income is calculated or what was going on elsewhere in the U.S. economy.)

In the 1990-1991 recession, Spokane’s per capita income relative to the nation increased again as we came out of the recession.

But by the 2001 recession, Spokane’s per capita income versus the U.S. did not increase – in fact, it went down.

It will be interesting to see what happens to per capita income in 2009 and 2010. Recent published data shows a sharp decline in median income and average income in Spokane – how that compares to the rest of the nation will be of interest.

This data suggests that the hypothesis that Spokane is no longer the low cost provider of manufacturing and that firms will no longer move to Spokane for that capability suggests that Spokane’s recovery could be weaker than in the past.

On the plus side, Spokane’s increasing reliance on government and health care dollars may create  floor on the downside during economic downturns. But that may also limit upside potential – think of the upside from a Boeing, Microsoft or Amazon in town?

While other areas are transitioning to a 21st century innovation economy based on knowledge work, Spokane lacks the necessary comprehensive research universities[1] and the critical mass ecosystem necessary for such clusters to thrive. Instead, Spokane seems to be converting to a government funded community – where between transfer payments, government wages and government funded benefits, 1/3d or more of the local economy GDP appears to be funded by governments. Government, government funded education, and health care are the predominate industries of the present and future.

See the next item from the Spokane Transit Authority – they are predicting that sales tax revenues from 2008 to 2016 will remain below 2007 levels … that’s an 8 year recession in Spokane …

Footnote:

[1] Spokane has several excellent universities. Only WSU-Spokane is officially a research university but is transitioning to primarily focus on health science research as the largest component of what they do there. EWU, Gonzaga and Whitworth are excellent teaching universities and their faculty do conduct some research too – but they do not (for the most part) have doctoral programs with many graduate students working on research projects.

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4 Responses to Spokane May Not Recover From Current Recession

  1. Pingback: Trend of transfer payments into Spokane County « Spokane Economic And Demographic Data

  2. Pingback: How Spokane Promotes Itself « Spokane Economic And Demographic Data

  3. Pingback: Spokane Income Growth Lags the State « Spokane Economic And Demographic Data

  4. Pingback: Spokane County report confirms Spokane benefited from past recessions « Spokane Economic And Demographic Data

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