SEATTLE — The new wave of job cuts announced by Boeing Co. on Tuesday throws a wet blanket over the holiday cheer here and is likely to cool the city's hot economy.
The cuts come at a time when the state is already reeling from the effects of the Asian crisis. Washington exports of food and wood products to East Asia were down 30% in the first nine months of this year from the year before.
But with high tech and other areas continuing to boom, few economists expect the aerospace giant to pull the regional economy into a tailspin by itself.
"It's gloomy news in the Christmas season," said Chang Mook Sohn, Washington state's chief economist. "But Boeing alone can no longer drag the state's economy into recession."
Boeing said it would make 25,000 job cuts over the next two years in addition to the 28,000 cuts announced earlier this year. Although Boeing won't say exactly where those cuts will occur, it has indicated that 80% to 90% of the overall cuts will be in the Puget Sound area. Since every Boeing job helps create two new jobs, says Washington State Employment Security chief economist Dennis Fusco, the impact of the layoffs will be significant.
The Asian crisis, combined with the Boeing job cuts that Sohn had largely anticipated, led the state economist last month to forecast a decline in job growth to 1.4% next year from about 3.1% this year. Depending on how many of the job cuts occur in Washington, Sohn said the job growth number could drop to as low as 1.2% statewide and unemployment could inch up from 4.7% to 5.5%.
The prognosis could be worse in the Seattle area. In the early 1990s, Seattle wasn't as hard hit by Boeing layoffs as many expected because the national economy was on the rebound. By contrast, many economists predict a national economic slowdown in the coming years.
"If the national economy turns sluggish, I think we [in Seattle] are going to have a recession," said Roberta Pauer, Seattle economist for the Employment Security department.
But the Boeing downturn won't have anything like the effect it had in the 1960s and 1970s when the city was a company town. At its peak in 1968, Boeing accounted for nearly 8% of the region's employment. When Boeing laid off more than half of its work force it plunged Seattle into a deep recession.
Today, Boeing accounts for 3.7% of the state's employment. And while the bulk of the job cuts will come in Seattle, it is also Seattle that has benefited most from explosive growth in the telecommunications, biotech and software sectors.
High-tech companies don't necessarily create a lot of direct jobs, but because many of those jobs pay so well they have the effect of boosting sales of everything from homes to cars to boats.
Sohn calculates that the 13,000 Microsoft employees in the Puget Sound region make about as much as Boeing's 100,000 local employees when stock options are included. Microsoft continues to be a heavy recruiter, with plans to hire 6,000 employees over the next two years.
"Microsoft acts as a shock absorber," Sohn said. "Their [employees'] purchasing power is high."
"You have these wealthy young people spending big money on monster houses," said Paul Sommers, a University of Washington economist. And Sommers notes that four companies have popped up in Seattle to sell luxury multimillion-dollar yachts to the region's high-tech rich.
With Seattle's unemployment rate at just 3%, Fusco expects many of Boeing's laid-off workers will find jobs either in construction or high tech. "The construction industry is crying for laborers," Fusco said.
Vern Holden, a real estate broker who has 200 real estate agents working for him in Snohomish County, the area north of Seattle where Boeing builds its 747 jets, said he too isn't worried.
"We who have lived all our lives in the Northwest know the pattern," Holden said. While some Boeing employees fearful of being laid off will choose to sell their homes as a caution, Holden said, that would only serve to stabilize what is widely seen as an overheated market.
Downtown retailers, who saw a modest slowdown in sales in 1993 when Boeing last announced major layoffs--28,000 overall, including 19,000 in the Seattle area--said they don't expect a noticeable impact this year.
Lucinda Payne, the Downtown Seattle Assn.'s director of marketing, said stores are reporting record sales. "Joe consumer seems to be saying, 'Maybe there's a problem, but my paycheck is still here,' " Payne said.
* WALL STREET REACTS: Boeing's announcement prompted criticism, sent its stock tumbling. A1
* LOCAL IMPACT: Aerospace-intensive South Bay received the news without alarm. C2