Washington’s economy has not escaped the global downturn. Nevertheless, while the state’s mood is uneasy, there is guarded hope among much of the business community.

First, the bad news: The many Washingtonians who know one or more of the unemployed or are out of work themselves will not be surprised by the state’s official numbers.

As of March, the Employment Security Department estimated 344,069 Washingtonians were unemployed and looking for work. Concurrently, there were also 99,100 fewer jobs statewide in March 2009 than there were one year earlier — a 3.3 percent decrease, less than the national average of 3.5 percent.

In total, Washington’s overall unemployment rate was 9.2 percent in March and is projected to climb higher this summer. The industries with the largest declines were construction (down by 5,000 jobs) and durable goods (down by 2,400 jobs). There was no significant job growth in any major industry or sector.

Overall, Washington lost 20,000 non-agricultural jobs in March.
“We’re in an economy that’s arguably the worst since the Great Depression,” Arun Raha, executive director of the Washington State Economic Research Council told an AWB audience. “It doesn’t mean this is the Great Depression. That’s number one. We’re a long way from number one, but we’re still number two. This is worse than 1774, 1881, 1991 or 2001.”
Raha, in turn, does not believe there is a quick fix for the crisis, which strongly hinges on consumer confidence.

“We’re not going to get back to where we were in fiscal 2008 until fiscal 2011,” Raha predicted.

Now for the good news: Washington has a history of surviving recessions and even a full-fledged depression. Many Washingtonians still remember the Boeing recession of 1971 and the infamous billboard that suggested, “Will the last person leaving Seattle — Turn out the lights.”
Of course, despite the dire nature of the situation, Seattle did not turn into a ghost town. Prosperity ultimately returned to Washington in ways few could have imagined in the 1970s.
What has always come to the rescue of Washington’s economy is the innovative, flexible and forward-thinking nature of its business community.

“We have an advantage because Washington has been a hotbed of innovation, cutting-edge ideas and world-class products,” Gov. Chris Gregoire recently told an audience of business and labor leaders. “Boeing airplanes…Microsoft software…a world-class variety of cherries…Costco…Starbucks…PACCAR’s green trucks. These are global products, folks.”

Innovation and Adaptability
A good place to start when looking at Washington’s economy is Boeing, which employs 76,234 workers in the state. “Fortunately for Boeing, prior to the economy taking a downturn we had a backlog of orders,” said Boeing Spokesman Bernard Choi. According to Choi, the company learned from the 2001 recession, which badly hurt Boeing when air travel took a severe hit following the 9/11 attacks.

“We learned a lesson during that time that time that we can’t put all of our income in one basket,” said Choi. “We made sure to build our build our backlog so it would be very diversified, spreading income out among business models, among airplane models and among regions.”

Nevertheless, Boeing has not come through the current downturn unscathed. In January, the company’s commercial aircraft division announced plans to cut its workforce by 4,500 during 2009. In addition, last fall’s machinists’ strike, which lasted for eight weeks and cost Boeing $100 million per day, did not help the company’s bottom line.

Currently, much of Boeing’s focus is on cutting overhead and remaining efficient and flexible in the face of increased competition — much of it from abroad. “Competition is only going to get more intense even when the economy recovers,” said Choi. “If you let your guard down, others will catch up and pass you, which makes it even more important for Boeing to innovate.”
Innovation, of course, is something for which Boeing is famous. From Bill Boeing’s early 20th century wooden biplanes to the 787 Dreamliner, Boeing has time and again shown its adaptability and versatility. It would be foolish to ever bet against this economic powerhouse.
“We spend billions on research and development,” said Choi. “We are a company that believes in innovation.”

Cost-Cutting Measures
Boeing is the engine that spawned numerous smaller subcontracting companies and continues providing work for them. One such firm is Cascade Gasket and Manufacturing Company, which employs 92 people in Kent. The company produces silicon aerospace seals and gaskets that go around doors or windows or in the interior of Boeing aircraft.

“We’re roughly down by 2 percent from where we were last year,” said Michael Moran, Cascade Gasket’s general manager. “We’ve grown about 35 percent per year since 2004, but we’re seeing a drop back to 2007 rates. We expect to drop to 2006 levels.”

Despite the impact on the company of both the economic downturn and the Boeing strike, Cascade Gasket has gone to great lengths to avoid layoffs. Although the company let some employees go, it hired others as it worked to retool itself and make its operations more efficient through cost-cutting measures, including eliminating overtime.

“We’ve put together a team of senior managers who meet every other week to discuss how we’re going to cut costs 30 percent across the board without laying people off,” said Moran.
Among the measures under consideration is requiring employees to contribute to their medical coverage — something Cascade Gasket has never done in its entire 60 years history.

Depending on how the economy behaves, the company also might consider a pay freeze or reduction, but these measures would only be last resorts in order to avoid layoffs. In spite of these concerns, Moran takes a long term view of the economy and remains optimistic about Cascade Gasket’s future.

“I’ve been in aerospace 20 years,” said Moran. “It’s nothing new. Every recession always seems like it’s the worst, but we always pull back out again.”

Weathering the Downturn
Aerospace is one part of Washington’s even larger manufacturing sector —approximately 23 percent of the state’s economy in 2008, according to the Northwest Industrial Survey. Washington’s manufacturing sector has weathered many downturns and stayed vital while other parts of the country lost their manufacturers because Washington always specialized in capital goods instead of low-cost retail items that can be easily produced in places like China. 
So, how is this vital part of the state’s economy doing now?

“Through September 2008 we were doing great,” said Dave Gering, executive director of the Manufacturing Industrial Council of Seattle. “Then there was the Boeing strike. Now it’s a real mish-mash. There are people who are still busy. There are people who really starting to slow down and absolutely everybody’s nervous.”

Gering is, however, optimistic in the long run due to the strength of Washington’s regional markets in Alaska and in western Canada, including oil rich Alberta — a major purchaser of Washington’s products because it is closer to Seattle than it is to Canada’s manufacturing base in Ontario.

“During the last recession, from 2001 to 2002, we were on the cusp of the biggest manufacturing boom this state has ever seen, and absolutely nobody could see it coming,” said Gering. “Our manufacturers will bounce back because they’re so nimble.”

Cap and Trade Concerns
One of Washington’s oldest industries, dating back long before statehood, in 1889, is timber. More than most other sectors of the economy, this one has directly felt the brunt of housing bubble’s burst due to the heavy use of wood in construction. Layoffs and mill closures are the unfortunate result.

James Warjone, president and CEO of the Port Blakely Company, which owns much timberland in Washington, believes the industry will pull through the recession, but fears that state policies could stifle recovery in his industry. 

“I’m particularly worried about cap and trade,” said Warjone. “That’s just a tax on future business. For the state to be involved in trying to be the first in something like this when we have a national program under way is a misplaced priority at this time.”

Despite these problems, Cindy Mitchell, of the Washington Forest Protection Association, is confident in the timber industry’s long term ability to survive and thrive.

“People have been in this business for 150 years,” said Mitchell. “They can create whatever they want out of trees. Companies like Weyerhaeuser are working on new things like energy products made from trees and even paper cups that act like a Styrofoam cups. Our innovation, our creativity and our American system that rewards innovation is going to get us through this downturn.”

Bullish on the Future
Washington’s high technology industry — including software, biotech, biomedical, and other cutting edge fields — is of much more recent vintage than the timber industry, but since the 1970s, it has expanded to the point where it now employs well over 100,000 people. While Microsoft recently laid off 5,000 people, its actual net loss of jobs was much less since the company also hired 2,000 new people. Meanwhile, Microsoft’s products are still selling while the enormous software industry it helped spawn is alive and well and innovating.

According to Ken Myer, president and CEO of the Washington Technology Industry Association, the only parts of the tech industry that are seriously feeling the pinch of the recession are small firms in need of venture capital, when investors are feeling skittish, and small, Internet-oriented companies that rely on Web advertising, like banner ads at a time when advertising is down.

While Myer acknowledges that larger issues related to the capital market must be worked out before the economy can truly get back on his feet, he is very bullish on the future prospects of Washington’s technology sector.

“I see so many creative and brilliant people who are willing to take risks that I am generally optimistic,” said Myer. “If history is any guide, this state will continue to be propelled forward by innovation whether that research comes out of Boeing, Microsoft, the University of Washington or Washington State University.”

Keeping Costs Down
Retail, a bellwether industry whose number of sales can strongly indicate consumer confidence or lack of confidence, is feeling the effects of the downturn. Nevertheless, although sales are down, large retailers like Costco and Wal-Mart are finding ways to avoid or minimize layoffs.
“We did have about 800 layoffs at our home office in Arkansas,” said Wal-Mart Spokeswoman Jennifer Spall. “None of our stores were affected. We consolidated some regions and some departments.”

Spall believes Wal-Mart, which is holding steady with a little bit of growth during 2008, is doing as well as it is in part because of its low prices, which are saving people money at the time they need it most.

In addition, the company slowed down its rapid expansion from over 300 stores per year to 125. In addition, it reduced its inventory. Together, these proactive measures positioned the company well for the downturn. 

“It’s part of our company’s culture to keep all costs minimal,” said Spall.

Looking Ahead
Washington’s businesses have thus responded in a variety of ways to an economic crisis that hit fast and hard. Some have taken the painful measure of layoffs. Others have avoided it by through cost-cutting and reorganization. Still others have the cushion of backlogged orders to keep their employees working.

All of these businesses, however, do share a common bond of innovation, whether that’s in the products they build and design; the way they find new, inventive ways to keep their employees on the payroll by reducing their costs; the way they keep costs low for their customers; or the way they always keep their eye on the future and its potential opportunities once the current economic storm dissipates. 

“Our kids deserve a Washington filled with the same powerful, exciting innovation our parents gave us,” said Gregoire. “We owe it to them — and we owe it to ourselves — to emerge from this recession stronger than ever.”