"The further backward you look the further forward you can see." - Winston Churchill
There are two trends driving regional economic development in the short and near term:
Slowing business investment and job growth due to a slowing national economy and FUD, or fear, uncertainty and doubt.
A return of foreign direct investment as a driver of regional business growth.
The slowing of the national economy that is affecting regional economic performance should not be surprising. The national economic recovery is more than six years old. Business expansion has been strong due to both the growth of the global economy and the strength of domestic consumption. While global growth remains robust, domestic consumption is slowing due to the commodity price increases (e.g. gas) and the credit crunch precipitated by the subprime implosion.
Residential real estate is the poster child for the slowdown, but it is affecting all sectors. A continuation of the hot housing market was not possible or rational and had to slow. I remember seeing the edge of the bubble developing two years ago at a Christmas party in Portland. A stranger who ran a snack delivery route was describing how he and two buddies pooled the reservation fee for a new condo in the Pearl District. They expected to flip it in four months for a handsome profit on their investment. Given the length of the housing boom, the investment probably worked for this group. But it clearly has not worked for all as the rate of appreciation in the regional market has stalled (or fallen) and inventory and days-on-market metrics moved to more rational rates. We have been through this cycle before, the last in the early 1990s.
I am not one who projects any great long-term economic effect from the subprime issue. The market is merely working off the excesses brought on by poor credit decisions by individuals and those who lent to them. True, it has cost the region jobs.
Columbia River Economic Development Council client Millennium Financial, a loan originator, closed its doors in spring 2007, laying off 150 just two months after announcing an acquisition that would have increased employment by 150. Other local mortgage brokers have downsized or closed. The rate of growth of construction employment has flattened with commercial construction growing while residential had decreased. Housing and housing-industry-related employment will recover once the excesses from our latest binge have been rung from the market.
The real impact on the regional economy from the subprime debacle is FUD, fear, uncertainty and doubt. As businesses become increasingly concerned about the impact of credit policies and impacts to the overall economy, they in turn delay capital investments and expansions that result in job creation. The stock market reflects this nervousness, as do retail sales.
Roots in 2006
The CREDC started to see investment delays by our clients in late 2006 that continued into 2007. Several decisions have been delayed into the first quarter of 2008 while companies evaluate the trajectory of the economy. This was the same experience earlier this decade. Investment and job creation will strengthen when confidence in the economy returns.
Foreign direct investment, or FDI, changed the face of the economy of Southwest Washington during the 1980s and early 1990s. Investments by Sharp Microelectronics, SEH America, WaferTech, Kyocera, Matsushita Kotobuki and others transformed the Clark County research, development and manufacturing landscape. Similar investments elsewhere in the metro area had the same impact.
There are several drivers for the return of FDI.
First is the continued attractiveness of the United States in terms of talent and markets. Despite some very public hand-wringing, we remain the world's largest economy (read market) and our technical and entrepreneurial talent is nonpareil.
The recent SolarWorld expansion in Hillsboro, Ore., is an example of a global leader in solar energy gaining access to the U.S. market by localizing production in a region with the skilled manufacturing work force to meet their aggressive expansion plans.
Opportunities
I believe there are opportunities to attract FDI in specific clusters where we have regional strengths. These include software, microelectronics, semiconductors, renewable energy and professional services. Firms from Japan, Taiwan, Korea, Germany and France offer the best opportunity for expansions given the presence of existing FDI and business relationships. The weakness of the dollar also supports FDI. I am sanguine about the near-term opportunity of Chinese investment. Despite the phenomenal growth of the Chinese economy, Chinese business enterprises have burgeoning export and domestic markets and a nascent history with FDI. That will change over time, but Chinese FDI will be the exception and not the rule.
Despite some negative influences, I remain optimistic about the economic opportunities in 2008. That is because we have been here before and our long-term economic performance has been stellar.
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