Imminent decisions will shape our two key companies in ’14
The most important markers for the Seattle area’s economic outlook in 2014 are the impending choices that will be made at Microsoft and Boeing.
Special to The Seattle Times
We don’t need no stinkin’ crystal ball or fancy economic models to know the most important markers for 2014.
The first will come on Jan. 3, when members of the International Association of Machinists Local 751 take a vote on Boeing’s modified contract extension.
Likely at stake: Whether the 777X will be built in the Puget Sound region.
Union members decisively rejected the deal in the first vote. Boeing has since sweetened it but has been unwilling to back away from replacing pensions with a retirement savings plan. This is anathema to many Machinists.
Washington has offered Boeing nearly $9 billion in tax breaks to win the program.
But it may not be enough if the company’s leaders want to rid themselves of what they see as a troublesome union. Other states have rushed to offer their own incentives and willing workforces.
The second big event is a new chief executive for Microsoft, whom directors have promised to name early in 2014.
Here, forecasting is more complicated. It is no secret that some big investors would like to see an imperial CEO take radical steps to raise the stock price, from major layoffs to breaking up the company.
The latter step, especially, is unlikely as long as Bill Gates is chairman and the largest individual shareholder.
Still, the new boss will bring change, with large repercussions radiating out of Redmond.
In the nearly six years that I have been writing this column here, I can’t remember a New Year when two clear and imminent events carried so much importance.
Boeing and Microsoft are foundations of two of the region’s world-class economic clusters.
Both are major employers providing high-wage jobs at a time when such crown jewels are only memories in many American cities.
Boeing is already moving jobs, including important research positions, out of Washington state.
As of Thanksgiving, the company still had nearly 82,500 jobs here, not counting thousands more working at suppliers.
That is an enormous concentration of good jobs. For comparison’s sake, consider that all vehicle manufacturing in the United States (not including parts) employed 159,600 as of 2011, according to an analysis by the Center for Automotive Research.
Trends such as advanced robots and globalization mean we may never see such levels of manufacturing employment by one company here again. But a no vote on the 777X and Boeing’s choice of another state to build the new airplane and its advanced wing would mark a tragic inflection point.
A shrinking Boeing would mean fewer high-skilled, high-paid jobs and a much smaller export footprint for Washington.
It’s a nice fantasy to imagine Airbus or some other manufacturer would take up the slack, but that seems unlikely.
Microsoft is dogged by its “lost decade” and the consequences of being late to search, smartphones and tablets.
It makes vast sums of money, but the company’s missteps get more attention. And its stock has been largely stagnant. The pressure on a new CEO will be substantial.
While Amazon gets all the attention and Seattle is a hot startup hub, the importance of Microsoft remains considerable. It employed nearly 43,000 in the area as of Sept. 30 and gives the region the clout of a first-class technology center.
How Microsoft’s new leader moves ahead will be one of the big stories of 2014.
Some other markers to watch:
• The push for a $15 minimum wage in Seattle. While SeaTac will provide a small, inconclusive experiment of the higher wage, its enactment in Seattle would be more difficult politically and riskier from an economic standpoint.
Riskier is in hurting the hiring of the least-employable people and local retailers.
The motivation behind backers of a higher wage is powerful. Inequality is at levels not seen since the Gilded Age. Most jobs created since the recession have been lower-wage. Corporate profits are at records, but most employees’ incomes are stagnant.
Will Seattle make history or will a compromise to a lower wage increase come out of the city’s famous death-by-process? I predict the latter.
• Recovery, finally? A meme in the media has the national economy finally picking up escape velocity from the Great Recession. This remains to be seen.
The revised 4.1 percent growth rate in gross domestic product seen in the third quarter would mean just such a breakout. But only if it is sustained, which is unlikely.
One big head wind is continued government austerity, something unprecedented in the aftermath of modern recessions.
What is undeniable is not that everyone has recovered: In November, 7.9 million new jobs were needed nationally to make up for the damage of the downturn. The employment-to-population ratio of workers age 25 to 54 was about the same as at the end of the recession, 75.9 percent.
The consensus of real GDP growth forecasts for 2014 is about 2.5 percent, hardly enough to create the demand to fix the jobs crisis, much less see an improvement in most wages.
• The bull market. Aside from rising corporate profits and a healing real-estate sector, the booming stock market is the only other consistent sign of recovery.
Unfortunately, 80 percent of stock-market wealth is held by the richest 10 percent of Americans.
So while the market has room for additional growth, it will do little to address inequality or the stagnation of the larger economy.
One critical requirement for Seattle’s health: That investors continue to pay a premium for Amazon’s magic.
• Trade. The Trans-Pacific Partnership, the most ambitious trade agreement in history, is in trouble. But even if it doesn’t pass Congress, world trade may continue to grow.
Two potential sources of trouble in Asian trade are worth watching.
One is China’s economic rebalancing and continued banking troubles. A misstep in Beijing could cause big ripples everywhere.
So could a miscalculation that leads to war — or even more serious tensions — between China and Japan over the disputed Senkaku/Diaoyu islands.
The worst usually doesn’t happen. Usually.
Happy New Year.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest