CHARTER BANK ECONOMIC BAROMETER SUGGESTS SLOWER PACE OF RECOVERY
Bellevue, WA - October 6, 2004
The Charter Bank Economic Barometer, sponsored by Charter Bank and developed and tracked by Hebert Research, measures the overall health of the local economy using an index that is comprised of a set of key predicting indicators. Changes in the level of the Barometer are based on percentage changes in the predicting variables.
After six consecutive quarterly increases, the 2nd quarter Barometer fell slightly to 100.32 in the 2nd quarter from 100.68 in the 1st quarter. However, it remains higher than in 4th quarter 2003, when the index rose above the 100 mark to 100.08. Keeping recent trends in perspective, the current Barometer results point to a flattening out or peaking in the pace of recovery rather than a return to negative growth that we have witnessed over the past 3 years.
The Barometer is calibrated so that the first quarter of 1992 is equal to 100.00. The year 1992 was selected because it marked the end of the rapid cooling off period following the late '80's boom, and the start of the sideways movement characterizing the economic stagnation of 1992-1994. At its peak, the boom of the late 1980's hit 104.7 in the 1st quarter of 1990, before plunging down to a low of 99.3 in the 2nd quarter of 1993. The 1990's boom peaked at a virtually identical level of 104.4 in 3rd quarter of 1997, which was followed by a gradual cooling off period in the rate of expansion, in 1998-2000. In the 1st quarter of 2001, the Barometer descended past the 100.0 baseline level to 99.7. It then fell to a low of 95.51 in the 3rd Quarter of 2002, and has been steadily improving in 2003.
Because the index is based on percentage growth in key variables rather than the actual values of those variables (which grow over time), the Barometer can provide "apples to apples" comparisons of overall economic health in one period of time versus another.
Changes in the predicting variables
The dip in the 2nd quarter value can be attributed to the fact that the disappointing or negative performance in the stock market, both for local Seattle-based firms and the nation as a whole overshadowed the slight improvements in several other variables. Building permits remained about the same in the index values. The positive factors included the following:
- Job growth showed some improvement, with 8,400 new jobs compared to the same quarter last year (looking at the last 6 month period compared to the same 6 month period a year before, the current growth rate was 0.3% compared to -0.1% for the previous 1st Quarter Barometer update). While some growth is always preferred to no growth, this is hardly a rapid rate of expansion.
- Retail sales increased its growth rate slightly (from 6.3% to 7.1%)
- B&O taxes improved noticeably from a 3% to a 7% growth rate
The impact of bearish stock market performance on the index may come as a surprise; however, stock values are an important statistical predictor of actual economic performance in the Seattle area over the long-term, which the model takes into account. This likely has to do with several factors such as the importance of access to equity financing and the emphasis on shareholder value for public companies, as well as the interrelationships between the struggling national economy and the rebounding local economy.
If the other indicators were more strongly positive, the sluggish stock market would have merely served to "adjust" the positive trend to show a slower rate of climb in the overall index. However, in times where stock values are disappointing and other indicators are only showing slight improvement, the weighting assigned to the stock market can actually tip the scales downward overall. The theory behind this is that CEOs make their investment and expansion decisions within the context of a broader "economic environment" that includes changes in customer demand, global competition, developments within the industry as well as changes in financing and investor confidence reflected by stock market shifts. Periods of increasing equity values can help encourage a more positive long-term outlook among business leaders that in turn leads to more hiring and investment while bear markets can encourage efforts to maintain shareholder value by reducing costs, layoffs and downsizing. Poor national stock performance can also signal weakness within the larger national economy, an important factor behind Seattle's export-driven economy.
Charter Bank Background
Charter Bank, serving Greater King County since 1998, is an award-winning, FDIC community bank for family-owned businesses, high net worth individuals, and professionals with offices in Bellevue, Redmond, Kent, and downtown Seattle. Clients enjoy friendly, professional, and attentive service from experienced account officers with local market knowledge. They also benefit from quick turnaround on important decisions and transactions and 24/7 access to online banking. Employees of Charter Bank are shareholders and are committed to the financial success of the organization. They also engage in a wide variety of community service projects to return value and impact to the communities they serve. For more information, visit www.charterbankwa.com.
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