Variables in our fiscal crisis

National and state economic climate

“The credit squeeze has hurt Washington’s economy and revenue collections. Relative to the nation, our downturn will be modest — Washington’s economy has lagged the U.S. into the downturn, and will lead it in the recovery. However, the impact on state revenues will be far more severe than warranted by the depth or duration of our downturn, because this is a consumer-led recession. Faced with an uncertain job market, little access to credit, and declining household net worth, consumer confidence has plummeted. Taxable activity in automotive and construction related sectors has dropped off sharply. Consumer spending has to recover, for state revenues to recover.”

Dr. Arun Raha, Executive Director, Washington Economic and Revenue Forecast Council

  • Declining state revenue. The March revenue forecast for Washington state government shows projected General Fund revenue down a combined $552 million for the remainder of the 2007-09 biennium and the next two-year budget period. This was after reductions of $1.9 billion November and 2.3 billion in February. The budget shortfall is over $9 billion; that’s about 27 percent of the state’s general fund operating budget. Washington state is not alone. Nearly every other state is in or facing deficits in the coming budget cycle.

  • Stagnating consumer spending. Consumer credit figures for the month of February confirm that households are being cautious with borrowing and spending. The use of revolving credit (credit cards) declined at an annual pace of 9.7 percent, while the use of non-revolving credit (auto loans etc.) grew at a meager 0.2 percent annual rate. Overall consumer credit (revolving + non-revolving) fell at a 3.5 percent annual rate.

  • In the 4th quarter of 2008, the share of seriously delinquent loans (more than 90 days overdue or in foreclosure) had risen to 6.3 percent of all loans outstanding. In contrast, in in 2006, the share was just 1.8  percent of all loans outstanding. However, according to the Mortgage Bankers Association, Washington ranks 46th out of 50 states and the District of Columbia in seriously delinquent loans with a rate of 3.0 percent.

  • Rising national unemployment rate. The nation’s unemployment rate rose to 8.5 percent in March and was 3.4 percentage points above a year ago. This is the highest jobless rate since November 1983. The unemployment rate in Washington State rose to 9.2 percent in March, the highest since May of 1984.

  • Personal income growth in Washington state, which exceeded national levels in 2006 and 2007, slowed considerably in the second quarter of 2008 as the housing and construction slump hit the state.

  • Deflation. With prices declining for oil and other commodities, and retailers offering major discounts, worries about inflation have subsided. Now the concern is “deflation”- or falling prices. While lower prices are a help to consumers, if they fall too fast, companies could be put out of business and wages could drop.