INDEPENDENT FEASIBILITY REVIEW: A VALUE PROPOSITION

Working at the interface between public and private interest is part of E. D. Hovee’s DNA. Prior to forming a consulting firm, principal Eric Hovee managed public-private initiatives for economic development on behalf of two city agencies – first in Portland OR, then Vancouver WA.

One of the roles that the consulting firm has taken on has been to conduct independent feasibility reviews of development projects and their feasibility – for public sector clients. This blog focuses on major public and private developments in the two leading cities of the Pacific Northwest cities – Portland and Seattle – together with resulting observations and lessons learned.

Portland

In Portland, E. D. Hovee was in at the early conception and then gestation of two public-private redevelopment initiatives that have reshaped and revitalized the Central City – as early forerunners of the move back to the city now reaching across the U.S. Portland’s Pearl District extended downtown to the north, the South Waterfront (SoWa) district expanded the Central City to the south.

Pearl District: The firm’s work in what is now known as the Pearl District started in 1992 with a market/feasibility review – leading to a target of 5,000 new housing units with mixed-use development in what was a declining industrial/warehouse area. And all this at a time when there was virtually no new housing development occurring in the greater Central City area.

Four years later, the City of Portland was presented with its first major redevelopment opportunity – a 41 acre former Burlington Northern railroad yard that had been acquired by private investors. The new owners were set to begin development on about half of the acreage subject to City infrastructure investment – re-introducing the street grid and funding of a new streetcar line to connect the Pearl with downtown.

The City wanted to know: a) whether private Central City development was feasible; and b) under what conditions would there be public as well as private return on investment (ROI). The answer provided by the E. D. Hovee analysis was “it depends.”

A moderate density development of about 40 units per acre appeared to be financially feasible given then-current market conditions – even in the absence of major public infrastructure investment. Getting to the City’s density objective of 80-100 units per acre appeared more challenging, most likely not feasible without public investment. Based on sensitivity analysis involving five different market and public incentive scenarios, the higher density options appeared to be feasible if accompanied by a combination of incentives including street infrastructure, public funding of a Central City streetcar, below market rate financing for 25% of units as affordable, and reduction of residential construction and soft costs.

On paper, these measures supported a pro forma with a rate of return sufficient to attract private investment capital and also provide a healthy return on the public investment. Development proceeded, exceeding both public and private expectations. Portland’s first major mixed-use area captured much more of the market at higher increases in rents and values than anyone thought possible. And the public sector then further raised the ante – most notably with added commitments for park and open space as part of the infrastructure package.

The Pearl (pictured to the left) has woven together adaptive reuse and renovation of older industrial structures layered in with new higher density residential and mixed use construction. SoWa (to the right) has taken urban density to new heights.

South Waterfront: Planning for Portland’s South Waterfront began about the time that Pearl District investments were beginning to materialize on the ground. In 1998, E. D. Hovee completed a market and development capacity analysis for this new urban district. Five years later, in 2003 the firm conducted and independent feasibility review for the City’s development commission to assess the feasibility of developing high-rise apartments just south of Portland’s downtown.

The condo market had been proven in the Pearl District – though SoWa units were projected to come in at yet higher costs – requiring top of market sales pricing. The condo market was also noted as potentially vulnerable to an economic downturn.

Conversely, market rate apartments represented a form of high-rise development for which there was “little Portland metro experience in recent years.” Financial feasibility would need to exceed top of market rents to achieve any reasonable ROI – although upside potential was noted if this district were to capture “market rate rental clientele heretofore not experienced in the Portland metro area.”

The City of Portland was planning major investments in supportive street and utility improvements, riverfront public space, streetcar extension and an aerial tram to the Oregon Health & Science University (OHSU) as the city’s largest employer – funded in large part through tax increment financing (TIF). From the City’s perspective, the major risk identified by E. D. Hovee would be a developer slow down or default – best mitigated by conservative tax increment projections and with phasing of public improvements in synch with development activity and resulting TIF cash flow.  

With a development agreement in hand, the developer began initial phase investments in facilities for OHSU and riverfront condos. The condo market came to an abrupt halt with the 2007 advent of the Great Recession. As in other major metro areas, unit prices plummeted. With post-2010 economic recovery, development activity started back slowly then accelerated – this time led by market rate and affordable apartment units – with supportable rents at new higher levels not previously experienced.

Seattle

In addition to the two Portland master plan projects referenced, E. D. Hovee has conducted numerous additional independent feasibility reviews for a range of development projects both in and outside the Pacific Northwest. But I now skip to two more recent publicly owned Seattle facilities for which feasibility reviews have been completed for the Washington State Department of Commerce in 2018 – expansion of the Washington State Convention Center (WSCC) and a new lease agreement for Safeco Field (now T-Mobile Park) with the Seattle Mariners major league baseball team.

WSCC Expansion: The Washington State Convention Public Facilities District is now underway with an approximate $1.7 billion expansion of the largest convention center in the Pacific Northwest. When completed in 2021, the nearly 1.5 million square foot facility will add 434,000 square feet of new event space – more than doubling the event capacity of the existing WSCC convention facility situated one-half block away.

As a public facilities district, state legislation requires the WSCC to have an independent feasibility study conducted prior to issuance of added indebtedness. In accordance with state statute, the purpose of the independent review is to “examine the potential costs to be incurred by the public facility (facilities) district and the adequacy of revenues or expected revenues to meet these costs.”

This review was conducted by E. D. Hovee in two phases – a 2015 Phase 1 review of land acquisition and a 2018 Phase 2 review addressing build-out and operating feasibility. E.D. Hovee’s report identified and evaluated four risk factors and options for mitigation as might affect WSCC build-out and operating feasibility:

  • Capital cost risks – as the potential for construction delay/cost overruns and uncertainty regarding non-debt related funding during construction

  • Financing & debt repayment risks – related to adequacy of projected lodging revenues as a primary source of debt repayment and capital market requirements

  • Operating budget risks – including the possibility of a short-term operating loss, unbalanced revenue mix, and potential transition from operating surplus to deficit

  • Institutional risks – related to agreements with King County and capacity to fulfill priority WSCC obligations

Base case revenues as projected by WSCC and advisors appear to be more than adequate to cover bonded debt repayment to 2058. As part of the independent review, E. D. Hovee also prepared a stress test scenario to address the question: What might be the financial implications if a sudden and severe downturn similar to the 2007-09 Great Recession and ensuing 2008-10 lodging tax downturn were to be re-experienced?

The conclusion of the review was that: “If there is a financial risk, it likely emerges at the time of the remaining WSCC Addition bond financing planned for 2020. While adverse conditions are currently not expected near term, WSCC could be vulnerable to a potential economic downturn in the 2019-25 time frame ….”

However, even with what might be perceived as unlikely but clearly adverse debt repayment and operating scenarios, there are multiple financial and operating options that could be considered as possible WSCC mitigation measures. In effect, available financial and operating measures should enable the facility and the public facilities district to weather any reasonably conceivable economic storm.

The Washington State Convention Center Addition (pictured to the left as designed by LMN) will effectively double the combined event capacity of this new $1.7 billion investment - planned for opening in 2017. The independent feasibility study prepared for the Safeco Field (now renamed T-Mobile Park) addresses risks and mitigation for the public owner in conjunction with a now executed new 25-year lease in conjunction with major planned capital improvements.

Mariners Lease for T-Mobile Park: The 47,000 seat Safeco Field ballpark was constructed by the Washington State MLB Stadium Public Facilties District from 1997-99 at a cost of $517 million – with funding from general obligation bonds issued by King County and capital contributions from the Mariners Club. The Mariners initial 20-year lease for the stadium expired at the end of 2018 and was proposed to be replaced by a new lease consistent with a Lease Renewal Term Sheet reached in May 2018.

As with the initial lease, the Club would be responsible for 100 percent of ballpark operations and maintenance (O&M) and all capital improvements (CapEx) work – to an applicable standard to be set at the top one-third of all MLB ballparks. Provisions of the new agreement are also intended to provide a source of funding for an estimated $565 million in ballpark and related capital improvements over the next 25 years.

An independent feasibility review by E. D. Hovee identified several potential risk factors to the public facilities district (as ballpark owner) – related to potential variability of King County funding resources, prospective future Club default or termination, market/competitive factors, and risk of becoming a stranded asset if MLB use were to be precluded over an extended period. These risk factors were all addressed with final agreements in place by year-end 2018. Of perhaps greatest significance, the district and the Mariners Club reached a non-relocation agreement that included a schedule of liquidated damages to be paid by the team in the event of future default on the new lease agreement.

Liquidated damages start at close to $505 million, declining each year over the lease term to a figure of $200 million from the 18th to 25th year of the lease. This provision provides greater financial protection to the district in the event of any currently unforeseen event that, if not addressed, could run the risk of the ballpark being vacated by the team in the future and, in effect, becoming a stranded asset.

Concluding Notes

Independent feasibility review of major economic development projects involving significant public expenditure is useful to public agency participants for two primary reasons:

  • Providing a disinterested 3rd party assessment of public sector financial commitments and associated risks,
    together with

  • Identification of reasonable options for getting out of financial trouble in the event that a worst-case scenario materializes – whether short- or long-term

For the private developer or facility operator, the benefits of 3rd party review may not be quite as readily apparent – but no less significant. The major benefit is that all parties know they are entering into a transaction with eyes wide open. Potential problems can be better avoided if identified in advance – saving both taxpayers and investors the public embarrassment if not the financial pain of a deal gone awry.

Different Projects, Distinctive Risks: For the four projects profiled, while each involved multiple risks – one always stood out as most pivotal:

  • For Portland’s Pearl District, the greatest risk was that the market would not be attracted to urban living. By bolstering the public commitment, the development proved to be a home run – enabling both public and private investments to further up the ante for one of the finest urban neighborhoods in America.

  • For Portland’s South Waterfront, the risk was that the market would not step up to the increased prices required for high-rise residential development feasibility. The market did step-up. Then hiccupped – but recovered by switching from condos to apartments in the aftermath of the Great Recession.

  • With the Washington State Convention Center’s expansion, the greatest risk going forward relates to the sustained financial capacity to make good on debt repayment — even in the event of a future replay of the Great Recession. And the answer is – it would take an economic event more severe and longer lasting to jeopardize the facility’s financial viability going forward.   

  • And for the Seattle Mariners and T-Mobile Field, the #1 risk of concern was the potential (not matter how small) that an MLB team might leave the City before the termination of the new 25-year lease – and before repayment of facility improvements. That concern is largely addressed by the agreement for liquidated damages in the event of future default – a provision added to the initially agreed lease terms.

No transaction can address every potentially conceivable event that may or may not occur in the future. However, good deals are those that cover the types of adverse events that have happened before and might reasonably be expected to occur again. Understanding the risks and the solutions in advance lets everyone sleep easier at night. And offers the best prospect for a win-win that withstands the test of time.

California's Central Valley: Guideposts to Economic & Community Vitality

This blog installment provides a comparative analysis of eight strongly agricultural communities in California's Central Valley. The purpose has been to assess successes and challenges - from the perspectives of community and economic vitality. There are differences. What can we learn from their experiences?

The Communities

As shown by the map below, eight cites and their respective counties in the San Joaquin or Central Valley were chosen for analysis. Starting northwest and heading heading southeast, the communities are:

  • Woodland, Yolo County (population 59,000)
  • Stockton, San Joaquin County (310,000)
  • Modesto, Stanislaus County (210,000)
  • Merced, Merced County (83,000)
  • Fresno, Fresno County (526,000)
  • Hanford, Kings County (55,000)
  • Visalia, Tulare County (133,000)
  • Bakersfield, Kern County (378,000)
Map CA Cities & Counties.png

Central Valley cities range in population from 55,000 (Hanford) to over ½ million (Fresno). County-wide populations go from 150,000 (Kings County) to nearly 1 million (Kern County). Note: Population and other data sets are as of 2017.

Across all 8 cities, about 40-55% of the population is Hispanic/Latino. Latino incomes equate to 84% of the incomes for all households in these communities.

As of 2017, median household incomes of these Central Valley communities ranged from less than $43,000 per year (in Fresno) to over $59,000 (Bakersfield). By comparison, the median household income for the entire state of California wassubstantially higher at over $66,000 per year. 

Depending on the community, 43-62% of households own their own home. The highest reported home values are in Bakersfield, the lowest in Merced.

Indicators of Community & Economic Vitality

After an initial review of potential data metrics, the following 11 factors were applied as indicators of community and economic vitality:

  • City population growth rate – with higher growth rates as a key indicator of local vitality
  • County population growth rate – reflecting regional as well as local community growth
  • Median age of population – with younger cohorts offering added workforce opportunities for large and small employers
  • % of adults with bachelor’s degree or better – higher education vital for workforce skills
  • % of Latino adults with bachelor’s degree or better – for better workforce opportunity
  • Median household income – a key indicator of household purchasing power
  • Hispanic % of all household median income – the lower the gap, the better
  • % of families below poverty level – with less poverty evidence of more economic health
  • % white collar jobs – as these jobs tend to pay more and offer greater career mobility
  • % of homes owner occupied – with home ownership important for community participation and building resident equity
  • Median home values – with higher value homes indicative of higher incomes (but also raising potential issues of housing affordability)

Scoring Community Performance

For this analysis, communities were classified as high performing if they met 8 or more of the 11 factors considered. Other communities are noted as mid-tier and lower performing. 

High Performing Communities

Communities scoring the highest for the indicator criteria selected were: 

  • Bakersfield – above average on 10 of 11 factors – all but Hispanic incomes relative to incomes for all households.
  • Visalia – scored above average on 9 factors – all but median age and home valuation.
  • Woodland – above average on 8 factors – all but city growth rate, median age of residents, and proportion of Latino adults with a bachelor’s degree or better.

Mid-Tier & Lower Performing Communities

Characteristics of cities that rated lower with this scoring matrix are briefly summarized as follows: 

  • Fresno – as the largest city in the San Joaquin Valley scored above average on only 4 of 11 factors – young median age, proportions of total and Latino population with bachelor’s degree or better, and % of workers with white collar jobs.
  • Stockton – scoring lowest with only 2 factors indicated as above average – county-wide population growth rate and Hispanic incomes as a % of all household median income.
  • Modesto – noted as above average for 6 of 11 factors – Latino college graduation rates and incomes as a % of all household median income, low proportion of households below poverty level, white collar jobs, proportion of homes owner occupied and with higher home values.
  • Merced – above average on four factors – city and county population growth rates, low median age of residents, and Hispanic incomes as a % of all household median income.
  • Hanford – above average on 5 factors – city population growth, low median age, Latino bachelor’s degrees or better, median household income, and owner-occupied housing.

As the largest and third largest cities in the Central Valley, respectively, Fresno and Stockton demonstrate that historically agricultural cities do not necessarily grow their way into greater economic vitality and opportunity. While relatively large, both communities have experienced sub-par population growth since 2000, have relatively low median household incomes, high proportions of families below poverty level, low homeownership rates and home values.

Observations for the Three High Performers

A more detailed assessment was made for the three high performing communities of Bakersfield, Visalia and Woodland -- involving qualitative as well as quantitative factors. So, what findings can be drawn from a review of the three high performers? 

Five overall observations are noted:

1.   Cities that have prospered economically have done so by extending from and diversifying beyond their initial agriculture strengths – albeit in varied ways. Bakersfield has diversified by taking advantage of opportunities in energy production, diversified manufacturing, federal installations, construction jobs and proximity to the Los Angeles market. While more isolated, Visalia has become the retail, business service and governmental center for the vast agricultural region of Tulare County as well as for non-ag basic industrial firms. In contrast, Woodland has diversified beyond agriculture by taking advantage of proximity to two major interstates (I-5/I-80), the state capitol (Sacramento) and university (UC-Davis).

2.   Where available, economically successful communities have taken advantage of their proximity to larger urban centers and/or regional transportation networks. Of the three case study cities, this is particularly the case for Bakersfield and Woodland – facilitating their rise as major distribution centers serving the LA, San Francisco, Central Valley and broader west coast markets. These two cities also are proximate to the two major airports of the Central Valley and are receiving spillover residential growth from nearby major metro markets.  As a community more removed from major metro areas, Visalia focuses on internal connections to maintain a role as central hub within its vast agricultural hinterland.

3.   Effective, adaptive local governance, infrastructure and cultural amenities should be considered as elements integral to community and economic vitality. All three of the profiled cities have active heritage programs and a local arts/cultural scene with a downtown area focus. Two have minor league baseball teams. Visalia is transitioning from at-large to district-based City Council positions. To more proactively address statewide drought issues, the Water Association of Kern County is embarking on a public-private partnership effort to educate the general public – including extensive use of social media.

4.   Improving adult educational attainment in these traditionally ag-based communities represents a continuing challenge, particularly for the local Hispanic population. Latino education levels continue to lag well behind attainment for the full population of all the California Central Valley comparables considered. This suggests that education alone is not necessarily the best or only community development strategy. Rather, the critical need appears to be to better tie education services from K-12 to college to real-time job opportunities and needs of the local community. 

5.   Similarly, narrowing the income gap between the Anglo and Latino population comes across as a factor relevant to continued economic momentum and prosperity.  For the California high achievers, the common thread appears to be white collar jobs – offering higher pay and opportunities for career advancement. 

STREETCAR & DEVELOPMENT ORIENTED TRANSIT

For more than a decade, EDH has been at the forefront of empirical research in documenting the development experience associated with re-introduction of streetcar systems into a re-urbanized America. In this post, I summarize what has been learned from the longest-running experience to date with a new, fully modern streetcar system - in Portland, Oregon.

The Portland Streetcar Experience

In 2001, Portland opened a new Central City streetcar line extending through the city’s Downtown area (west of the Willamette River). In addition to serving the Downtown and adjoining Pearl District, subsequent extensions have since been made to Portland’s established Northwest District and to the rapidly redevelopment South Waterfront District. The initial Central City line represented the start of the first modern streetcar system built in America.

The Big Burst

In-depth research of the post-streetcar investment and development experience in Portland was conducted in 2005 by E. D. Hovee & Company, LLC.  This retrospective look documented the role streetcar investment has played as a catalyst both to re-orient where development occurs and to facilitate a more urban (or higher density) scale of development

Pace & Location of New Development. As depicted by the following graph, after a streetcar funding plan was put in place in 1997 (with construction subsequently starting in 1999 and opening in 2001), development in proximity to the alignment took off. From 1997-2004, properties situated within one block of streetcar captured 55% of all new development within neighborhoods through which the streetcar line passed.

Pre-streetcar (or prior to the 1997 funding commitment), these same blocks represented less than 20% of the total building inventory in the Downtown/Pearl District area. Taken together, properties situated within three blocks of the Portland Streetcar went from 47% of area development pre-1997 to 75% of post-1997 development with streetcar.

Intensity of Development. There also has been a relationship demonstrated between the density of post-streetcar development and proximity to the streetcar line – with much greater levels of density in development taking place near the line. As shown by this next graph (below), within one block of the streetcar line, post-streetcar development has achieved nearly 90% of the floor area ratios (FARs) the zoning allowed. 

The ratio of development actually experienced in relation to zoned development capacity steadily declines as distance from streetcar increased – to only 43% of allowed FAR for new development situated more than three blocks from streetcar.

Added Notes. Along with streetcar, key factors affecting the location, pace and scale of recent Central City residential, office, retail and mixed-use projects have included public-private development agreements with major property owners and consolidated land ownerships – both of which accompanied the first wave of development activity along the alignment. Also noted was that sites within one block of streetcar experienced a 5.8% rate of average annual increase to the existing building stock (over an 8-year period) with new construction versus a 1.0% annual rate of increase at a distance of more than three blocks from the streetcar alignment.

Updated Experience

Supplemental analysis indicates that transit oriented development (TOD) related to streetcar in Portland is still continuing at a rapid pace, despite the temporary slowdown of investment realized during the Great Recession. Looking over a more extended 16-year period from 1997-2012, the overall pace of development (on the 1997 base) has continued at about the same rate as early-on.

A greater share of new development has shifted to the 2- and 3-block distance in recent years, though projects within a 1-block (200 foot) distance of streetcar still continue to account for the greatest share of development. Development densities also have continued to increase in relation to zoned maximums, with particular gains noted at the 2-3 block distance.

Overall, from 1997-2012, assessed property values within 1-3 blocks of Portland’s streetcar alignment have increased by 330% as compared with a just over 130% increase in valuation across all properties citywide – reflecting an overall streetcar premium that is more than 2.5 times the citywide valuation growth rate. Building improvement valuation gains have been greatest for properties within 1 block of the alignment, with strong land valuation appreciation noted across the full 1-3 block impact area benefited by streetcar.

From TOD to Development Oriented Transit

The Portland experience suggests the value of turning the traditional TOD paradigm on its head. While it is increasingly clear that residential, employment and mixed use development will respond to transit investment, it has become even more apparent that the best transit investments are intentionally located, designed and operated to better facilitate property owner and development capacities. In effect, this public-private feedback loop shifts the emphasis from transit as the sole driver to a development-first paradigm - as the most opportune mechanism to maximize public and private return on investment (ROI). 

 

RETAIL PERFORMANCE - THE PORTLAND LOOK

Sometimes, the best of intentions can go awry. On behalf of a private sector initiated Retail Task Force (RTF), E. D. Hovee & Company, LLC has recently evaluated sub-city shopping patterns in Portland, Oregon. With this analysis, the RTF submitted testimony to City Council members expressing concern that current proposals for commercial areas of the city could render "access to affordable goods and services, including healthy food, more difficult.” 

To understand the rationale for these concerns, in-depth evaluation of current patterns of retail sales and commercial real estate rental space city-wide. Principal findings are that: 

  • Portland is already under-retailed – especially lacking in meeting the day-to-day needs of city residents as for grocery retail.  
  • Disparities are greatest for areas removed from the city core – to the east where commercial space rents are lowest and least adequate to support high costs of new development and to the west where viable retail sites are limited due to topography and proximity to retail in the neighboring suburban jurisdiction of Beaverton. 
  • City of Portland consideration of standards that may be workable in higher density areas with good transit service risk even greater shortfalls in retail availability for residents who already have the poorest access to quality, healthy and affordable retail services. 

Retail Sales & Leakage

Retail sales leakage occurs when sales volumes of retail stores are below what residential demand would support - meaning that in-city residents are traveling outside the city to shop. For this city of over 613,000 residents, an evaluation of 2015 retail sales patterns using nationally recognized Nielsen data showed that: 

  • City-wide retail demand and supply are roughly in balance - with relatively nominal levels of overall sales leakage experienced but with substantial sales leakage for grocery stores as anchors for vital neighborhood business districts.
  • Portland's vibrant Central City is experiencing retail sales levels nearly double what the purchasing power of Central City residents alone would support - not surprising given strong attraction of the downtown and Pearl districts to suburban residents and tourists.
  • Other Portland geographies are substantially under-retailed. Even trendy Inner Area neighborhood districts experience net sales leakage at about 38% of resident demand, including grocery leakage at 15%.
  • Socio-economically challenged Eastern areas (east of about the I-205 beltway) are indicated as having sales leakage approaching 50% of resident demand - with limited grocery options offset by extraordinarily high rates of purchases at less healthy convenience stores. 
  • The topographically challenged Western area with its hilly terrain experiences even higher rates of leakage, with many residents traveling by auto over the hill to the neighboring jurisdiction of Beaverton. 

A surprisingly high 18% of all in-city retail sales occurs at the northern edge of the city near industrial and airport areas - especially for large format stores that can not find appropriate sites closer to residential neighborhoods. 

City Action

In May 2016, the Portland City Council approved amendments as proposed jointly by RTF and planning staff to the updated Comprehensive Plan that better address the widest range of retail needs across the city with policies aimed to:

  • Provide for a competitive supply of retail sites that support the wide range of consumer needs for convenience, affordability, and diversity of goods and services, especially in under-served areas of Portland.
  • Provide adequate land supply to accommodate a full spectrum of grocery stores catering to all socioeconomic groups and providing groceries at all levels of affordability.
  • Consider short-term market conditions and how area development patterns will transition over time when creating new development regulations.

A final City Council vote on the Comprehensive Plan is scheduled for June 2016. As a related implementation activity, the City's Planning and Sustainability Commission is receiving testimony through July 12, 2016 on a Mixed Use Zones Project and zoning code amendments affecting current commercially zoned districts of the City - after which a public hearing will be held on a proposed composite zoning map. 

Pacific Northwest Economic Resurgence

In our last blog (of March 16), the focus was on changes in U.S. employment from when job counts during the Great Recession bottomed out in 2010 to the most recent Q3 2015 data on nationwide jobs and payrolls. With this second phase analysis, the scope narrows to the Pacific Northwest (PNW) states of Washington, Oregon and Idaho. 

Despite severe job losses thru the heart of the recession, the PNW has rebounded smartly in the last 4-5 years since 2010. Employment in the 3-state region has increased by 13%, well above the 9% job increase nationwide. Currently the PNW now has a based of 5.7 million jobs (covered by unemployment insurance), representing about 4% of the 140 million workers across the U.S. 

As with the U.S. analysis, these changes are depicted by the graph below which shows: 

  • Current PNW job base (measured in relative terms by the size of the circles in the graph)
  • Change in # of jobs in the last 4-5 years (horizontal axis)
  • Change in annual wages by job sector (vertical axis)

In several respects, the PNW graph closely mirrors national experience (see graph with earlier blog below). The same sectors that dominate the national landscape also tend to represent the greatest concentrations of employment in the Pacific Northwest. The #1 sector for net job growth nationally and regionally post-recession has been with professional and business services. While a large sector, government represents the only sector of the economy for which net job loss is indicated post-2010. And overall, wages have increased at about the same pace averaging 1.7% per year across both the U.S. and PNW. 

However, clear differences are of note as well:

  • While manufacturing employment has picked up across the U.S., the rate of PNW job growth has been twice that of the nation. Similar outsized performance is noted for the smaller job sectors of natural resources (including agriculture) and information.
  • Average size of PNW firms is increasing more than three times as fast as for the U.S. (not directly shown by the graph).
  • And, most astoundingly, the information sector (ranging from publishing to software) is associated with a nearly $77,000 per year average increase in compensation per year - well above the still remarkable $18,000 per year gain experienced over the last 4-5 years nationwide. State and federal employment data indicates that PNW payroll per information now averages almost $172,000 per year - largely driven by outsize compensation for high performers, particularly in the Seattle metro area. 

Looking ahead, obvious questions relate to sustainability of information sector payrolls as well as to continued resurgence of manufacturing and national resources employment (benefiting rural and smaller metro areas of the PNW recently). Other sectors of importance to continued balanced regional job growth will be construction, professional and business services, education and health, leisure and hospitality, and trade transportation and utilities (TTU) - together with stabilizing government sector employment. 

Post-Recession Winners & Losers - Nationwide

Early Returns Are In ...

With the Great Recession officially ended in 2009, U. S. employment actually bottomed out in 2010 at less than 198 million jobs. by the 3rd quarter of 2015, employment covered by unemployment insurance had worked its way up to nearly 140 million jobs, a 9% gain of 11-12 million jobs nationwide. 

In this first blog, I look at the mix of the changing U.S. job base. In future blogs, the focus will shift to economic and development trends in varied regions of the U.S. - starting with my backyard of the Pacific Northwest. 

As depicted by the graph below, this review of national experience since 2010 focuses on: 

  • Current job base (shown by circles) 
  • Change in # of jobs in the last 4-5 years (horizontal axis)
  • Change in annual wages by job sector (vertical axis)

This overview offers some mixed and perhaps surprising messages about the rapidly changing mix of the U.S. job base.

A few observations to help put all this in perspective:

  • Of nearly 140 million jobs in the U.S. the single largest sector is trade, transportation and utilities (TTU) - with 27 million jobs in a rather unwieldy sector including both retail and wholesale trade as well as transportation and utilities.
  • Next largest are education/health services, government, and professional/business services - at about 20 million jobs each.
  • In the last 4-5 years professional/business services have added the most jobs - up by about 3 million (for 26% of all net job growth nationally). Other major job producers are in TTU, education/health, and leisure/hospitality - each up by 2+ million.
  • Government employment is actually down by nearly 1.5 million, an apparent reflection of the end of stimulus combined with state/local layoffs in (delayed) response to recession related revenue declines.
  • With 12 million employees, domestic manufacturing is ever more streamlined. However, in a major reversal from decades of declining employment, U.S. manufacturers added nearly 900,000 jobs in the last 4-5 years. 
  • Average firm size is generally on the increase - except in the sectors of  information, education/health and government. 
  • The star performer in terms of wage gains is information. The total jobs count is stagnant, but a dramatic shift is taking place as the sector transitions from printing and publishing to software and internet related applications. Average wage increased by over $18,000 per year - a reflection of this shift and the strong market demand for techies
  • For other sectors, wage gains since 2010 have been more modest, up by between $1,000 (in financial services) to $6,800 per year (with construction rebound) as of Q3 2015. Across all sectors combined, wages have increased by less than 2% per year. 

Looking ahead, items of importance to monitor include translation of job growth to also support stronger wage growth, opportunities for high demand sectors like information to start adding net new jobs as the transition from older sub-sectors like printing runs its course, sustainability of domestic manufacturing competitiveness (amid a stronger dollar), and potential government job rebound.