Economic shock

Will drops in tourism and consumer spending push Seattle into recession?

LAST TUESDAY’S TERRORIST attacks affected more than just American confidence in national security. They also shook consumer confidence, that elusive, hard-to-define quality that makes us take out mortgages, buy new cars, and go on cruises to Tahiti. In Seattle and around the Puget Sound, where tourism and retail spending have shored up the economy for the past two quarters, local economists had dour predictions for the city’s economic future in the days after the attacks last week.

Seattle economist Dick Conway, co-publisher of the Puget Sound Economic Forecaster, says two things have been holding up the local and national economy. “One is consumer spending. The other is the housing market. An event like the terrorist attacks can have significant effect on consumer confidence, particularly in light of the fact that this could lead us to war,” Conway says. And when consumer confidence goes down, spending plummets. “People don’t spend as much as they did [before], because they’re not feeling that good about it.”

Dwight Dively, Seattle’s chief financial officer, says although it’s still too soon to tell what the long-term effects of the attacks will be on the region’s spending climate, he can see two ways consumer spending might be affected. “One would be if people get very nervous and decide they need to save more and not spend money,” Dively says. “The other one would be if we all spend our time watching television, as people did during the Gulf War, and don’t go out shopping instead.” Both, he says, could have significant effects on Seattle’s economic well-being.

Will people heed the call to go forth and consume? According to Karin Zaugg, communications director of the Greater Seattle Chamber of Commerce, local retailers aren’t letting the terrorist attacks get in the way of business as usual. “I’ve been really impressed by the feeling I’ve gotten locally from businesspeople that we need to keep going forward and certainly acknowledge the shock but say it’s not going to stop our daily lives,” Zaugg says. “I’ve been seeing more and more that there’s a feeling of ‘We’re not going to let this shut down our businesses. That’s what the terrorists would want to happen.'”

Sylvia McDaniel, marketing director for the Downtown Seattle Association, adds that as far as sales and vacancy rates are concerned, downtown Seattle is still “one of the hottest shopping areas in the country. We still have around a two percent vacancy rate downtown. Shopping is big, there’s a healthy, vibrant retail [market], hotels are healthy, and conventions are doing very well.”

But all that may change soon. Chang Mook Sohn, executive director of the state’s Office of the Forecast Council, says he expects the state and local economies will “unavoidably suffer” as a result of the attacks because “consumers have been the only reason in the past 12 months that the U.S. economy was not falling into recession.” Whenever a country is in a “quasi war state,” Sohn says, “then the consumer stops spending.” Despite its relatively strong economy, he adds, Seattle is no exception.

Tourism will likely be another victim of the East Coast attacks. Although Seattle’s economy doesn’t rely as heavily on tourism as cities like Las Vegas or Orlando (hotel employment is lower than in many other areas of the country, suggesting a somewhat sluggish travel market), economists expect that it, too, will suffer from the inevitable drop in air travel and tourist spending. “Not only here but nationally that segment will see a very severe blow, and we wouldn’t be any exception,” Sohn says. And if tourism takes a blow, so will downtown businesses. One casualty of reduced tourist spending, city finance officer Dively says, would be sales tax revenues. “Tourists do spend a lot of money on hotels and on shopping and on restaurants and so on, and that does affect the area economy and revenue the city gets,” Dively says.

Does all the bad news add up to the dreaded R word, as some economists fear? Local consensus seems to be that a recession, if it happens, is still a little while off. “But it does mean that we’re pretty close to it,” economist Conway says. “And it wouldn’t take much to push us over the edge.”