Spokane Economist Sees Signs of Recession Ahead for Region

Rising credit card debt, persistent inflation, negative wage growth, falling savings rates, and increasing interest rates have local economist Steve Scranton, with Washington Trust Bank advising us there are tougher economic times ahead.

“Are we heading for a recession? I believe the answer is yes,” said Scranton speaking to the Spokane REALTORS Governmental Affairs committee. He points to 9 out of 12 historical indicators that continue to flash “recession.”

One critical issue is the dramatically rising level of credit card debt. From March 2010 through February of 2020, the total credit card debt in the US increased $200-billion. In just the last few years, from March of 2021 to April of 2023, that number has increased another $237-billion.

“In other words, in the last 24 months, we’ve seen more debt on credit cards than in the previous decade,” said Scranton. “The biggest challenge is families facing increases in consumer prices for power, gasoline, food, rent and daycare.”

Making matter worse, Scranton says the average credit card interest rate has risen from an average of 14.75% to 23.64%.

Home Interest Rates

Scranton sees pressure from the Federal Reserve to continue raising it’s prime lending rate, so long as inflation continues to be on the rise. “We need to listen to what the Feds are telling us. Until inflation falls below 2%, rates will continue to rise.” The current inflation rate stands at 4.6%

As for home interest rates, Scranton predicts the average 30-year mortgage rates will land somewhere between 6.25% and 7.25% in the coming months. But Scranton sees real estate playing a key role in moving us into a more stable economy. “Housing drives the economy of Spokane,” said Scranton. “We see real estate as a great multiplier.”

Scranton sees the greatest opportunity for entry level homes in Spokane, where market prices have dried up most of the supply. But the key may lie in regulatory changes, both at the local and state levels.

“Where are the cottage homes?” asks Scranton. “First time homes are gone because of a lack of supply.” He points to studies that show regulatory fees, permits and connection fees now add as much as 30% to the price of a home.

“When housing becomes unaffordable, then your city’s growth stops,” said Scranton.

How to Survive a Recession

In closing, Scranton offers these strategies in dealing with a recession.

• Maintain your marketing efforts
• Be careful about taking on new debt
• Manage your budget
• Don’t assume extra pay (commissions, ) will last
• Ensure you have a solid relationship with your banker
• Focus on your customers and add value versus transactions
• Stick to what made you successful

Scranton writes, “recessions are a natural part of the business cycle and should not be feared if you plan for them. Those who prepare in advance can take advantage of opportunities.”

BY THE NUMBERS

Perspective on Interest Rates

• Fed funds have risen 0.25% to 5.00% since start of 2022
• Prime lending rate has risen from 3.35% to 8.00%
• Average credit card rate has risen from 14.75% to 23.65%

Outlook for Interest Rates Over Next 12 Months

• Fed Funds: up 5.005 – 5.50%
• 30 Year Mortgage Rates: 6.25% – 7.25%
• Credit Card Rates: 23.50% – 24.50%

Inflation

• Federal Reserve’s “core” inflation rate: 6% annual as of 3/31/23
• Consumer’s “core” inflation rate:
  • Food: 8.50%
  • Energy
    • Electricity: 10.2%
    • Natural gas: 5.5%
    • Diesel and Gasoline: 17.4%
  • Rent: 8.8%
  • Childcare: 6.8%

Washington and Spokane Economies

• 1 year jobs growth
  • US: 2.87%
  • Washington: 3.50%
  • Spokane: 2.40%
• 1 year wage growth
  • US:4.0%
  • Washington: 3.3%
  • Spokane: 5.70%
• Home-Median Sales Price:
  • US: $438,200 (up 5%)
  • Washington: $587,300 (down 6.8%)
  • Spokane: $399,950 (down 7%)

Percent of average wage to pay average mortgage payment

• US: 50%
• Washington: 61%
• Spokane: 53%