X Marks the Spot
Posted: April 28, 2008
A statistical X shows why the news about Washington manufacturing was so often bad in the first half of the decade while the business itself was so often good.
The X was formed by plummeting revenues in Washington state aircraft manufacturing and rising revenues in construction.
Between 2001 and 2005, aircraft manufacturing revenues dropped from $35 billion to $25 billion while construction revenues grew from $26.7 billion to $35.8 billion.
Construction is not a manufacturing sector, but it exerts a powerful pull on companies that make wood products, building supplies, plastic pipes and plumbing, furniture, electrical lighting systems and appliances. Taken together, these sectors combined for 54% revenue growth, to $16.2 billion, and for 22 percent job growth, to 56,701 during the construction boom.
It is unusual for the state to experience strong construction growth during a Boeing downturn. According to the Washington State Economic and Forecast Council, the last time it happened was in the second half of the 1970s. That construction upturn was driven by construction of the ill-fated WPPSS nuclear plants, plus spin-off growth in our state from construction of the Trans-Alaska oil pipeline.
But, the manufacturing growth fueled by construction went virtually unnoticed in the news media or by government agencies as Boeing seized the headlines with a run of some of the worst news in corporate history, ranging from the company’s move of its headquarters to Chicago to the loss of market share to Airbus.
Nor was Boeing alone in its misery. During the first half of the decade, three other large manufacturing sectors in the state – food processing, paper production and computer gear – also suffered bad years.
But when aircraft manufacturing began to rebound in 2005, it combined with strong construction-related growth to create a three-year period in which manufacturing in Washington grew faster than the economy as a whole. Construction revenues reached $41.7 billion in 2006 and growth continued through 2007.
The last time Washington state had previously recorded growth in construction and aircraft manufacturing was in the last third of the 1990s, a period of remarkable economic growth throughout Puget Sound that ended with the dot-com bubble burst and the 2002 recession.
It may be hard to see brightening prospects in all the sub prime gloom and news about Boeing production problems on the 787. But it seems likely that in a year or so, we could begin to see another strong growth curve for aircraft manufacturing and construction.
Boeing possessed a backlog of contract orders at the end of 2007 valued at an estimated $327 billion. A continued national slow down in construction would hurt many Washington wood products companies that serve national markets, but local construction will climb with continued population growth and the enormous backlog of regional major highways and other infrastructure projects.
The region’s long term prognosis was also brightened by the recent announcement that BP and ConocoPhillips plan to move ahead with the long-delayed Alaska natural gas pipeline project. The pipeline will transport gas from the North Slope to the lower 48. The oil companies will spend $600 million over the next three years to bring the proposal to a point where permits can be pursued.
If approved, the pipeline would become the largest construction project in North American history, with cost estimates beginning at $30 billion. A significant share of that money would wind up going to Washington state companies that will help supply the project and its workers.
