Fri, Jul 8, 2022 5:11 PM
By Brett Davis, The Center Square
Washington state’s real Gross Domestic Product shrank twice as fast as the national average in the first quarter of 2022.
This contraction was three times the decline of Idaho and nearly five times Oregon’s rate, according to figures recently released by the U.S. Bureau of Economic Analysis.
Real GDP – the inflation adjusted measure reflecting the value of all goods and services produced by the economy – declined 3.3% in Washington state from the fourth quarter of 2021. Real GDP for the nation decreased by 1.6%. Idaho’s real GDP decline was 1.1%, and Oregon’s real GDP decline was 0.7%.
Why the dramatic decline in the Evergreen State?
“The answer appears to lie mostly with the tech sector,” said Paul Turek, state economist with the Employment Security Department, in an email to The Center Square. “This area looks to have the largest disparity among industries in the mentioned states whose GDP rose or fell during the first quarter in 2022.”
Real GDP decreased in 46 states and the District of Columbia in the first quarter of 2022, per the BEA. Only four states – Massachusetts, Michigan, New Hampshire, and Vermont – saw an increase in real GDP.
“The tech sector is primarily rooted in the information industry under industry classifications,” Turek continued. “Washington is considered to have an outsized exposure to the tech sector. During the pandemic times, the tech industry posted strong growth into the fourth quarter last year with internet search, data processing, software and digital media providing the greatest boosts.”
Times were good for the tech sector at the end of last year, Turek pointed out.
“These industries are all included in the information industry, which grew at an astounding 24.6% annual rate during the fourth quarter in Washington and contributed 3.77 percentage points of the fourth quarter's 8.3% annual growth,” he explained.
The good times did not last.
“During the first quarter this year, economic activity in information as measured by state GDP declined 11.4 % in Washington and 5.6% in Oregon,” he noted. “Idaho, whose tech presence is smaller, actually saw its information sector GDP rise by 4.3%.”
That translated into a steep drop in real GDP for Washington.
“In terms of the industry’s contribution to state growth, information accounted for nearly 2 percentage points of Washington’s 3.3 percentage point decline,” Turek said. “For Oregon and Idaho, the effect was negligible.”
The apparent winding down of the COVID-19 pandemic and life getting back to something approximating normal is having a negative effect on the state’s tech sector, according to Turek.
“Why this result?” he asked rhetorically. “Part of it could be seen as a corrective factor to previous growth in the tech sector but behavioral evidence suggests otherwise. As people emerge from the pandemic, more workers are returning to the office and relying less on internet meetings, while consumers trade in their online activities for real world experiences.”
That has negatively impacted the bottom line in Washington’s tech sector.
“This has cut into tech sector earnings, both present and projected, and created a fallout in recent tech stock prices,” Turek said. “The pieces seem to fit.”