Western States Ride High

Region buoyed by Pacific Rim activity; New Mexico may be hard hit by declining Pentagon budget, but West as whole promises to adapt

THE West is doing better than the rest of nation in all categories. In fact, three Western states - Washington, Utah, and Nevada - have the top three economies in the country. While states outside the region are experiencing slow growth in manufacturing and construction, both those sectors are quite healthy in the West. And all states in the region, except Colorado, have had above-average employment growth. ``We expect that to continue,'' says Ronald Schmidt, senior economist with the Federal Reserve Bank of San Francisco.

Analysts attribute the strength partly to Pacific Rim activity, which has had an impact on several of the states. ``It's keeping California buoyant and helping Oregon and Washington,'' says Lee McPheters, director of the Economic Outlook Center at Arizona State University at Tempe.

The Japanese are buying unprocessed timber from Washington and Oregon, then milling it in Japan, says Mr. McPheters. So timber sales are up, but mills are suffering. Idaho is doing well selling agricultural products and fish. And California, with its ethnic diversity, provides a growing market for trade with Asian countries and is the engine that drives much of the region's activity.

Hawaii is experiencing a strong tourist trade from the Rim. But that same activity also means increased housing prices. Honolulu now has the highest median-priced homes in the country, Mr. Schmidt says.

The hottest housing markets are Las Vegas, Seattle, and inland California. High-priced metropolitan Los Angeles and San Francisco will see slower growth, says Schmidt, while business and housing will expand into outlying areas like Sacramento, San Bernardino, and Antelope Valley. Housing prices in Seattle are up 25 percent over a year ago, and apartment vacancy rates are under 4 percent.

The high cost of housing and quality-of-life factors, such as traffic and pollution, in southern California, are also sending people to Oregon. The main feature of that economy is construction, especially residential, which has been very strong in the past year.

All the Western states except Colorado registered above-average employment growth in 1989, the bulk of it coming from the service industry. And Idaho, Utah, Oregon, and Washington reported healthy gains in manufacturing employment. Unemployment overall remained close to the national rate of 5 percent.

One major concern expressed at Security Pacific Bank's recent annual economic forecast for California was the effect of expected cuts in federal defense spending. The bank's conclusion, corroborated by other analysts, was that the fallout won't be too bad, at least in the short term. California's diverse economy (nondefense manufacturing, tourism, entertainment, mining, and agriculture) can handle the change.

California's dependence on defense ``is only half of what it was in the '60s,'' says Kathleen Cooper, executive vice-president and chief economist of Security Pacific National Bank.

``The big question is what will happen to New Mexico with the defense wind-down,'' says Mr. McPheters. ``Like California, New Mexico's economy was linked to the Reagan defense buildup. With a less diverse economy than California's, it may have more problems. Much is tied to defense-related research.''

For Boeing, a major employer in Washington State, defense cuts may be offset by a large backlog of mostly commercial orders.

The weakest economy in this region is Colorado. Job growth in 1990 is going to be below the national average, population growth will be slow. ``It's not growing,'' McPheters says. ``The people we talked to said nothing is driving the economy; electronics, energy, tourism are not strong enough.''

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