Business confidence continues to rise

BBJ’s quarterly survey returns with a new record-high rating

Ken Hertz: The former mayor of Bellingham and current president of Blossom Management said that while construction remains strong, Bellingham may soon reach a point of oversaturation of new units, especially on the residential side. Still, he remained optimistic that Bellingham’s economy was continuing to move in the right direction.
“I feel better this year than I have in the past,” he said.

   It’s back. After disappearing for a couple of quarters, The Bellingham Business Journal’s quarterly business confidence survey is once again putting a number on the health and vibrancy — or lack thereof — of the local economy. A bright, but watchful, outlook for the future, backed by a decent first quarter, seems to be the consensus coming from many business leaders in regard to Whatcom County’s economy, as the rating for the first quarter of 2006 was an all-time high of 79.8 out of 100.
   The last business confidence survey was published in the July 2005 issue of the BBJ and participants gave the second quarter of 2005 a score of 78.0, at the time, the highest number ever gathered by the survey, which first started in November, 2002.
   The survey is comprised of 10 area business leaders who represent a variety of sectors, as well as local economic analysts. The participants rank their confidence score in the local economy between 1 (poor) and 100 (perfect).

When will the hammers stop?
   Almost everyone on the survey had something to say about construction. A common comment among the group was the county’s rapid rate of construction, namely on the residential side. The most common question: How much longer can residential construction go at this rate?
   “Amazingly, construction is going well,” said Bellingham/Whatcom Chamber of Commerce and Industry President Ken Oplinger. “We’re now four years along where we’re building houses much faster than people are moving into the county.”
   Oplinger said unless migration to the area significantly picks up, he expects residential construction rates will drop, as there will not be enough people demanding new homes.
   Although Ken Hertz, president of Blossom Management Corp., said residential and commercial development have been doing quite well recently, he fears the area will be overbuilt. Despite his fears, he said he is more confident going into this year than last.

A construction intervention
   Staying on the topic of construction, the Whatcom County Council’s decision to down-zone land in the county, and its effect on property prices and new construction rates, was also an issue on participants’ minds.
   Terry Lehmann, owner of Lehmann’s Home Appliance Center, said he is concerned that down-zoning will slow the construction industry in Whatcom County, resulting in fewer sale opportunities for his business and others that depend on construction projects.
   Troy Muljat of the Muljat Group said the decision to down-zone could squeeze property prices up again. He said, however, that the current real estate market remains strong, and has pulled back a bit from a peaking market to become stable.
   According to Muljat, the first quarter of the year has been strong for him, just not as explosive as in the recent past. He estimates, however, the number of units for sale will start dropping, and property values will continue to rise.

Slow first quarter is no surprise
   The first part of the year always tends to be slow, with foul weather and the post-holiday spending slump in effect. Despite this trend, those on the panel have been surprised by what the rain brought in. Some are, however, watchful of market forces that could potentially make a u-turn.
   “We are busy and continue to be busy,” said J.R. Rawitzer, owner of Tri County Office Interiors. He said his business rode a fabulous fourth quarter right into 2006. He attributes the steady business to growth in the area.
   “We’ve added population, and when you do that the service industries tend to grow — those are the people who utilize our services the most,” he said.
   Larry Raney, co-owner of Print & Copy Factory, added to Rawitzer’s remarks, saying that January can tend to start off slow, and it did to some extent, but in February things picked up. He said this first quarter has been a little better than average compared to a typical first quarter.
   In the restaurant industry, things are going well for Don White, owner of Skylark’s Hidden Café, but he is mindful of the future.
   “January was, of course, terrible, but it’s always bad,” said White. With good weather, come more customers for White. During February and Valentine’s Day, he said, business went very well, however. And, he said, the upcoming spring and summer seasons, the biggest time for Fairhaven business owners, look to be strong.
   White is, however, cautious as reports of instability in the energy and utilities market continue to circulate.
   “I’m always really cautious, you have to be in the restaurant business,” he said.
   White said when deciding to invest in inventory for the upcoming busy season, he always wonders how many people will be out traveling, a number that could decrease if energy prices jump.

New business, new investment
   New businesses and investment from existing businesses is a signal of economic health. Although recent trends have not been exploding, the panel has seen some new faces setting up shop and old ones looking to invest in their business.
   “The commercial leasing business appears very strong, as there have been many smaller businesses and new companies opening up in the area to serve the refineries and the construction industries,” said Terry Daughters, senior vice president of commercial banking at Peoples Bank. He said many small companies are relocating from Canada, California and other parts of the United States.
   Currently, Daughters said, it is easier for these new companies to lease property than to buy it. He also added he is not seeing as many small construction projects as he did last year, and noted an increase in interest rates and construction costs as potential reasons.
   Raney said as far as new business at Print & Copy Factory, he’s not seeing as many new faces as compared to returning customers.
   Existing businesses are also spending, according to those on the panel.
   “Businesses are not holding back on extra purchases as much as they have been,” said Raney, whose customers are mostly medium-to-small-sized businesses .
   At Bellingham Cold Storage, President and CEO Doug Thomas said confidence in the industries the company serves is up, along with product consumption and product movement.

A job for everyone
   With construction still going strong, some on the survey said its effects might make it hard to find new employees.
   According to Jim Vleming, a local labor market economist, Bellingham has a 4.3 percent unemployment rate, a number very low for a city of its size.
   With construction only getting bigger in the spring and summer, Vleming said, the labor pool may soon start to decline.
   “The available labor pool is shrinking; the people who want jobs have jobs,” said Vleming. He attributes the small labor pool to jobs from construction and the strength of the Canadian dollar.
   Daughters added that the construction industry is the leader in providing jobs in the county, creating other jobs and a flow of money throughout the economy.
   “Construction has been the fulcrum of the economy, and it is driving it right now, as it has been for several months,” said Vleming.


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