Yakima Valley's economy may see better times ahead

YAKIMA, Wash. -- As 2009 draws to a close, Far West Fabricators in Moxee is busy making retail display shelves and other metal parts now that business has picked up with new job orders.

Retailers in Yakima and Union Gap saw more people scooping up gifts and buying items for themselves during the holidays. And real estate agents and brokers are buoyed by Yakima County's home sales in November jumping more than 26 percent from the same month a year ago.

While these may be positive signs of better times ahead, no one is ready to declare full recovery just yet.

"It's a slow process because coming out of a recession, everyone sees things quite differently," said Jeff Carter, owner of Far West Fabricators, which is based in Moxee. "(Customers) are just being a lot smarter with their money and more cautious because nobody knows if this going to continue. Is this a recovery, or is this a temporary bubble?"

As weak as the economy is in Washington state and across the country, Yakima County has managed to hold up relatively well.

Despite increasing unemployment -- now 9.6 percent -- Yakima County remained below the state unemployment rate for several months in 2009.

The average home price, currently $163,815, according to Headwaters-The Source, a Selah-based firm that tracks real estate sales, also has remained nearly flat, quite a feat when one considers that larger metropolitan areas throughout the country have seen several years worth of price drops.

"We're really well off," said David McFadden, president of New Vision-Yakima County Development Association, the county's economic development arm. "But we're not out of the woods yet."

Throughout 2009, Yakima Valley saw signs of an economic slowdown.

Taxable retail sales declined at record rates during the first six months of the year -- bleak news, not just for retailers but local governments that rely heavily on sales tax revenue.

And despite the recent one-month spike in home sales, the dollar value of Yakima County's real estate sales this year declined nearly 33 percent when compared with sales in 2008, according to Headwaters-The Source.

That means far fewer people are buying -- or selling -- residential and commercial property. Many are opting to wait things out until the market improves.

Unemployment, meanwhile, has inched up, and the county saw a drop in nonagricultural jobs during every month of 2009. Modest gains in health services, wholesale trade and government could not make up for the jobs being shed across the board.

Manufacturing suffered the most, losing an average of 900 jobs every month.

But those numbers don't seem as bad when compared to other areas of Washington state and even other areas of the country.

The ag factor

Many credit the agriculture industry for a less-brutal downturn in the Yakima Valley.

While the Valley is home to a variety of fruits and vegetables, this year's profits have been driven mostly by apples. As of this month, domestic shipments of apples harvested this fall were up 6.5 percent from the same period in 2008. And exports were up 3.3 percent from the prior year.

As consumers re-evaluate their budgets, they're turning away from more fancy and novel items like $3 coffee drinks to basic foods, such as apples, because of the health benefits.

The industry, meanwhile, has also been aggressive about growing and marketing varieties beyond Red Delicious.

"(Growers and shippers) feel there's a strong and growing demand for fruit. They're convinced we're going to continue to do well," said Jon DeVaney, executive director of the Yakima Valley Growers-Shippers Association.

And given the traditionally volatile nature of agriculture, "growers and shippers are more prepared for surprises than other sectors of the economy," he added.

Many are watching to see whether agriculture will stay strong in 2010 and can help improve the local economy, or at least keep it from declining further.

"Our boats rise and fall on how our ag economy does overall," McFadden said.

The prosperity of the agriculture industry next year will largely depend on consumer demand, government regulation and the willingness of banks to lend, DeVaney said.

And of course, there are perennial factors, such as crop size, weather, available water and workers.

Mark Barrett, a grower and co-owner of Washington Fruit Place & Gift Shop at Barrett Orchards in Yakima, has already begun to think about how to stay viable in 2010.

One of his concerns for the industry is continued record or near-record crop yields for tree fruit.

While a large yield of fruit, such as apples or cherries, requires more workers and keeps unemployment down, it also drives prices down, making it tough for growers to pay their costs, let along retain a profit, Barrett said.

He's managed to keep his business viable despite lower commodity prices and record-level supply. While most of his apples, cherries and pears go through the traditional distribution system, the rest -- all his peaches, nectarines and apricots and a smaller supply of cherries, apples and pears -- is sold directly by Barrett either though his retail operation at Washington Fruit Place or wholesale to other fruit stands throughout the state.

In 2010, it's likely that more of Barrett's fruit will be sold directly to retailers and consumers.

"The ag industry continues to go to the more corporate farms and less to the small farms," he said of the market's evolution. "The small farms have to be vertically integrated, where you're in charge of some of your marketing and some of your sales, in order to grow."

What about real estate?

Though the Valley has not seen the dramatic rise and fall of housing so familiar now to people in California and Florida, the local real estate market took a hit in 2009.

A major bright spot both locally and nationally was a federal first-time homebuyer tax credit. The credit gave qualified buyers up to $8,000 if they purchased a home by the initial deadline of Nov. 30.

It's hard to determine whether an extension of the first-time homebuyers credit or a new credit designed for repeat buyers will have an impact on sales early in 2010, in what is usually a slow time of the year for the real estate industry.

"People that need to buy are going to go ahead and buy and those who want to buy aren't necessarily going to do so because of that tax credit," Doug Rich, broker for Prestige Reality in Yakima.

Qualified first-time buyers who purchase a home (or enter into a binding contract) by April 30 will be able to qualify for the $8,000 tax credit. A second credit of up to $6,500 is available to buyers who have owned a home in five of the last eight years. To qualify in either program, homes must be purchased (or under contract) by April 30.

Regardless of the government incentives, other factors, such as whether people are finding jobs or if banks have money available to lend, will influence people's decision to buy or sell, real estate agents say.

"They're (going) to look for things that create stability in the marketplace," Rich said.

Growth in 2010?

Susan Richmond, owner of Inklings Bookshop in Yakima, was prepared to see holiday sales for her store remain flat.

To her surprise and puzzlement, sales for the season were up 18 percent from a year ago. And sales for all of 2009 are up 8 percent from the previous year.

That's given her a boost in confidence and firmed up her decision to maintain higher inventory levels next year to meet customer demand.

In Union Gap, the Valley Mall will see new tenants move in this spring, including Bed Bath & Beyond and Ulta, a cosmetics store. Further west off Longfibre Road, work on Union Gap Promenade continues. And WinCo Foods, a bulk foods grocer, will likely anchor the shopping center.

That new retailers are choosing to locate here reflects their continuing confidence in the Yakima market, said Fred Bruning, president of CenterCal Properties, the Portland-area firm that owns the firm.

"Now that retailers are getting confidence that the downturn is bottoming out, markets like Yakima/Union Gap are being put higher in the pecking order," he said.

But with consumers still generally cautious, it's impossible to predict whether retail will see a boost or drop in 2010, so it's important for the local industry to maintain a solid business strategy, said Lynn Giraud, manager of J.C. Penney in Sunnyside.

"The main focus is just to make sure we're maximizing and we're getting the right product that consumers are looking for at the right price," she said. "... Right now, there are a lot of good people that are looking for work."

Forget indicators

With negative and positive indicators on the local economy in the mix, some businesses are choosing to wait and see.

After having to cut its workforce by 60 percent earlier this year, Far West Fabricators was able to hire 15 percent of its current workforce in the last few months when new orders came in.

The company's metal fabrication business serves customers in a variety of industries, including construction and retail.

Business is still below last year's levels overall, said Carter, the company owner. But he's hopeful that the recent boost in business is an indicator of better things in 2010. He also wonders if it's unrealistic to expect business to go back to what it was before the recession, given the change in his customers' spending habits.

He doesn't dare predict anything.

"What is ahead?" Carter said. "We don't know today any more than we did a year ago."

* Mai Hoang can be reached at 577-7685 or mhoang@yakimaherald.com.