Has recession hit the Key Peninsula?

Danna Webster, KP News

The question of whether or not we are in a recession usually gets the old standard answer, “Depends on who you ask.” When The News Tribune reporter John Gillie asked the question last March, he concluded the answer remained open and identified the “R” word as a national economic storm that delivered its punch unevenly in South Sound. “That storm has most severely hit businesses with high energy costs or close ties to the home-building industry. Other businesses say they have yet to see a major change in the economic weather,” he wrote.

A beat night at O’Callahan’s, where things haven’t slowed down at all and customers continue to flow in. Photo by Danna Webster

Yahoo News reported that NBER (theNational Bureau of Economic Research, a nonprofit research organization), which typically declares start and end dates for U.S. recessions, has not officially declared the country in a recession. But, the president of the NBER group, Martin Feldstein, said he personally believes the economy has been sliding into a recession since December or January.

Not finding the answer in those news sources, the KP News turned to some local businesses for a recession analysis.

Are businesses on the Key Peninsula experiencing a recession?

The questioning began by asking the local Key Center bank. A written response from Sound Credit Union CFO Russ Gowrylow stated, “We have observed a moderate slowing in the pace of loan growth, both consumer (auto) and real estate. Along with that, we are beginning to see the impact of rising prices due to a small increase in the number and amount of loans being paid late. On the positive side, we are experiencing great interest in our certificate product offerings, since members are keen to lock-in higher rates on risk free investments.”

Since some news reports said home-building businesses are being hit hard economically in South Sound, the question was addressed to Birch Electric owner Kevin Canavan. It is his opinion that the Key Peninsula has been pretty lucky economically and he believes that the bottom has been reached on the slowdown. “Once we get past the election, and the interest rates stay low, we will move on,” he said.

Canavan said that while residential work experienced some decline this year, commercial jobs were up. “We are not as bustling and busy as we were. Probably a year ago, things started slowing down,” he said.  “I think it (business) will build back up when consumer confidence builds back up. It all works in cycles. I think the weather is going to change things, too.”

Weather is a major factor on business at Sunnycrest Nursery, according to co-owner Claudia Loy. When she was asked about recession and the Key Peninsula, she said, “I feel that it’s seasonal. Once the sun comes out, we’re so busy, we can’t keep up. My concern is the cost of fuel. How expensive will it get? It’s not what I’d call a recession. I think it’s inflation from fuel (costs).” Loy doesn’t see her business as providing basic needs. “We are a luxury business. Life will go on without it. We are not the grocery where you buy bread and milk. I don’t see the recession — not at this juncture. But if the fuel prices rise, we will feel it — (then) we are all going to have to make major cutbacks. What’s bothering me is the weather. (It) has to warm up,” she said.

When the weather is cold, the sweaters go quicker at Children’s Home Society/Key Peninsula Family Resource Center, reported Program Manager Jud Morris. He said he had an interesting conversation recently, at the KP Livable Community Fair, with an employee of the electric company and was told, “This has been one of the coldest quarters in a long, long time.” “Usage is down. People are turning the thermostat down and putting on more clothing,” he quoted.

It is Morris’ view that while some people are lowering their thermostats for environmental concerns, it is not a philosophical question for others. “They can’t afford to be warm,” he said. “It’s heat or eat.”

The CHS served more clients this year than last year. “People are suffering more. They have less money. They have more needs. A year ago gas was $3 now (in mid-May) it’s $3.85. Bread, milk, flour, and rice gone up. All these things that are essential for people to live on have gone up. They must buy less,” Morris said.

Key Peninsula residents can buy more for less at the Angel Guild. One Angel Guild volunteer included weather as an economic factor for their sales. “The lousy wet weather, along with the price of gas, has been bad for yard sales,” said Ann Larson, Key Peninsula resident and Angel Guild volunteer since 2000. As an Angel Guild worker, she has observed that “the downturn of the economy has been good for the thrift stores.”

Receipts are also up for Key Center’s pub and grill, O’Callahan’s. The regulars are still coming in, and gambling is actually up, reports owner Greg Calahan. When he was asked about the cold, wet, weather factor, he replied, “Bad weather? I don’t really see it in my business here. I’ve seen a change but I it to other things.” He attributes changes in his food item sales to the new “restaurant on the hill (Roadside).”

Calahan says his business requires quick business adjustments, regarding labor and food, on a monthly basis. In early May, the pub was overstaffed but the extra staff was needed because of two major changes for the business, the addition of the beer garden and a new agreement to manage the Beach Hut. He believes the success of Key Peninsula economy depends on businesses supporting one another and community patronage. “There’s opportunity all over this place. It’s how the community, as a whole, takes care of business — or not,” he said.

This year, Peninsula Market reduced its store numbers on the Key Peninsula from three to two. The Bridgeway Market in Purdy was sold to a new private owner, John Lee, on April 4. The store is being remodeled and the food service has changed from barbecue to teriyaki and Chinese takeout and dine-in.

Plans for a new building and parking lot at the Key Center Peninsula Market are waiting on the slow process of county approval. “We have our plans. The plans have been submitted. But as far as all the legalities — it takes so long with the county,” Operations Manager Kip Bonds told KP News. It is a new experience for Bonds to go establish a grocery store from the ground up. “I’m excited. We need it. The community needs it,” he said.

The first couple of months of this year were real tough for the Peninsula Market, according to Bonds. “People just didn’t have extra money. We try to be proactive,” he said, mentioning marketing techniques of three-day and one-day sales and “Hot Buys.” He was uncertain whether the opening of Costco had affected his stores. “We are exhausting all avenues to get special deals and pass them on. Just to spark people to stay on the peninsula,” Bonds said.

Business is on the upswing at the Lake Kathryn pharmacy, Cost Less Prescriptions.  Pharmacy owner Don Zimmerman credits the gas price increases and the fact they have “the lowest prices in the state of Washington” for keeping people on the peninsula and supporting his business. “Last week was the most prescriptions ever filled in the store,” Zimmerman said, referring to the first full week of May. “It was the busiest number of prescriptions in 38 years.”

When asked about recession and the Key Peninsula, Zimmerman shared the views of some of his customers in real estate sales who feel that Gig Harbor and the Peninsula area have been hit less hard than many areas of the nation. He has seen the effects of a housing recession from his son’s personal experience last year, but his philosophical approach to handling recession is different from the norm. “I advertise more in recession,” he said. “Some (owners) cut back, cut hours, don’t pay raises. I go ahead with increases. A lot of nice people work here. And the community has accepted us here. There’s so many doggone nice people (involved). We’re just thankful for the support of the community.”

Recession is defined in the New Webster’s Dictionary as a period of reduced trade or business. When KP News asked, “Are businesses on the Key Peninsula experiencing a recession?” the eight businesses answering gave a split decision. Energy costs (gasoline and utilities) and residential financing were named as common culprits in the economic downturn. Seven of the eight businesses offered a positive prognosis for the near future. Fifty percent of the KP businesses blamed the recession trend of the last few months on the cold, wet, Northwest winter rather than the economic weather.