Washington state’s chief economist, Dave Reich, warns that while his office isn’t forecasting a recession, the risk of one is higher than usual as economic indicators soften and new federal policies cloud the outlook.
The state’s September revenue forecast was revised downward by about $900 million through 2029, largely due to weaker-than-expected sales tax receipts, a cooling real estate market and slowing liquor sales. In an interview on TVW’s “Inside Olympia” following the forecast’s release, Reich told host Austin Jenkins, “We depend pretty heavily on the sales tax, and it looks, as we have been assessing recent data, it’s been slowing down a little bit more than we thought.”
Auto sales provided a temporary boost in the spring, but Reich cautioned that buyers may have accelerated purchases ahead of new tariffs. “That revenue won’t happen in the future,” he said, forcing forecasters to adjust expectations.
Reich emphasized that forecasting downturns and potential recessions is inherently imprecise. “The probability of a recession is elevated relative to normal times,” he said, but the most likely outcome based on current data is that “we’re not going to have a recession.”
Employment trends are another warning sign. Job growth in Washington is running at less than half a percent this year, far below the 1.5% historical average. Gains are concentrated in health care and government while manufacturing and construction lag. “We’re kind of tipping close to contraction in terms of employment,” he said.
Retail trade, which accounts for about 40% of taxable sales, contracted in 2023 and 2024 — something Reich said rarely occurs outside a recession. Although the sector is showing modest growth this year, he attributed the weakness to lingering pandemic effects and high interest rates.
External factors compound the uncertainty. Reich called tariffs “bad for the economy” because “everyone tends to pull back with uncertainty.” He also pointed to emerging impacts of artificial intelligence on employment, with federal projections now assuming job losses in sectors such as legal services and computer science.
Despite these risks, there are bright spots. Boeing Co. has seen its production rates and exports go up, its workforce has stabilized after layoffs early this year. That comes even as the company remains under intense federal scrutiny after repeated quality-control and calls for deeper cultural change and safety reforms.
Still, Reich sees the rise in aerospace exports as good news for the state’s economy. At the same time, health care continues to expand. State revenues are still projected to grow by 4-5% annually, though at a slower pace than previous forecasts.
Still, Reich’s outlook remains guarded. “I’m slightly pessimistic,” he said. “There’s a lot of uncertainty, and it changes from day to day very rapidly.”
Also on this episode, reporters Bill Lucia of the Washington State Standard and Shauna Sowersby of The Seattle Times discuss how things are shaping up for the 2026 legislative session, as the state faces deep fiscal challenges, partisan clashes over taxes, tough budget choices, Medicaid funding risks and soaring project costs.