Shamus Ian Fatzinger/ Fairfax County Times
The Dulles Corridor building in Reston.
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Federal spending cuts to impact local economy
Expert: ‘We will not slip back into recession, but we will see much slower growth’
Northern Virginia is projected to lead the metropolitan Washington, D.C., area in job production in 2012, but overall it will be an “anxious” economic year, according to the Center for Regional Analysis at George Mason University.
Stephen Fuller, the center’s director, and others provided an economic forecast at its 20th annual Greater Washington Economic Conference in Tysons Corner on Jan. 12.
Fuller said during the next few of years the D.C. area’s economy is expected to continue to outpace the national economy, but cutbacks in federal spending eventually will hit the area hard.
Fuller said federal spending cutbacks likely will begin in full force after the November presidential election, and already are being anticipated by many agencies.
“We have always outperformed the national economy in the D.C. area because of federal spending, but what we will have to work off of will be thinner,” he said. “Like other economies dependent on one sector — Detroit and car manufacturing, or Las Vegas and entertainment, for example —when the sector does well those economies do well; but when they don’t those economies suffer. ... This is going to be an anxious year for us.”
According to Fuller, the D.C. region received 15 cents of every federal dollar spent in 2010, despite representing less than five percent of the national population.
Virginia recently surpassed California as the top state in the country for federal procurement dollars, he said.
“About 903,000 jobs in Virginia were dependent on federal spending in 2008, and Northern Virginia accounted for about 75 percent of that figure.”
Virginia’s economy grew 60 percent from 2000 to 2010 as Department of Defense procurement within the state grew 200 percent, Fuller added. “DOD has essentially subsidized us as state taxpayers.”
It is because of this that Fuller says Virginians — Northern Virginians in particular — will feel the greatest effects of government cutbacks.
“Most of us haven’t ever experienced a time when federal spending did not aid the local economy,” he said. “You have to go back to the Vietnam War era to find a time that the D.C. area had flat federal spending.”
According to Fuller, the Washington area led the country in job growth in 2010, but by the end of last year “we were at the bottom of the heap, struggling.”
“We were the slowest growing metro area within the top 10, including Detroit,” he added. “The car industry is doing better than the federal government right now.”
According to the Center for Regional Analysis, about 28,000 federal jobs were created in the metro area from 2008 to 2010, but in 2011 there was a decrease of about 2,000.
Outside of the federal sector, however, things are looking up for the area according to the center’s forecast.
Northern Virginia is expected to add about 14,000 jobs this year, primarily within the information technology sector, but also by attracting major employers.
Fuller said Northern Virginia has so far succeeded at luring multinational companies such as Hilton Worldwide and Volkswagen.
“We will not slip back into recession, but we will see much slower growth than we are used to without the federal spending,” he said.
The regional housing market will have its own surprises, said Lisa Sturtevant, assistant research professor for the center.
According to Sturtevant, at 3.8 percent, vacancy rates in the D.C. area are far lower than the national average of 6 percent, but new home construction is at a standstill and builders are not making many new hires. The metro area lost about 28,000 construction jobs from 2008 to 2010.
“The residential sector has been a drag on growth over the past year,” she said. “Housing has not taken on a traditional role as a recovery leader, primarily due to the fact that it was such a large part of the recent recession.”
But although new home construction in the traditional sense might not be looking up, Sturtevant said a particular subsector does appear promising.
“The rental market is leading new construction,” she said. “This is where demand has been strongest and will likely be the leading indicator for new construction in 2012.”
According to Sturtevant, employment opportunities might no longer be the main catalyst for local residential demand.
“We are not quite the job magnet we were in 2009 and 2010,” she said.
Instead, “household formation” will become a critical component of the local housing market’s recovery.
“When immigrants come to the area, or students move out of their parent’s homes or couple’s get divorced, new households are formed,” she said. “Every little bit helps. Mortgage rates should not increase in 2012, and they should stay below five percent in 2013. Overall, 2013 should be a growth year for housing.”
gmacdonald@fairfaxtimes.com