Economic forecast

GMU Fuller Institute director Stephen S. Fuller (left) moderates a panel on issues affecting businesses in 2017 with (left to right) Tech 2000 & Appnetic CEO S. Tien Wong, Amazon Web Services vice president Teresa Carlson, and Transurban North America general manager Jennifer Aument.

The Northern Virginia region could see job employment grow from anywhere between 4 to 14.4 percent from 2014 to 2025, according to economic forecasts presented by George Mason University (GMU) Fuller Institute director Stephen S. Fuller on Wednesday at the 25th Annual Economic Conference hosted by the Northern Virginia Chamber of Commerce, GMU, and Cardinal Bank.

Titled “Mapping New Economic Opportunities,” the conference was dedicated to a reassessment of Fuller’s The Roadmap for the Washington Region’s Future Economy report, which he delivered at the previous year’s event and posited ways in which the region could reduce its economic dependence on federal spending.

That 2016 report identified seven industry clusters that it determined should be strengths of the D.C. area: business and financial services, advocacy services, science and security technology, media and information, business and leisure travel, information and communications technology services, and biological and health technology.

In his update to the Roadmap, published on the Fuller Institute website on Wednesday, Fuller notes that the D.C. regional economy is coming off its two best years of growth since the beginning of the century, generating 102,200 jobs between March 2014 and March 2016, but that boost might not last into the future since he does not see evidence of significant diversification.

“The key performance measure for the Washington region’s economy is not how many jobs it has added, but whether the economy has been able to generate jobs of the quality needed to replace the federally dependent jobs that are no longer driving the region’s economic growth,” Fuller wrote in his report, The Roadmap for the Washington Region’s Future Economy: Pivoting the Region’s Economy Away from Its Federal Dependence – An Assessment.

From February 2010 to December 2016, the region saw the most job growth in the professional and business services sector, followed by education and health services, retail trade, and leisure and hospitality services, according to data that Fuller gathered from the U.S. Bureau of Labor Statistics.

The region’s economy also found success last year despite federal procurement still coming in at a lower rate ($72.2 billion) than when it peaked at $81.5 billion in 2010. Fuller projects that the federal government will make up 27 percent of the regional economy by 2021, compared to 39.8 percent in 2010.

However, the former GMU Center for Regional Analysis director says that the region has not seen job growth in the areas that it needs most, with most of the increases coming in industries like retail trade and food services that are concentrated locally, when the emphasis needs to be on developing non-local serving businesses.

Of the defined industry clusters, only biological and health technology over-performed in the past two-year period, and that cluster has the fewest jobs when federal workers are not counted.

Because the advanced industry clusters have not seen the growth that they should have, the D.C. regional economy is not projected to reach its full potential, possibly costing the region as much as $177.9 billion, according to Fuller.

Fuller’s colleague and replacement as director of the GMU Center for Regional Analysis Terry Clower also presented his findings at the economic conference and came to a similar conclusion.

According to Clower, the period from 2015 to 2016 saw the turmoil from the Great Recession and sequestration even out, resulting in a more stable economy and even a slight increase in average wages. At the same time, the growth rate has started to slow down, and wages are not at the level they should be at this point after a recession.

Clower predicts that, while the economy will eventually bounce back, 2017 and 2018 will see a drop in the D.C. area’s gross regional product (GRP), which refers to the market value of all goods and services produced in a metropolitan area, in part due to widespread uncertainty over what the new White House administration’s economic and trade policies will be.

In fact, given the area’s continuing dependence on the federal government, the economic future of not only Northern Virginia, but the state as a whole could be closely tied to President Donald Trump and his administration’s actions.

With Congress still unable to put a long-term budget deal into place, another round of sequestration, which refers to a series of automatic cuts to discretionary spending in order to avoid exceeding capped limits, could hit in October.

“When [the military] cuts, the government shuts down, or they have sequestration, that impacts us greatly,” the governor said. “I have no idea what the Congress and new president are going to do, but…this round is going to be worse than what we saw before.”

The 2013 sequestration resulted in a loss of about $9.8 billion in direct spending and 154,000 jobs from 2011 to 2013, according to McAuliffe.

Virginia could also be heavily affected by a repeal of the Affordable Care Act, especially if Congress does not create a workable replacement. The Commonwealth’s budget would lose $300 million “overnight,” including $157 million from pharmaceutical rebates, McAuliffe says.

In addition, the ongoing federal hiring freeze, which is scheduled to last for 90 days after Trump signed the executive order on Jan. 22, and the more recently implemented limit on immigration are making it more challenging for Virginia to recruit talent and attract new businesses.

According to McAuliffe, two of the Commonwealth’s business deals fell through on Tuesday, because the companies were hesitant to enter the country due to the immigration ban, which prohibits visitors to the U.S. from seven countries in the Middle East and suspends admittance of refugees.

“We cannot just sell our own products to ourselves,” McAuliffe said. “We have to be part of a global economy, and 95 percent of the world’s customers live outside the United States of America.”

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