While the national economy struggles to attain cruising altitude, the Washington-area economy has taken a small turn for the better, according to George Mason University professor and economic forecaster John McClain.
“What we lost as part of our economy in the recession, we have recovered somewhat,” said Mr. McClain, speaking Thursday about the state of the local market to the National Economists Club, adding that the recovery is “going to be much more modest” than the region has experienced after past downturns.
Mr. McClain, deputy director of the Fairfax school’s Center for Regional Analysis, said the Washington area is outpacing the national average in a number of economic measures, including employment, gross regional product (GRP) growth and overall recovery from the depths of the 2007-08 recession.
The forecaster said that the presence of the federal government has never been more crucial to the overall health of the local market than it has been in the recent economic downturn.
Almost 40 percent of the regional economy is government-related, mainly from government procurement, which has been growing about 10 percent each year. In the last 10 years, federal procurement has amounted to about $562 billion.
Virginia tops the nation in total federal procurement and trails just five states in total federal spending. Some 900,000 jobs in the state are tied to defense spending.
But Mr. McClain noted that Washington has about the same amount of federal jobs as it had in 1978, with government job growth rising and falling with each administration since President Eisenhower in the 1950s. Proposed spending cuts — both in defense and non-defense federal programs — could affect the local economy in the coming years.
Research shows that the sharpest decline in recent decades came when President Clinton took office, with government jobs during his presidency falling 42 percent. Since then, jobs have been on the steady rise, back to the level of the late 1970s, insulating the region from the worst national trends.
“Unemployment rates have not been anywhere close to what they endured at the national level, our highest was 6.8 or 6.6 [percent] in the metropolitan area at the worst point,” said Mr. McClain. “Now we’re back to 5 1/2 percent.”
Estimates by the CRA project that the automatic spending cuts set to take effect if Congress fails to reach a long-term budget deal could effectively eliminate all the growth in the Washington area’s economy when the cuts take effect in 2013, with the region losing 30,000 federal jobs and many times that in private sector jobs.
Mr. McClain said that the future is uncertain and that the total recovery from the recession has come slowly. The housing market, he said, will probably take two years more than expected to recover, even though it is likely the bottom of the market has passed.
“Two years ago, we thought by 2012 it would mostly be gone, but a lot of stuff happened,” he said.
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