Kathleen Walsh Carr, chief executive of Adams National Bank in the District, is no economist, but she knows about money, and she was game to predict what this year will bring for the Washington area. (She expects the local economy to grow 4.6 percent in 2005, up from 4.4 percent in 2004.)
Anirban Basu is an economist, but he is not usually asked to predict how many passengers will pass through local airports in a year. (He guesses it will be 40.7 million, compared with 39 million last year.)
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16 Guesses About What's Ahead Predictions about how the Washington area economy will perform this year by 16 executives, consultants, economists and academics surveyed by The Washington Post.
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About the Survey
Participants submitted their guesses for the outcome of each piece of data in writing in late January and the first week of February. To determine a ranking of overall bullishness, each entrant's rankings for each projection were averaged. Therefore, low numbers indicate a person was more bullish than average, high numbers indicate less bullishness. In February 2006, we will use similar methodology to determine a winner; participants' guesses will be ranked from most accurate to least accurate for each data point, and the person with the lowest average ranking will be the first winner of the Local Economy Challenge.
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Metro Business: Coverage of Washington area businesses and the local economy.
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The Washington Post asked 16 executives, economists and others who closely follow the region to hazard their best predictions about how a variety of economic indicators will end up in 2005.
The participants, who included the head of a mutual fund management company, a university president and leaders of local companies large and small, said they used a variety of methods to arrive at their guesses, some drawn from careful economic models, others from the gut.
They are people who make their living in part by being astute judges of conditions to come. Their answers reflect expectations about the local economy usually overheard in cocktail-party chatter.
A year from now we will figure out whose projections were most (and least) accurate. The best prognosticator will win bragging rights as the winner of the first Local Economy Challenge.
The sample of economic experts is too small to represent a scientific survey, but it does give a glimpse into the expectations of some well-informed observers. Their consensus: Expect continued steady growth in the local economy.
Most of the 16 participants expect a slightly better job market by year-end. Their median projection -- the midpoint in the range of estimates -- is that the region will add 80,750 jobs in the year that will end in November, compared with 70,400 in the comparable period a year earlier. The median guess was that the unemployment rate will fall in Virginia, Maryland and, most dramatically, in the District.
"This is looking to be a healthy year, but not one of mega-growth," said Robert A. Peck, president of the Greater Washington Board of Trade, who predicted that the region will add 70,000 jobs. "Everybody seems to feel like things will continue to go well this year, with the caution that budget deficits are really going to start making their presence felt in federal spending."
There were outliers who predicted an all-out boom or slowing job growth.
Paul Villella expects this to be one of the best years ever for the Washington area job market. The chief executive of Reston-based executive recruiting firm HireStrategy Inc. projects that the region will generate 145,000 jobs, better even than during the 2000 boom, in part because the local employers he talks to have pent-up demand for new staff after three years of extreme caution about expansion.
Charles W. McMillion, the president of economic consultancy MBG Information Services in the District, has a more dour view. He figures the local economy will add only 55,000 jobs during the year, based on his economic models that show a slowing national economy.
All 16 participants predicted that home prices in the Washington area will continue to rise in 2005, though they generally expect the rate of increase to slow. Their consensus projection is that the median sale price of a single family home in the region, which was $362,400 in the third quarter of 2004, according to the National Association of Realtors, will rise 9 percent to $394,500. Home prices rose 22 percent in the third quarter of 2004 over the comparable quarter of 2003.
LaSalle D. Leffall III, president of the NHP Foundation, a District-based nonprofit organization that builds affordable housing, said broader economic trends may work to slow the increase in housing prices in 2005: He expects mortgage rates to rise.
"I can't see prices growing as rapidly as they did before, but the underlying economy is strong enough to keep pushing up housing prices," Leffall said.
The participants are less confident about the office market. Their median guess was that the region's office vacancy rate will drop a full percentage point to 9.9 percent by the end of 2005, from 10.9 percent at the end of 2004. However, five of the 16 entrants said they expect the office vacancy rate to rise.
Those who predicted rising office vacancies did so because they worry that too much new office space is being built relative to demand, particularly downtown.
"It always seems to me that real estate is a cyclical industry that ebbs and flows," said Stephen Joel Trachtenberg, president of George Washington University, who predicted that office vacancies will rise to 12 percent by the end of the year.
Stock prices of local companies, as measured by the Washington Post-Bloomberg index, have soared in the past two years, rising 32.9 percent in 2003 and 24.8 percent in 2004. The survey participants' median projection was that they will rise 15 percent in 2005. A few predicted more modest appreciation.
"I'm a believer in reversion to the mean," said James J. McGonigle, chairman of Corporate Executive Board Co., a District-based firm that advises managers of large companies. McGonigle, who predicted a 3 percent rise in the Post-Bloomberg index in 2005, said, "It's hard to look at the overall market and say it's cheap."
Some participants hedged their optimism, cautioning that it does not extend indefinitely.
"Housing prices and our increasing average daily commutes will hurt our ability to continue to attract the level of resources needed to keep pace with our growth potential," said Fernando Murias, managing partner in the region for PricewaterhouseCoopers.
Despite those worries, Murias had the second most bullish assessment for this year. "When you couple the diversity of business sectors in our region along with the continued federal government outsourcing, we will continue to see solid growth in '05."
