Can Washington’s private sector uphold the economy?


December 14, 2011

Being home to the federal government once kept the Washington area floating above the rest of the nation in terms of creating new jobs. Not anymore.

After adding thousands of jobs to the regional economy through the end of 2010, the federal government shed almost as many this year under the threat of severe budget cuts.

The region’s economy now will have to lean more heavily on the private sector to pick up the slack.

[See which companies made this year’s list.]

Economists say that is likely to be a tall order, given how dependent the region is on the government sector. In the main, many employers, even in healthy sectors, remain cautious about hiring, given their uncertainty about the course of the global economy.

Whether they serve the federal government, “companies are sitting on a lot of available funds,” said Jim Dinegar, chief executive of the Greater Washington Board of Trade.“The unwillingness to spend is in large part due to the uncertainty in the marketplace being driven by Capitol Hill.”

This uncertainty has “permeated the thinking of business executives around here,” he said. “They are giving me the sense that they are writing off 2012 as a year of little to no growth, despite pent up demand.”

The experiences of the Post 200 offer a glimpse into how fortunes are changing.

Defense giants such as Lockheed Martin cut back in 2011, while others in health care, law firms and nonprofits showed some pickup in hiring.

Professional and business services, comprised of information specialists, consultants and accountants, led the Washington region in job growth throughout the year. The sector, for instance, added a net of 8,700 jobs from October 2010 to October 2011. That’s a far cry from the 22,700 jobs added in that sector during the 12-month period ending March, illustrating the continued slow down in regional employment.

Micros Systems in Columbia is one company that added jobs. It brought on 23 new, local employees in the past year, boosting its headcount to 1,016. The company, which provides the hospitality industry with cash registers and computer applications for back-office functions, is projecting revenue north of $1.1 billion this year, a 10 percent increase over the prior year.

“We’re seeing demand pick up in hotels, restaurants and retail. People are feeling more confident and eating out more, traveling more and buying more stuff,” said Peter Rogers, executive vice president of business development at Micros Systems. As a result, “we’re in a growth mode and hiring software developers, sales people, engineers.”

The hospitality and leisure sector in the Washington area has been a leading supplier of jobs this year, contributing 4,100 positions from October 2010 to October 2011. The Center for Regional Analysis at George Mason University’s School of Public Policy anticipates hospitality will grow roughly 2 to 3 percent a year over the next 10 years.

The region is teeming with restaurant groups that have expanded their businesses by launching new concepts or replicating successful existing ones.

Herndon-based Thompson Hospitality, the nation’s largest minority-owned food service company, opened two American Tap Room restaurants, one in Bethesda and another in Clarendon. The company also started a new concept in July called Brb:be right burger, an all-natural burger joint located in Reston Town Center. Thompson’s local workforce grew 70 percent to 550 people over the course of the year.

John Challenger, chief executive of Challenger, Gray & Christmas, an outplacement consulting firm, pointed to the health care sector as another example of a private industry where job growth has held up.

MedStar Health, a Columbia-based regional health care provider, grew its local employee roster by 25 percent to 15,559 people. The company manages a network of nine hospitals and 20 other health-related businesses in the area, including Washington Hospital Center and Good Samaritan Hospital.

“Much of the hiring activity is due to the replacement of retirees as well as people moving out of the organization and relocating,” said Dennis Hoban, director of recruiting for Washington Hospital Center. “We’re certainly not seeing any decreases in the volume of patients we see, so we have to maintain workforce levels.”

MedStar might be an exception. Economists have expressed concern that many companies are not backfilling positions being vacated through attrition as they’ve found ways to extract more productivity from a smaller workforce.

Another source of regional job growth has been the education sector. Like a lot of sectors, the growth is uneven. George Mason University, for instance, added 2,169 new employees. University of Maryland shed 1,816 jobs over the course of the year as a result of state budget cuts.

Education and health care services, according to the Labor Department, generated among the highest number of jobs in the regions, accounting for 1,900 jobs in annualized job growth in October.

Overall, local unemployment for the region penciled in at 6.1 percent as of October, well below the national average of 8.6 percent, according to the Labor Department. Yet the Washington region is trailing eight of the largest metropolitan areas, including Houston, Miami and Detroit, in job growth, after closing out 2010 as the nation’s leader. Economists say this reversal of fortune will define the region for years to come.

A cloud of uncertainty settled over the Washington region this summer as Congress began debating how best to reduce the nation’s debt. Few expect any consensus to be reached until after the presidential election. And whatever the outcome, federal agencies will almost certainly have to tighten their belts in preparation for austerity.

“Over the next 10 years, the rest of the nation may continue to bounce back from the Great Recession and the Washington metropolitan area may become one of the nation’s economic laggers,” said Anirban Basu, chairman and chief executive of Sage Policy Group, a Baltimore-based economic policy consulting firm.

Government job losses are just the half of it as reducing the federal budget will have tremendous impact on procurement spending, a key source of business for a host of local industries, said Stephen Fuller, director of the Center for Regional Analysis at George Mason.

Federal dollars for the procurement of goods and services from local contractors, he said, soared from $29 billion in 2000 to $81.3 billion last year. There has been $562 billion in procurement contracting in the Washington area in 10 years.

“The jobs that were added to do that work may be sustained or they may begin to fall away, either way it doesn’t paint a good picture for this region,” Fuller said, noting that 35 percent of Washington’s economy is tied to the federal government. “There is no appetite for spending big bucks in Washington.”

Defense contractors in anticipation of heavy-handed cuts have been offering buyouts, early retirement and engaging in general consolidation of staff. Lockheed Martin, for instance, reduced its local workforce by 3,200 to 12,800 people over the course of the year.

Danielle Douglas covers the banking industry for The Washington Post.
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