Forecasts for the D.C. area economy in 2014: Better, but not great

Photography by Jeffrey MacMillan, drawings by Julian MacMillan/For Capital Business - From left to right: Jim Dinegar, Mark Muro,Anirban Basu, Barbara Krumsiek, Barbara Lang, Paul Villella, Catherine Meloy and Greg Leisch.

The regional economic recovery continued its crawl forward in 2013 in the face of some serious challenges, as automatic federal spending cuts created a broad sense of uncertainty that made many local employers think twice about adding workers or chasing new opportunities.

Will 2014 be any different?

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Capital Business asked more than a dozen local leaders and thinkers — economists, executives, a college president and others — to look into their crystal balls and predict how the Washington area economy will look by the end of this year.

The forecasters brought a variety of perspectives to the table, but most came to a similar big-picture conclusion: 2014 is not likely to be a blockbuster year for growth, but it is likely to be a sunnier year than 2013.

“It won’t be good, but it will be better,” said James Dinegar, chief executive of the Greater Washington Board of Trade.

Many of the analysts pointed to recent action on Capitol Hill as a key development for boosting the local economy. Congress has reached a deal that would fund the federal government through 2015 and would prevent another round of across-the-board sequestration cuts from going into effect. ¶ As a result of that deal, “the constraints that have held the economy back in ’13 are going to be neutralized,” said Stephen Fuller, director of the Center for Regional Analysis at George Mason University.

Each forecaster was asked to give us a reading on where they thought several key economic indicators would end up later this year. They also offered up their insights for the sectors, policymakers and trends to watch as we try to make sense of how the economic recovery is faring.

Anirban Basu

Chief executive, Sage Policy Group, a Baltimore economic consulting firm

Year-over-year metro area job growth: +24,400 jobs.

Unemployment rate for D.C. (October 2014): 8.2%.

Unemployment rate for Md. (October 2014): 6.3%.

Unemployment rate for Va. (October 2014): 5.1%.

Gross regional
product growth for the year:
2.4%.

Median home price in D.C. metro area: $423,000.

S&P 500: 1,860.

When it comes to shaping the health of both the regional and national economies next year, Basu will have a close eye on the policymakers at the Federal Reserve.

“At the end of the day, the most important person in 2014 is Janet Yellen,” Basu said, referring to President Obama’s nominee to succeed Ben S. Bernanke as the central bank’s chairman.

The Fed recently decided to scale back its multibillion-dollar stimulus program, which aimed to drive down long-term interest rates. But the Fed did not offer any concrete timeline or pace for its drawdown. Basu said this uncertainty could cause lenders to be skittish about offering low interest rates.

“Higher interest rates would also impact the housing sector, the auto sector and the stock market. And all three of those things have been major drivers of America’s recent economic resurgence,” Basu said.

James Bohnaker

Economist, Moody’s Analytics, a credit and economic research firm

Year-over-year metro area job growth: +50,000 jobs.

Unemployment rate for D.C.: 8.2%.

Unemployment rate for Md.: 6.0%.

Unemployment rate for Va.: 5.2%.

Gross regional
product growth for the year:
3.2%.

Median home price for D.C. metro area: $405,000.

S&P 500: 1,820.

While government contractors are likely to see the most direct benefit from recent agreement around the federal budget, Bohnaker predicts this climate will also give a boost to other sectors. He is especially optimistic about growth at small and mid-size firms in the region’s technology industry.

“More of those businesses will be either comfortable starting up or expanding,” Bohnaker said.

Kathleen Walsh Carr

President, Cardinal Bank

Year-over-year metro area job growth: +20,000 jobs.

Unemployment rate for D.C.: 8.4%.

Unemployment rate for Md.: 6.4%.

Unemployment rate for Va.: 5.6%.

Gross regional
product growth for the year:
2.0%.

Median home price for D.C. metro area: $380,000.

S&P 500: 1,750.

Carr said she’s heard from many investment managers that the stock market might see a bit of a course correction this year after rocketing upward in 2013.

As for what that means to local investors, Carr said,“It’s difficult to be a market timer. But what you do find, looking at this market, you’re better off to be invested than not invested, even with a market correction.”

That’s because, Carr said, “In the long run, the fundamentals of the businesses are very, very good,” Carr said.

Carr is upbeat about the regional economy in 2014, though she expects it will be challenging to bring down the stubbornly high unemployment rate in the urban core.

“It’s more of a structural problem in the District,” Carr said.

James C. Dinegar

Chief executive, Greater Washington Board of Trade

Year-over-year metro area job growth: +37,500 jobs.

Unemployment rate for D.C.: 7.8%.

Unemployment rate for Md.: 6.0%.

Unemployment rate for Va.: 4.9%.

Gross regional
product growth for the year:
3.6%.

Median home price for D.C. metro area: $395,000.

S&P 500: 2,000.

To explain the current mind-set of Washington area consumers, Dinegar recalls the lessons of a book called “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism” by George Akerlof and Robert Shiller.

“It was all about the emotion and the feeling, ‘Are we in a recovery?’ And I think people are beginning to feel like we’re in the recovery,” Dinegar said.

That psychological boost, he said, could translate into greater business growth and increased consumer spending.

Dinegar said that the opening of the Silver Line holds enormous economic promise for Northern Virginia this year.

“Tysons will be even more of a boomtown than it has been,” Dinegar said.

Stephen Fuller

Director, Center for Regional Analysis at George Mason University

Year-over-year metro area job growth: +58,500 jobs.

Unemployment rate for D.C.: 8.1%.

Unemployment rate for Md.: 6.0%.

Unemployment rate for Va. (October 2014): 5.2%.

Gross regional
product growth for the year:
2.65%.

Median home price for metro area: $391,000.

S&P 500: 2,055.

Fuller predicts that one industry will give the region’s job growth a major lift in 2014.

“Homebuilding is going to be the principle difference,” Fuller said.

He expects between 12,000 and 15,000 jobs will be added in the construction sector next year. He forecasts those jobs will come as local builders continue the burst of multifamily properties that the region has seen in recent years. But Fuller also predicts there will be a renewed strength in single-family home construction that could help fuel job growth in this industry.

His not-so-good news for the local labor market?

“I don’t see any big spurts other than in construction,” Fuller said.

Barbara Krumsiek

President and chief ex ecutive, Calvert Investments, which provides mutual funds that invest in socially and environmentally responsible companies.

Year-over-year metro area job growth: +25,000 jobs.

Unemployment rate for D.C.: 8.7%.

Unemployment rate for Md.: 6.5%.

Unemployment rate for Va.: 5.6%.

Gross regional product growth for the year: 2.5%.

Median home price for D.C. metro area: $432,000.

S&P 500: 2,000.

“The small investor finally came back in strong numbers in 2013,” Krumsiek said. “And I think looking at these returns, as long as we can keep a fairly steady growth, I think investors will stay committed to the stock market.”

Krumsiek predicts energy and industrial stocks, especially, will fare well in 2014.

In the bond market, however, Krumsiek said the tenor could be different. She said she already sees skittishness among investors, a development that likely reflects the Federal Reserve’s move to begin pulling back on its stimulus program.

Barbara Lang

Chief executive, D.C. Chamber of Commerce

Year-over-year metro area job growth: +24,000.

Unemployment rate for D.C.: 9.1%.

Unemployment rate for Md.: 6.4%.

Unemployment rate for Va.: 5.3%.

Gross regional
product growth for the year:
3.0%.

Median home price for D.C. metro area: $425,000.

S&P 500: NA.

Lang forecasts that the District’s unemployment rate will shoot back up over 9 percent, a prediction that she has made based on the D.C. Council’s recent approval of a minimum wage hike.

“I think this will hurt the city very badly,” Lang said.

Lang agrees the wage floor should be increased, but believes the $11.50 per hour level the council settled on is too high. She worries that the increase will prompt more Virginia and Maryland residents to look for work in the city in 2014, thereby making the job market more competitive for District residents.

If that happens, “they start to hurt the very population they tried to help,” Lang said.

Gregory H. Leisch

Chief executive, Delta Associates, a real estate analysis firm

Year-over-year metro area job growth: +42,000.

Unemployment rate for D.C.: 8.5%.

Unemployment rate for Md.: 6.5%.

Unemployment rate for Va.: 5.5%.

Gross regional product growth for the year: 2.6%.

Median home price for D.C. metro area: $420,000.

S&P 500: 1,920.

Leisch predicts the Washington area housing market will continue to improve in 2014, with prices rising modestly.

“We have a lot of pent-up demand, especially on the condo side, where we’ve had a dramatic underproduction,” Leisch said.

Leisch also said local renters are likely to see lower prices this year.

“In terms of production, it’s no secret that the apartment market is overbuilt. We have way too much in the pipeline,” Leisch said.

Leisch said he expects developers to complete 12,000 to 18,000 apartment units in 2014, but said the market only has appetite for about 7,500 units.

Catherine Meloy

Chief executive, Goodwill of Greater Washington, a nonprofit focused on education and employment

Year-over-year metro area job growth: +23,000 jobs.

Unemployment rate for D.C.: 8.4%.

Unemployment rate for Md.: 6.2%.

Unemployment rate for Va.: 5.4%.

Gross regional
product growth for the year:
2.37%.

Median home price for D.C. metro area: $410,000.

S&P 500: 1,900.

Even as she predicts the region will see modest job growth, Meloy worries the labor market will still look bleak to many Washingtonians, especially low-wage workers.

“I do believe that the people who will be without jobs are those people who do not have the skill set currently to get entry-level positions,” Meloy said.

Over the next 15 to 18 months, Meloy expects some of the greatest employment opportunities for these people will be in the leisure and hospitality sector, and accordingly, her organization is especially focused on providing job training for this industry.

Mark Muro

Director of policy for the Metropolitan Policy Program at the think tank Brookings Institution

Year-over-year metro area job growth: +26,000 jobs.

Unemployment rate for D.C.: 8.5%.

Unemployment rate for Md.: 6.3%.

Unemployment rate for Va.: 5.4%.

Gross regional
product growth for the year:
2.6%.

Median home price for D.C. metro area: $400,000.

S&P 500: 1,700.

Muro forecasted that the region will see some of its most exciting economic developments in its urban core, as the District develops what he called an “authentic start-up culture.” A prime example of this, Muro said, is the 1776 incubator in downtown Washington.

“Washington’s emerging as a more urban economic center. So it’s not just going to be the Tysons Corner, Montgomery County, Route 270 biotech story. I would predict we’ll see at least a couple large-size IPOs that stand up nationally and generate attention, and they will likely be city-based companies.”

Robert Peck

Director of Consulting for the Southeast Region at the architecture firm Gensler

Year-over-year metro area job growth: +40,000 jobs.

Unemployment rate for D.C.: 8.4%.

Unemployment rate for Md.: 6.5%.

Unemployment rate for Va.: 5.1%.

Gross regional
product growth for the year:
3.1%.

Median home price for D.C. metro area: $420,000.

S&P 500: 1,550.

Peck does not expect 2014 to be a booming year for the local commercial real estate industry. The District and Northern Virginia, in particular, he said, face less demand for office space.

In an era of telecommuting and hotel-style work set-ups, “even if the economy expands by 3.1 percent, what’s happening is people are not taking more space,” Peck said.

Instead, Peck expects many companies will look to reposition the real estate they already have, renovating or redesigning it to meet the needs of their workforce.

DeRionne P. Pollard

President, Montgomery College, a community college with campuses in Germantown, Rockville and Takoma Park.

Year-over-year metro area job growth: +21,300 jobs.

Unemployment rate for D.C.: 8.3%.

Unemployment rate for Md.: 6.2%.

Unemployment rate for Va.: 5.1%.

Gross regional
product growth for the year:
under 3%.

Median home price for D.C. metro area: $430,000.

S&P 500: 2,000.

Pollard will be watching this year to see how the economy feels at a hyper-local level.

“As someone who lives in Montgomery County, I’m very concerned about two Montgomeries that may start to emerge,” Pollard said.

While the county is home to some of the richest ZIP codes in the nation, Pollard says that is masking some of the county’s poverty issues. Pollard said some students at Montgomery College are homeless, and many are eating at the school’s on-campus food pantries.

From a legislative perspective, Pollard doesn’t expect to see any major initiatives in 2014 that would affect the local economy.

Because it is an election year, “Many of our elected officials will not want to rock the boat too much,” Pollard said.

Paul Villella

Chief executive of HireStrategy, a Reston-based staffing firm

Year-over-year metro area job growth: +17,500 jobs.

Unemployment rate for D.C.: 8.7%.

Unemployment rate for Md.: 6.2%.

Unemployment rate for Va.: 5.5%.

Gross regional
product growth for the year:
3.5%.

Median home price for D.C. metro area: $420,000.

S&P 500: 1,850.

Among his clients, Villella said he already has seen a bit of a jump in compensation for highly-skilled workers in the second half of 2013.

“On average, I do think we’ll see that sort of wage pressure increase in 2014,” Villella said, as the competition for top talent further heats up.

Villella also has an eye on the Affordable Care Act and how it might affect businesses this year. If their health care costs increase, Villella says it could cause some employers to rethink their benefits offerings and pass off more costs to employees.

 
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