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Washington area to see economic improvement in 2013, forecast says

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The Washington area has in recent years seen a hollowing out of its middle-income workforce, a transformation that could shape the region’s path for economic growth in 2013 and beyond.

As the population grew between 1990 and 2010, the proportion of workers here making $10,000 to $49,000 a year in inflation-adjusted dollars has stayed the same: 44 percent. But in the same period, the proportion making more than $90,000 a year has skyrocketed to 39 percent from 4 percent.

This income shift, highlighted in a recent economic report by the Center for Regional Analysis at George Mason University, could have an impact on the types of businesses that will thrive here.

“It should send a clear message to retailers and home builders and other providers of consumer services that their markets are going to change,” said Stephen S. Fuller, director of the Center for Regional Analysis.

One reason for the change is the recent influx of millennial generation workers to the region. Many of these workers are making entry-level salaries that are far below those commanded by the retiring baby boomers they have been brought in to replace.

And while the health care industry is expected to continue its solid growth in 2013, the positions that are being added in this field don’t typically pay as much as the professional services jobs the region has lost.

Economists call this phenomena “income compression,” and the result is that consumers likely will not have as much money to spend at the region’s leisure and hospitality or retail businesses.

In addition to analyzing wage patterns, the regional economic report included forecasts for the Washington area job market.

With a “fiscal cliff” deal on the books and the threat of deep defense spending cuts still looming large, the projection suggests that the Washington area job market is likely to continue its slow improvement in 2013, picking up steam in the latter half of the year when several federal fiscal issues — the debt limit, automatic spending cuts, and the budget — are supposed to be resolved.

Fuller forecasts that the region will see an improvement in its economy as a result of a surge in construction jobs, steadiness in health care industry hiring, and a renewed strength in professional services sector job growth.

The projected increase in construction jobs comes as the region’s housing market recovery appears to be gaining strength after turning a corner last year. Fuller projects that there will be a 38 percent increase in local construction jobs by 2017.

In the professional services industry, clarity on federal spending policies could help jolt that sector’s hiring into higher gear later in 2013. But before that mid-year shift, the shape of the job market is expected to be a familiar one.

“The first half of ’13 will look a lot like the last half of ’12,” Fuller said.

Though the local economy shows some signs of increased strength, it still faces challenging head winds this year and beyond.

The federal government, the region’s second largest employment sector, is not likely to reverse its downward trend in hiring any time soon. In fact, Fuller projects that it will trim 22,000 jobs by 2017, a nearly 6 percent reduction in its workforce.

Meanwhile, some of the region’s smaller industries — financial services, information service, wholesale trade, and transportation — are not forecast to make meaningful employment gains next year. Though they are not likely to contract either.

“These sectors aren’t bleeding anymore,” Fuller said. “They look like they’re in equilibrium.”

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