Region’s economy to outpace the nation, but 2012 may be an ‘anxious year’

The Washington area economy is predicted to grow 2.7 percent this year, outpacing the nation’s anticipated 2 percent growth rate, according to a new forecast by the Center for Regional Analysis at George Mason University.

That pace is likely to slow in the coming years, as federal lawmakers move to curtail government spending, a principal economic driver in the region. Other parts of the local economy could pick up the slack, but it may not be enough to fully offset federal budget cuts, said economist Stephen Fuller, who heads the center.

He said “2012 is going to be an anxious year, with lots of uncertainty because of political dysfunction, which affects us more than others. Directly or indirectly, this is a federal city and an economy that wraps itself around the federal government.”

Nearly 40 percent of the local economy was tied to the federal government in 2010, after decades in which federal employment and procurement spending grew. Fuller said the region gets 15 cents of every dollar the federal government spends, despite having less than 5 percent of the nation’s population.

The full extent of the federal budget cuts probably will not be felt until after the presidential election, but many agencies have already begun tightening their belts in anticipation. Fuller expects that federal wages and salaries will fall less than 1 percent to comprise 9.4 percent of the region’s economy by 2015, while procurement dollars will shrink by about 2.3 percent, to 17.4 percent. All told, the federal government’s slice of the local economy will fall to 36 percent in the next three years, he said.

“Just the uncertainty of where the federal budget cuts might fall is having an impact on the region,” said Andy Bauer, regional economist at the Federal Reserve Bank of Richmond.

In anticipation of cutbacks, some defense contractors, he said, have been offering buyouts, early retirement and consolidating staff.

Bauer, unlike Fuller, said he thinks the region’s economic growth will be slower than that of the national economy in 2012. He is forecasting mid-2 percent growth for the Washington area, a few basis points less than the nation. Fuller said he thinks the national economic growth won’t exceed that of the region until 2014 .

Either way, greater Washington is already being knocked off its pedestal. After leading the nation in job growth in 2010, the region closed out 2011 trailing 12 of the nation’s largest metropolitan areas, including Detroit and Phoenix.

Still, the Center for Regional Analysis projects that the Washington region will produce thousands of jobs this year, with Northern Virginia leading the way. The area is projected to add 13,600 jobs, compared with 5,300 positions in suburban Maryland and 4,700 jobs in the District.

Virginia’s thriving information-technology sector is likely to lead, though Fairfax has proven adept at luring a diverse list of employers, including Hilton Worldwide and Volkswagen.

“We are dependent on the [non-government contracting] economy here to carry us forward, but that economy isn’t performing any better than the U.S. economy,” Fuller said. “We’re okay, we’re just not going to grow a lot.”

Bauer expects that the commercial-tech sector will develop into a significant economic engine for the Washington region in the coming years. Other fields that are forecast to fuel job growth in the region are health care and education, which together are projected to grow from 4.5 percent in 2010 to 6 percent of the economy by 2015.

Danielle Douglas covers the banking industry for The Washington Post.
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