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Outlook 2005

Optimism Tempered by Memory

This Is No Time For Giddiness, Executives Agree

By Neil Irwin
Washington Post Staff Writer
Monday, January 3, 2005; Page E01

Washington area business leaders have many reasons to be happy as they enter 2005.

Corporate income tax receipts for 2004 were up in the District, Maryland and Virginia, indicating healthy profit growth. Local employers added jobs at the same pace they did in the 1990s, giving Washington the strongest job growth in the nation over the 12 months that ended in November. The share prices of local public companies rose 25 percent in 2004, as measured by the Bloomberg-Washington Post index.

Joseph M. Kampf, chief executive of Anteon Corp., says he expects growth in government business for operations and maintenance to continue despite the federal budget deficit. (Susan Biddle -- The Washington Post)

Video: The Washington Post's Neil Irwin discusses the local business outlook for 2005.
_____Outlook 2005_____
Technology Firms Expect Growth In Government Specialty Work (The Washington Post, Jan 3, 2005)
It's Crunch Time for Companies With Products in the Pipeline (The Washington Post, Jan 3, 2005)
Supermarkets, Eager to Grow, Set Sights on Northern Virginia (The Washington Post, Jan 3, 2005)
_____Special Report_____
Metro Business: Coverage of Washington area businesses and the local economy.

But executives aren't exactly celebrating. Too many remember how badly they were burned at the end of the last boom, in 2001, and they remain cautious.

"We just don't feel as good as we are," said Peter F. Nostrand, Washington area president of SunTrust Bank.

So as the new year begins, many Washington area executives, although optimistic, say their strategies are influenced by things that could go wrong. High on the list of worries are rising interest rates, an expected slowdown in the growth of federal spending, policy issues and larger economic trends, such as the price of steel.

Business plans are being tweaked accordingly.

Thomas S. Bozzuto, chief executive of Bozzuto Development Co., a construction and development company in Greenbelt, has been watching closely as the Federal Reserve Bank steadily increases interest rates. Bozzuto figures that if the Fed's actions cause mortgage rates to rise significantly, the demand for the high-price houses and condominiums he builds could weaken.

The region's housing boom, fueled in part by low interest rates, has played a huge role in Washington's recent economic growth, as builders added 9,500 jobs to keep up with the demand for new houses, offices and condos. But many in the business are skeptical that such strong growth can continue.

"The building business has been so good for so long that we in the industry are sitting around, waiting for someone to blow the whistle that says 'stop,' " Bozzuto said. "Most of us are old enough to have lived through prior down cycles. It hasn't happened yet, but we're worried."

Bozzuto is switching his focus from condos to apartment buildings, even though apartment rents have been rising slowly. He is betting that by the time his new rental apartment buildings are done in two or three years, rising interest rates will have made condos less attractive, sending people back to the rental market.

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