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As Boom Wears Off, Report Says, Region Is in for Slower, Steady Ride

The Washington area economy, which began expanding rapidly after 2001, will return to a more normal pace of growth later this year, and while that means slower growth, it will still be stronger than in most parts of the country, according to a report released yesterday.

After the 22 percent growth recorded in the region from 2001 to 2005, the total value of goods and services produced in the area's economy is expected to grow by 19 percent this year through 2011, according to the forecast, prepared by the George Mason University Center for Regional Analysis.

Earnings by local companies are expected to increase 11 percent from 2006 to 2011 instead of the 20 percent experienced during the federal contracting boom of the past several years.

"The sky isn't falling, and the fundamentals of the economy are really good," said Stephen S. Fuller, author of the report. "By 2008, it'll be like we had been on Weight Watchers and squeezed out all the distortions of the housing market and the ramp-up in federal spending."

The report attributes the shift to a moderation in government spending on private contractors, an amount that had grown as much as 19 percent in 2004, as budgets ballooned for homeland security and the war in Iraq. In 2005, that spending grew at 2.5 percent, totaling $52.4 billion; it is projected to have increased 4 percent in 2006 and rise 4.5 percent in 2007.

The economic adjustments won't be drastic for most Washington area residents, according to the annual report. Housing prices, which roared up in the hot market of the previous several years before cooling over the past year, are expected to level off as employment rises.

While the risk of higher oil prices and a deeper housing downturn could skew the projections, the Washington area should continue to experience strong gains in new jobs, along with increases in wages, the report says. Loudoun and Fairfax counties already have among the highest median household incomes in the country. Northern Virginia is expected to add the most jobs, with increases of 30,000 or more per year over the next few years.

Growth in jobs will continue to fuel the economy, the report says, as the federal government outsources functions as diverse as the creation of defense technology and security products to the services that run many of the business aspects of the government, such as legal work and accounting. As such, the local high-tech industry is expected to continue to grow, and at a faster pace than most other sectors of the regional economy.

The GMU center expects the area to add nearly 500,000 jobs from 2006 to 2011, an increase of 13 percent. That's still above the rate of job growth of previous years -- more than 300,000 jobs were added from 2000 to 2005, a 9 percent increase -- and stronger growth than almost anywhere else in the country. Median household income, which is among the highest in the nation, is expected to grow 14 percent, or $16,310, by 2011. It grew 7.7 percent from 2000 to 2005, the report said.

A separate report by the Bureau of Labor Statistics, also released yesterday, showed that in the second quarter of 2006, Arlington and the District ranked third and fourth among counties in the nation for average weekly wages, at $1,335 and $1,300, respectively. Fairfax was also in the top 10, at $1,209; the national average was $784.

"In Washington, we work hard, and households have multiple incomes, which makes us stand out compared to other parts of the country," Fuller said.

Fuller and other high-tech-industry experts, such as Bobbie Kilberg, president of the Northern Virginia Technology Council, say that a growing number of technology firms in the region and an increased demand for high-tech goods and services by the federal government are driving forces for the Northern Virginia high-tech economy.

Yet as federal contracting dollars level off, industry experts point to the need for companies to lessen their dependence on government contracts -- which, Fuller estimates, make up about half of all local high-tech business. The local technology industry, which has strong ties to the federal government and its contractors, is expected to grow by 6.5 percent in 2007 and 6.7 percent in 2008, the center says.

"A healthy economy is a diversified economy; the challenge for technology in Northern Virginia is to recharge growth in the business-to-business market," Kilberg said.

Yet economists acknowledge potential pitfalls to economic growth: oil prices, a tightening labor market, a rise in inflation and decreased consumer spending, all variables that could knock their projections awry.