Forecasters Did Well in '06, Predict Another Year of Steady Growth

Forecasters Did Well in '06, Predict Another Year of Steady Growth

A year ago, the housing market was cooling, interest rates were on the rise and the conventional wisdom was that 2006 would be the year that the U.S. economy sputtered. One could be forgiven for thinking that the Washington regional economy would slow down after a blistering three years.

But 26 economists and executives surveyed by The Washington Post had different expectations. Last February, participants in our 2006 Local Economic Challenge predicted it would be a good year for the region, hiccups aside.

They were right. They correctly guessed that the value of goods and services produced in the region would rise about 4 percent, that the unemployment rate would drop in all three local jurisdictions, and that job growth would be solid.

So we once again called on the group's collective wisdom. We asked them to put their egos on the line by predicting how the local economy will do in 2007. Their conclusion: It will be another strong year, with steady but not spectacular growth.

The panel, which includes economists, businesspeople and nonprofit executives, forecast that the region will add 60,000 jobs and see a 3.7 percent rise in gross regional product this year. They expect the unemployment rate to tick up slightly in Maryland and Virginia and the median price of houses to tick down.

They expect a broad range of businesses to keep hiring and expanding, and that the housing slump won't have much impact on the broader economy. Even if the Democratic Congress and mounting budget deficits crimp federal spending, they don't expect the government contractors, who have been the engines of the region's economic expansion, to slow down much.

"We're an extraordinarily robust economy," said Barbara Krumsiek, president of investment firm Calvert Group, in Bethesda.

"What we may see is a slowing down but not a slow environment," said Fernando Murias, managing partner for the Washington region of PriceaterhouseCoopers, and the winner of the 2005 Local Economy Challenge. "Growth will still be fast but less fast."

Most of our experts foresee a continued slide in residential real estate. The consensus view is that the median price of a single-family home, which fell about $10,000, to $431,900, last year, will drop to $429,000 by the third quarter this year. And they expect builders to take out fewer permits for new housing.

"There's no getting around the fact that housing is slowing," said James Dinegar, chief executive of the Greater Washington Board of Trade.

But don't expect that pain to trickle broadly through the local economy, he and other panelists said. "This economy is so deep," said Kathleen Walsh Carr, president of Cardinal Bank Washington. "It's such a great machine that it will take more than a slowdown in housing to stop it."

Then there's the government contracting sector. Most analysts think that recent double-digit growth rates of federal procurement are unsustainable. But panelists said they see few signs that this will be the year the federal procurement slowdown has a real impact.

Most federal contractors "seem to be working through backlogs that will sustain them at least through 2007," said William Couper, president of Bank of America in the Washington area. "I haven't heard anybody crying the blues."

Then there are more imponderable threats to growth. There could be a terrorist attack or a global economic disturbance.

LaSalle D. "Donney" Leffall III, president of investment advisory firm LDL Financial, notes that the world is awash in capital, driving up prices for stocks, real estate and other assets, meaning investors are getting paid less for taking on additional risk. Investors worldwide are exhibiting extraordinary confidence about the future. "If something happens to change that, a big default or something, it could have a real effect on the economy."

He adds, though, that any economic fallout from such an event would probably be milder here than in most of the country, given the diversity of the regional economy.

Not all the panelists' predictions for 2006 were on target. They wrongly predicted that house prices would continue their rise. And despite the demise of Dulles-based airline Independence Air, they expected the number of passengers flying through local airports to keep rising. The number fell a bit.

So you can forgive some panelists for being less than completely confident in their predictions this time.

"I submitted my suggestions for 2007 with far less confidence than I had in 2006," Couper said. "I have less feeling that I have a handle than I did a year ago. Everybody is watchful for a potential slowdown, but nobody seems to be pointing to anything concrete at this stage that suggests we've gone off the edge."