Region's Economy Feels Chill Of Slump
Joblessness Rising, but Other Areas Harder Hit

By Alejandro Lazo
Washington Post Staff Writer
Monday, December 1, 2008

The Washington area, long considered one of the most economically resilient in the country, is beginning to feel the pinch of the sharp national downturn, with unemployment hitting levels not seen since the last downturn.

The unemployment rate for the Washington area was 4 percent in September, the most recent month for which metro-area data are available, a jump from 3 percent for the same time last year and the third consecutive month in which it was 4 percent or higher.

The last time unemployment was over 4 percent was in 2003, in the aftermath of the 2001 recession. It hit an eight-year high of 4.4 percent in June 2003, as the job market experienced a prolonged weakness. The delay between the recession and the highest point for unemployment came in part because of employers' traditional reluctance to both shed and add jobs, but was particularly pronounced in part because new technology led to productivity gains. That allowed employers to get more work out of fewer people, slowing the need to begin hiring.

In September, Washington's unemployment rate was the second-lowest for a major metropolitan area, after only Oklahoma City, which had a 3.5 percent rate. It was also considerably better than the rates in some of the hardest-hit areas in the country, such as the San Bernardino area in Southern California and the Detroit metro area, with unemployment rates of 9.1 and 8.3 percent, respectively.

But economists are saying it could get worse here. One sign can be seen in the unemployment rolls: About 45,800 Virginians were receiving unemployment benefits in the first week of November, an increase of 60 percent from the 28,500 getting them the same week one year ago. Maryland had a 51 percent jump, to 55,400 from 36,600. The District had a 31 percent increase, to 5,330 from 4,100.

Some economists who track the regional economy believe the Washington area could be in for a tougher time than in the last downturn. They said the forces that allowed the Washington area to essentially sit out much of the last recession -- an unprecedented rise in defense-related spending filling the vacuum from the fallout of a bursting technology bubble -- are not necessarily in place this time around.

"Washington is probably one of the brighter spots on the East Coast right now, because it doesn't have the same concentration of financial services as other areas," said Mark Vitner, a Wachovia senior economist who follows the Washington area. But "the recession is likely to resemble the more severe downturns that Washington has had to deal with over the last few decades."

While the Washington region continued to add workers -- 30,900 jobs over the 12 months ended in October -- many large local companies, including Sunrise Senior Living in McLean and Circuit City in Richmond, have announced layoffs in recent months. Paul Villella, president and chief executive of Reston-based recruiting firm HireStrategy, said employers tend to make budget decisions toward the end of the year, which could potentially lead to more job losses if they do not believe the economy will improve.

"They are all getting ready to do their budgets and anticipating what they will look like, and that has a direct correlation with their hiring," he said.

Anirban Basu, chairman and chief executive of Sage Policy Group in Baltimore, said the Washington economy will probably benefit to some degree from the economic crisis as the government spends vast sums on its ongoing rescue efforts.

"When people are looking for deals these days, they are headed to Washington, D.C.," Basu said. "The fact that the nation is in financial crisis is certainly not good for the nation, but there is an upside, perversely, for the Washington, D.C., area's economy."

But Washington's upside from government spending this time isn't as substantial as after the terrorist attacks of Sept. 11, 2001.

"The federal government and state and local government are just not prepared to support the Washington region to the same degree as during the last recession, and household finances are in just terrible shape all over the country," said Charles W. McMillion, president and chief economist of MBG Information Services.

Meanwhile the Richmond Fed said a monthly survey shows that revenue throughout the service sector slipped deeper into negative territory in November when compared with October. The bank, which covers the District, Maryland, Virginia, most of West Virginia and the Carolinas, asks businesses for information on changes in sales and shopper traffic.

Its report showed a broadening in November in the likelihood that a service-sector firm had a decrease in revenue, and the same for employment. Retailers held a bleaker outlook for sales in the six months ahead, the Fed reported.