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Long Insulated By Government, Region Dragged Into Downturn

Charles Atwell, left, owner of Innovative Business Interiors in Silver Spring goes over plans with associate Chris Matthews at their office.
Charles Atwell, left, owner of Innovative Business Interiors in Silver Spring goes over plans with associate Chris Matthews at their office. (Kevin Clark - The Washington Post)
By Neil Irwin and Dana Hedgpeth
Washington Post Staff Writers
Wednesday, March 4, 2009

This is the state of business in Washington: BearingPoint, a titan in government contracting, is in bankruptcy. Chevy Chase Bank, with nearly 250 local branches, has sold itself under distress. Allied Capital, the District-based buyout firm, has defaulted on more than $1 billion in debt.

Meanwhile, countless small businesses that have called this region home for decades are struggling to stay afloat.

In previous downturns, the region has been largely insulated, the beneficiary of business activity tied to the federal government. This time, local companies -- and residents -- face trials unlike any in at least a generation.

Their struggle is a reflection not only of the depth of the downturn, but also of a sea change in the economic makeup of the area. The private sector has grown more quickly than government in recent years, helping to diversify the local economy and fuel faster growth in good times -- but exposing it to more pain in bad times.

The region's economy remains considerably stronger than the rest of the country. Home prices have fallen in the past two years, but not at the rate of some of the hardest-hit parts of the country, including California and Nevada. Although median prices tumbled last year in outer counties such as Loudoun, they were off only about 2 percent in the District.

Employment in the region also is holding up. The jobless rate in the metro area was 4.7 percent in December, according to the most recently available data, when the national rate was 7.1 percent. Given the concentration of government activity here, the region may not even experience a net loss of jobs during the recession.

Yet the local pain is sufficiently severe that executives are questioning what has long been an article of faith: That Washington is protected from the vicissitudes of the national economy.

That was the lesson in the early part of this decade, when the dot-com bust caused the local jobless rate to spike to 4 percent and the Sept. 11 terrorist attacks took a severe if short-lived toll on businesses. Through it all, most companies here kept hiring, builders kept building and consumers kept buying.

Now, business owners are reporting a sharp decline in demand for goods and services.

Thomas Brown, owner of a home-remodeling and repair business in Bethesda, said his phone has simply stopped ringing.

"This downturn isn't like the last one," he said. "We just sailed through that one. We always thought we were in the right place and we couldn't be hurt because our clients are in the seven-figures. They don't go borrow money to redo their kitchens. They cash in some stocks. But that's changed."

One big difference between this downturn and others over the past two decades is that this one is more broad-based. The liquidation of retailers such as Circuit City means that thousands of area sales clerks and store managers will lose their jobs. At the same time, law firms with sizable offices in the District, including Latham & Watkins, have announced layoffs, as has the private-equity firm Carlyle Group.

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