Local Economy Challenge

Washington Post staff writer Neil Irwin and Kathleen Walsh Carr, president of Cardinal Bank Washington and winner of the Local Economy Challenge, were online to answer your questions.

A transcript follows.

Read related articles:

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

Banker, Lawyer Had Winning Predictions for 2006

A chart showing estimates for 11 economic indicators 2007 from a panel of executives, analysts and readers is online here.

You can also submit your predictions for 2007 and see how you compare with other readers.

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Neil Irwin: Welcome, Kate, and thanks for joining the chat.

Today, we published our third annual Local Economy Challenge, inviting you and two dozen other local executives and economists to predict how the Washington area will do over the coming year.

You're here because you were the panelist who most accurately predicted how things would shape up in 2006. So, to start, could you give our readers an overview of what you see coming in 2007. What are the big trends in the region's economic growth you see out there?

Kathleen Walsh Carr: Thank you, Neil. Employment growth should remain solid, which will keep the housing market, while not as robust as the last few years, solid. The government contract backlog is decent and the credit quality among the regional banks is exceptional.

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Logan Circle: I loved the story, but I especially loved the "They Dare to Predict!" comic strip that went with it. Does Kathleen Walsh Carr like her cartoon-character doppelganger? Also, does she think I should buy a new place this year (I already own) or wait until '08?

Kathleen Walsh Carr: What is a doppelganger? At my age, every cartoon looks good. I think there is sufficient real estate inventory to create some opportunities over the next year.

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Fairfax, VA: I see some of the most optimistic predictions come from academics. Has that been the case in recent years too?

washingtonpost.com: Chart: Estimates

Neil Irwin: I try to get a nice mix of economists (some academic, some who run consulting practices), executives who are in the trenches doing business every day, and nonprofit executives (including college presidents and others). Plus one journalist, the Post's own Steve Pearlstein. The goal is to get a broad set of people with different knowledge, experience, and insights into how the region will do. I'm always accepting nominations for experts we should add for next year.

For what it's worth, for two straight years, an executive has won, leaving the economists and nonprofit types 0 for 2.

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Arlington, VA: I'm wondering how your panel's predictions stack up against the outlook from the Richmond Federal Reserve Bank?

washingtonpost.com: Local Growth Slows, Fed Official Says (October 12, 2006)

Kathleen Walsh Carr: The Richmond Federal Reserve Bank's data was a great source for my predicitons. Jeff Lacker, President of the Richmond Federal reserve Bank, was the lone desenter at the FOMC, thinking rate should increase

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Neil Irwin: You've mentioned credit quality among local busiensses, including those that Cardinal lends to, as an indicator to you that things are on a good track and there's no real economic slump in the offing.

Could you expand on that? What are your clients telling you, and what do you see on their books, that makes you comfortable that things are looking OK for 2007?

Kathleen Walsh Carr: It is eveident in the financial infromation, published by the regional banks, that the credit quality is strong. The public is "cautiously optimistic" for 2007

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Neil Irwin: So given the generally rosy outlook, what does keep you up at night? When this period of strong growth ends, do you have any guesses about what the cause will be?

Kathleen Walsh Carr: The most pressing issue is a qualified workforce.

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Neil Irwin: What are the sectors you would expect to see as the drivers behind growth in the region these next few years, now that housing and perhaps government contracting aren't growing as fast?

Kathleen Walsh Carr: Health services and financial services should continue to expand as housing etc level off.

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Neil Irwin: You're a resident of the District. What are folks like you in the business community thinking about the Fenty administration? Groups like the Board of Trade, in which you are involved, supported Linda Cropp in the mayor's race. But from what you see so far, do you think Mayor Fenty will be good, bad, or indifferent for businesses in Washington?

Kathleen Walsh Carr: I think Fenty has selected some very strong members of his administration. The business community not only works in the city but also lives in it and is working with Fenty to a common end.

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Burke, VA: I thought Steven Pearlstein's comment on the slowdown in government contracting was right on the money. What, if anything, will take up the slack?

Neil Irwin: Steve is one of the smartest economic analysts around, and he points out, accurately, that the stocks of government contractors have fallen in recent months as the market forecasts slower growth.

The question is whether Steve will be correct this year (he wasn't last year) that this will result in lower job growth, higher unemployment, and generally more sluggish regional economic conditions.

Some executives I spoke to expect the financial services, commercial technology, and health care sectors to keep growing strongly, picking up the slack.

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DC, DC: Hey Ms. Carr, it may be a little outside the areas of your expertise, but I'm filling out my Oscar pool picks right now and you seem to be good at this crystal ball stuff. Any thoughts? Babel all the way?

Kathleen Walsh Carr: WOW...am I the wrong person to ask. I voting for the QUeen, however, since it was the only movie I saw last year.

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Neil Irwin: What are your friends and clients in the government contracting sector telling you? Are they worried about the impact of the Democratic Congress and efforts to trim the budget deficit?

Kathleen Walsh Carr: Fortunately or unfrtunately, a Democratic Congress usually does not stop spending. I think the difference in the parties is how they pay for the expenditure.

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Tysons Corner, Va: If you were a talking to a group of current high school students on career day, what types of jobs/industries would you suggest they think about pursuing?

Kathleen Walsh Carr: Banking. Its the industry that is critical to the economy. Banks move capital and capital fuels the economy.

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Springfield, VA: You expanded the number of indicators this year. Are there any other areas that might warrant closer examination next year?

washingtonpost.com: You can submit your predictions for 2007 here.

Neil Irwin: I did expand the indicators, adding inflation (more precisely, the consumer price index in the Washington-Baltimore area) and housing permits to the roster. I'm hoping this gives a little richer picture of how these folks expect things to evolve.

Any other areas that warrant closer examination? I've tipped my hand in thinking that housing and government contracting are the big question marks. But what do you think? Any sectors or issues or areas that I'm missing that could hold the key to understanding where the region is heading?

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Logan Circle: I'm worried that if I buy now, the value of my new place will plunge quickly what with all the new condo units flooding the market. Or have we already passed that point?

Kathleen Walsh Carr: There is a lot of realestate inventory currently on the market and more to come. However, the job creation in the Metro area fuels the demand for housing.

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Neil Irwin: We've talked about businesses' credit quality and desire to expand. Do you have a sense of how consumers are holding up? Should local retailers be worried about consumers' willingness to buy stuff in this economy?

Kathleen Walsh Carr: With the unemployment rate of 4.6% gives consumers confidence in finding and keeping job and therefore should support continued spending.

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Neil Irwin: You describe workforce issues as the greatest threat to growth. Could you expand on that? What does the region need to do to make sure in the long run that we attract and retain a qualified workforce?

Kathleen Walsh Carr: The quality of education should be consistently superior throughout the region, better transportation is a priority and workforce housing are all key compenents of attracting and maintaining a qualified workforce

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Tysons Corner, Va.: Where have you been, Neil? You aren't in the newspaper anymore, until today!

Neil Irwin: It's true, I'm out of pocket from day-to-day work for the newspaper. Right now I'm technically on leave from the Post as a Knight-Bagehot Fellow in Economics and Business Journalism at Columbia University. I'm taking business and economics classes, and will return to the Post full-time later this year.

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Arlington, Va.: Did you personally invest in a way consistent with your predictions? Was your portfolio successful?

Kathleen Walsh Carr: Hmm...I married my broker, so I must say it has been very sucessful. I am bullish on this economy and that is how I am personally invested.

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Neil Irwin: The real question, Kate, is this: Are you ready to take on the broad responsibilities that being winner of the Local Economy Challenge entails? You know, appearing in the annual economists' parade, doing ribbon-cutting duties at the new Bureau of Labor Statistics headquarters, that sort of thing? (OK, maybe not).

Will you be a benevolent and magnanimous winner? Or are you more inclined to rub Pearlstein's nose in it?

Kathleen Walsh Carr: I do not think the economists will allow me to be in their parade. I do, however, have my scissors ready for all ribbon cutting opportunities. And I will not going to say anything negative about Perstein. Fame is fleeting and I might be on the other end. As my grandmother used to say.."a broken clock tells time correctly twice a day"

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Neil Irwin: The expansion in the late 1990s was fueled by a remarkable boom in telecom and dot-com businesses. The boom of the last several years was fueled by government spending. Any ideas what might be next?

Is there anything on the horizon, any single sector, that could fuel growth the way those industries have, or are you expecting a more balanced form of growth for the remainder of this decade?

Kathleen Walsh Carr: I think the small businesses are the backbone of this economy and will continue to be.

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Washington, DC: What are your thoughts on Herman Daly and Ecological Economics? Have you ever thought about how the laws of thermodynamics impact economic growth?

Kathleen Walsh Carr: I have thought much about Herman Daly.

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Neil Irwin: Any thoughts on the issues raised in another Washington Business story today, about how higher short-term interest rates (combined with low long-term rates) are putting the squeeze on banks?

washingtonpost.com: Interest On Deposits Pressures Area Banks

Kathleen Walsh Carr: Inverted yield curves historically are tough on bank earnings. However, strong quality loan demand helps mitigate the lower margins.

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Neil Irwin: Do you have thoughts on the significance of transportation infrastructure to continued properity in the region? Does the way the region chooses to invest in new rail lines or new roads (or neither) matter for your long-term outlook?

Specifically, does it matter from an economic perspective whether the Metrorail extension to Tysons Corner is above ground or below groun?

Kathleen Walsh Carr: I think there should be ONE regonal Department of Transporation to address this critical issue for the whole area. I think, personally because I do not live or work there, it should be below ground.

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Neil Irwin: Thanks again to Kate Carr, winner of the 2006 Local Economy Challenge. And good luck next year, Kate!

Also, congratulations to Katherine Bierlein, a young lawyer who beat out 160 other washingtonpost.com readers to have the best predictions for the regional economy in 2006. Thanks for reading, and for your questions.

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Neil Irwin: What role does the tourism and hospitality sector play in driving growth in the region? Last year, the number of passengers using the local airports dropped a bit, owing to the demise of Independence Air. Is the travel sector broadly contributing much to growth, or just humming as a steady-as-she goes backdrop to the regional economy?

Kathleen Walsh Carr: I think the renovation at Dulles and the addition of new direct flights in the international sector (Beijing, for example contributes to job growth and to the regional economy. Tourism and hospitality are critical legs in this regional economy.

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Neil Irwin: We'll wrap up a little bit early. But before we do, Kate, any parting thoughts about why you're so confident that the prosperity the Washington region has experienced for most of the past 15 years will continue through at least 2007?

Kathleen Walsh Carr: The Washington region is blessed with a highly educated workforce, strong governemnt based revenue source, growing technolgy and biomedcail industries and the nicest people in the world.

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