Local Economic Outlook
Monday, February 11, 2008; 11:00 AM
Washington Post economy writer Neil Irwin and James C. Dinegar, the chief executive for the Greater Washington Board of Trade, were online Monday, Feb. 11 at 11 a.m. ET to discuss their economic outlook for the Washington, D.C. region.
Dinegar had the most accurate predictions in last year's Local Economy Challenge. While the official contest has closed, you can still submit your entries and compare your rankings against others in the 2008 challenge.
A transcript follows.
Read more about the region's outlook in today's Washington Business section:
Neil Irwin: Welcome to a discussion of the Washington regional economy.
We're here with Jim Dinegar, who heads the Greater Washington Board of Trade, to discuss the outlook for the region in 2008, as the U.S. economy is threatened with recession. Jim predicted how the local economy would do in 2007 more accurately than any other participant in the Washington Post Local Economy Challenge.
I'm also happy to take questions about the nuts-and-bolts of the Local Economy Challenge, or to discuss national economic trends and the Federal Reserve, which are the subjects I write about day-to-day.
Neil Irwin: Jim, you were more optimistic than any of the other economists and business leaders we spoke to about how the region will do in 2008. For example, you expect job growth to be slightly stronger than in 2007. Why do you expect local employers to pick up hiring given the softening of consumer spending?
James C. Dinegar: Neil -
First let me say how proud I am for the Board of Trade to be so well represented in the leading prognosticators. We are optomistic because of the diversity of this region's economy - not relying on just one industry sector, but many. Hiring will happen because we have net growth of jobs but the population moving here will slow. The same will hold true for housing. I'm optomistic because this region has a proven track record (and now, so do I!).
Neil Irwin: Jim, the Board of Trade has been active in trying to salvage federal funds for rail to Dulles. It may not have much impact on the short-run economic outlook, but how would that project affect the economy in the longer run?
James C. Dinegar: The Rail to Dulles is critical for the region - not just Virginia. Access to more of the affordable housing, better access to jobs, more access to business and the right thing to do. I am hopeful that the Federal money comes in and we should know in the coming weeks. The Governor and the DOT Secretary are to be commended for getting together and working this out -- but keep up the call for it, as it will help smooth out the downturn in construction when we have a $5 billion effort for the next several years.
Washington, D.C.: Do you feel that consumer spending issues are not as prevalent in the D.C. area given the dominance of Federal spending within the local economy?
James C. Dinegar: Consumer spending is a critical piece and I am encouraged by the prospect of the exchange rate working in our (retail) favor. Expect a surge of Canadian shoppers this spring - and some extended shopping by foreign tourists/business visitors to pick up the domestic slack. The federal sector spending will be strong (see today's Post) if the budget stays close to the submission.
Crystal City, Va.: What is the single most important issue for the region's economy?
James C. Dinegar: Not getting pulled into the vortex of negativity. We are a robust region that is not reflective of the national economy. The diversity of our economy (look, a car company - VW - is moving their U.S. headquarters here!) helps smooth out the dips. Stay positive.
Arlington, Va.: Can you comment how the Washington region fairs against other areas around the U.S. I was always under the impression that because of the Federal Government's required workforce, that this area mostly did better than other regions.
James C. Dinegar: It's beyond just the federal workforce, we have the most highly educated workforce in the nation (see Greater Washington Initiative report at www.greaterwashington.org) for more. So we have more of the qualified workers to fill the high paying jobs. More jobs coming, so we need more people.
RE: Dulles Rail: "Access to more of the affordable housing"
What, access to $300K condos and $750k single family homes? Please explain this statement, because I'm not aware of any "affordable" housing along the proposed corridor. In fact, this line would go through some of the most expensive land in the region.
James C. Dinegar: "More affordable" isn't meant to be "affordable housing" as you may think it to be. Rail out west offers the opportunity to find housing that is more affordable than million dollar homes closer in to the District. But yes, in this region, we have a different threshold for what is considered "affordable."
Neil Irwin: What are you hearing from Board of Trade members about the problems in financial markets? Are businesses here worried that they will not have enough access to capital to keep expanding, given the crisis in many markets for debt?
James C. Dinegar: The most difficult times may be just behind us - or at least I believe that the scope of the problems are understood and being managed. The big write-offs were late last year and some earlier this past month. So, we should be looking up from here.
Silver Spring, Md.: Hi, I see that many experts are predicting further drops in D.C. area housing prices for 2008. I know there's great variations among neighborhoods...how do you see housing prices playing out for D.C. vs. inner suburbs located near a Metro station vs. the outer suburbs?
We had been planning on selling our home in spring 2009, but we bought at the peak of the market and are concerned about taking a big loss. If we're located near a Metro station, will that help protect us from the downward trend?
James C. Dinegar: Hmmmm... always hesitant to give advice. Good luck on the house - I'll leave that to you. But I do believe that appreciation of housing is coming back (slower growth, not as robust). Plenty of housing, but permits have slowed steadily over the past several years while the population increases. We have more of the high paying jobs to fill and need more people to fill them (and they'll need housing, so... prices should increase).
Neil Irwin: When we spoke the other day, you mentioned the presidential race as a source of strength for our local economy in 2008. Maryland and D.C. aren't exactly swing states (Virginia arguably could be), so won't attract a great deal of spending and direct economic activity from the candidates. So what do you mean by that? Why is such a hotly contested presidential contest a good thing for Washington?
James C. Dinegar: Because it all happens here - the presidential race is great for visibility of this region (look what the Super Bowl did for Phoenix) and we'll be all over the media for the entire year with the election, the Pope's visit, the opening of the National's stadium, National Harbor -- people will want to visit. We'll be "top of mind" and that is hard to achieve through even millions of advertising dollars.
Washington, D.C.: There's been a lot of talk in regions like San Fransisco, Chicago and New York about going green and green collar jobs. Is the Washington region doing anything about this?
James C. Dinegar: Absolutely! This region should be seen as the greenest! We have the best green workers already and more to come. Green collar jobs range from the workers at EPA and Department of Energy (both here) to green roofs, energy consultants, environmental scientists, etc. People don't look at us as "green" yet, but there are good efforts underway through the Board of Trade, the Council of Governments and elsewhere to bring this region together and highlight our strengths. Did you know that the Nature Conservancy, World Resources Institute, Discovery, National Geographic, U.S. Green Buildings Council, the American Institute of Architects are ALL here?
Fredericksburg, Va.: Both Virginia and Maryland state governments have reported revenue shortfalls, and a near term projection of more revenue shortfalls; as is the same with many local governments. Since those government revenues are probably the best real time measure of economic activity, how could you make the assertion there will be no recession for this region?
James C. Dinegar: State and local governments are tightening the belts and that will have a direct impact on services along with some spending cuts/holds. It is not the big driver in this region - the roads will continue to be built, the commercial construction will continue, the federal spending will be strong, private sector business will hold steady and the visitors will likely increase.
Fairfax, Va.: Does your Economic Challenge take into account the continual downturn of property values in the area? We still haven't come close to the bottom of this ravine, yet you're predicting economic stability. I think you're missing a mojor point here, and the number of forclosures and the slowing in the growth of salaries in this area demonstrates that an upturn in the next year is highly unlikely.
This area has some of the most inflated housing values in the country (30%-50% in most cases), and eventually, most likely within the next year or two, this region will have to readjust, which will result in local government defecits and/or higher taxes, which equates to less disposable income and a dowturn into a recession like the rest of the country. I agree that because of the wealth in the area, primarily because of government and government contractors, this region will not fall as deeply as many others (Detroit, Dallas, and St. Louis will fall HARD), but you have to realize that we are not immune.
James C. Dinegar: I am the first to say we're not immune - but we are somewhat insulated. You note the "slowing growth" in salaries for example. It is still an increase - just not what we have become accustomed to over the years. People will need to recognize the slowdown - but I don't believe it is a rollback. Areas of this region will certainly reel from the housing hit - further out mostly. It will be a concern, but not region-wide.
Washington , D.C.: As a Washington, D.C. resident I was really disappointed about the amount of BRAC work moving to the suburbs or Huntsville. What is your take on BRAC and the possibilities of the jobs coming back?
James C. Dinegar: BRAC will generate activity, spending and an increase in the population. The jobs are well beyond just the military personnel moving here (many from Jersey). I'm not sure the District is set up to take on thousands of people in any location - but Saint Elizabeths is being considered for Dept. of Homeland Security, so that would be big.
Washington, D.C.: The media seems to think that residents and businesses are falling head over foot to address concerns about environmental impact and carbon emissions. Do you see this reflected in Washington's business community?
James C. Dinegar: In balance - as there is a great deal of skepticism surrounding some of the "offsets" (see Congress' spending $80k+). Green is the right thing to do, the long term financial sound thing to do and the business community - from what I see - is learning more and committing to do more. Having said that, it is important to note that the ability to cut usage is the key - not just offsets. Cut energy usage, cut commuting times, reduce waste are the keys to success.
Downtown, D.C.: So, in this chart, you are the most optimistic and Steven Pearlstein is the most pessimistic about the economy. You guys should make a bet or something about who is right.
James C. Dinegar: Hmmmm... I imagine that journalistic ethics make it difficult for Steve to wager more than a coffee mug or 1000 Post Points. But if he's up for it...
Clifton, Va.: 2009 Outlook will be interesting. If Hillary or Obama are president this will effect defense spending and contractors. Also a Dem in the WH tends to lessen Wall Street's faith in the economoy. All a tax increase for the rich will kill off the recovery and send unemployment rate up by almost 7 percent by 2010.
James C. Dinegar: Talk to me next year for the 2009 Challenge! I only have to be right through December.
Neil Irwin: Some questioners have alluded to this, but I'll ask the question in a more pointed way. Would Clinton, Obama, or McCain be better for the Washington regional economy?
James C. Dinegar: The President and/or party affiliation has less influence in the regional economy than one might think. Defense spending isn't the only driver here - though it is big. Transportation funding, the environment, research, bio-med, tourism, commerce and more drive this region and professional services are huge here. Either way, the Inauguration brings lots of people, parties and spending here for a nice kick-off to 2009 (but again, my vision only needs to extend to the end of 2008 for this Challenge.)
Neil Irwin: One big source of strength for the D.C. economy in recent years has been the commercial real estate sector. A lot of people are worried that that could be the next shoe to drop, that there is too much supply under construction. What are your friends and colleagues telling you about that sector, and are you worried that the commercial sector could weaken?
James C. Dinegar: The commercial sector will soften a bit as we absorb the space coming on line (National Harbor, K Street, Southeast, etc.). But the slowdown in construction and the slow(er) growth in jobs and population will help balance out the net absorbtion. Slower - but okay.
Neil Irwin: You mentioned tourism as a reason that consumer spending here should hold up OK. What about spending by Washington area residents? Are your contacts among local retailers seeing greater caution, or do they seem fairly confident that people are continuing to spend despite the slump in home values and weakness in financial markets?
James C. Dinegar: Housing ARM resets and the nice boost for Federal worker salaries should see some more disposal income (a nice mild winter is helping). Gas is up, food is up, housing is slowing - but the cost of mortgages should decline because of the significant rate cuts. 2008 over 2007 in this one regard should look pretty good.
Neil Irwin: Law firms have been an awfully important part of the region's recent prosperity, with major firms signing leases for all the new buildings downtown and bringing thousands of young lawyers to town with their $160k+ salaries. What do you hear from law firms invovled with the Board of Trade? Will their expansion slow, or should they continue to be a source of strength?
James C. Dinegar: They are a source of strength region-wide. We have more lawyers per capita than anywhere - including New York. And they don't seem to retire at 62 either - so we keep them a long time, generating big dollars. Strong part of the professional services sector and I don't see them leaving town too often. They like the address, the access and the restaurants. So do the restaurants.
Northwest D.C.: People talk about the new ballpark coming into town as a good thing for the economy, but I don't see why. Aren't those the same jobs that people were doing at RFK?
James C. Dinegar: I don't recall too many sellouts at RFK over the past several years. Think what almost 3 million people (my bet) will require for the first season - ticket takers, parkers (okay, let's hope), peanut sellers, ushers, restaurant staff nearby, etc. And that's just the stadium. They just had a job fair and will hire plenty. Down the road at the National Harbor, they are hiring thousands. At the Newseum, more to hire. And when the Visitors Center of the U.S. Capitol Building opens (500,000 sq. ft. new) they will need to hire. Whew!
RE: Dulles Rail: "Rail out west offers the opportunity to find housing that is more affordable than million dollar homes closer in to the District."
Not really. Especially since most of the truly "affordable" housing is INSIDE the beltway. The rail just makes exisint and future development in the corridor more attractive, and thus even more expensive. If the transportation plans were geared towards linking "more affordable" housing, there would be a Metro line connecting New Carrolton and Bethesda (Purple Line) through Langley Park, Hyattsville, and Takoma Park or through Arlington (Columbia Pike Trolley) down Columbia Pike to downtown Fairfax. The Dulles Rail project caters to the already well-to-do and businesses, not the people who need or rely on public transportation! The project is extremely wasteful, and puts all of the "chips" in a single basket.
James C. Dinegar: Happy to discuss more "baskets" but look how frustrating it has become just to get the rail west that makes so much sense. Hyattsville is coming on strong. Look south to Prince George's County and you will see a growing need well beyond the National Harbor demand. Purple line will be good and worthwhile. Columbia Pike will see a transportation system connection soon.
D.C.: Anxiety over the impact of global outsourcing seems to have calmed down a bit in the last year. Is it having less of an impact than folks feared or have we just moved on to other, more immediate, worries?
James C. Dinegar: Perhaps the saturation point has been reached (seems that India is costing a bit more now with all the rush there driving up prices). Plus, we'll see some Chinese business opportunities coming here with the wonderful link from here to Beijing through Dulles. Look for more from that - and then because of the exchange rate, U.S. goods look more attractive to overseas.
Vienna, Va.: I keep telling my college-grad son to think about Federal work -- job security, good hours, great benefits, etc. Every time I bring it up, I get an eye roll. Am I missing something? Isn't it still a great place to have a career?
James C. Dinegar: Public service is laudable, important and secure. People find it very rewarding and many use it as a springboard to private sector careers as well. Security clearances are making the application process a bit protracted - but you may want to have your son meet with some people you know in the government - and they will willingly spend some time with him to provide a real-case example of the pride that comes with public service.
Neil Irwin: To ask an awfully open-ended question, what do you see as the greatest long-term threats to the regional economy? What are the things that local governments, businesses, and nonprofits need to be doing differently or better now to make sure that the 2010s and 2020s are as propserous as the 1990's and 2000's?
James C. Dinegar: Long term threats - there are a few, with security being at the top of the list. Businesses should (must!) be prepared and have business continuity plans in place.
What to do differently? Everyone should tighten the belts a bit - as the revenue forecasts for state and local governments show real declines. Tighten up, spend some attention on efficiencies and see where you don't have to spend as much to see yourself through the next year or so. Then, invest wisely in programs and projects (like RAIL TO DULLES!) that make sense for the long term.
RE: Job Growth: I think you're overselling the job growth from the numerous projects coming on-line this year.
The stadium will see a modest growth in jobs from what was at RFK (perhaps 50 additional jobs). They held a hiring fair because the service contracts are being managed by different companies. That doesn't mean that the hundreds of people that work at RFK will not need a job at the new stadium.
The Newseum will see an influx of jobs that were once in Rosslyn. There will be a slight increase because of the increased space, but nothing to get too excited about economically, especially considering attendance will be affected by the $20 adminssion price.
National Harbor is truly a brand new influx of jobs and a new economic engine. However, I don't think anyone is really sure how it's going to effect the region. In fact, it's already been shown to be a draw on the Washington Convention Center (see Marc Fisher's constant ravings about the Nats banquet planned outside the city), as more any more events are held there, making the D.C. Convention center obsolete and depressing the economy in that area.
The new projects seem rosey, but I think you're being a little too optimistic, instead of realistic when analyzing these new or replacement economic engines.
James C. Dinegar: Write me in a year. I'm the winner for 2007 - so my optimism is only bolstered by this victory! Go see the Newseum. Go to the ballpark - buy food and drink. Support the local economy - and realize that National Harbor is good to have in this region. I'd rather it was here in the region than in Cleveland or Richmond, drawing from the region. Bigger pie means bigger slices for all.
Neil Irwin: Jim, thanks again for joining us, and congratulations on your 2007 predictions. It will be a fascinating year for the local economy, as we watch how the housing downturn and financial markets problems play out in our neck of the woods.
I hope that you have big lunch plans to celebrate your new title as Local Economy Challenge winner.
James C. Dinegar: Neil --
My pleasure. I think the Challenge is a fun annual event and thank you for the invitation to participate. The Board of Trade was well represented. Kate Carr - 2006 winner, invited me to lunch today a few weeks back (perhaps she is amazing) and so we have lunch plans. I am hoping she gives me a scepter or something to keep for a year (or two?!). See you next February!
Neil Irwin: Again, thanks to Jim Dinegar for joining us, and for all your excellent questions. We'll be back in a year to see whether his predictions were right, and to crown a new winner of the Local Economy Challenge.
In the meantime, you can enter your own guesses for how the region will do at washingtonpost.com/business, and read our ongoing coverage of the regional economy on the WashBiz Blog.
Editor's Note: washingtonpost.com moderators retain editorial control over Discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions. washingtonpost.com is not responsible for any content posted by third parties.