We're Not Immune

Many Signs Point to an Economic Downer for the Region in 2008

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(Jeff Roberson - AP)
Fannie Mae stock was among the area's biggest losers in 2007.
Fannie Mae stock was among the area's biggest losers in 2007. (Ken Cedeno - Bloomberg News)
AOL kept shrinking locally and sending executives north.
AOL kept shrinking locally and sending executives north. (Kenneth Lambert - AP)
After a fast start last year, Marriott felt the tourism fall.
After a fast start last year, Marriott felt the tourism fall. (Gene J. Puskar - AP)
perlstein box
Friday, January 4, 2008; Page D01

Next Friday in Tysons Corner, Steve Fuller and his colleagues from George Mason University will release their annual outlook for the Washington area economy. The title of this year's confab:

"Will Housing Recovery Drive Growth?"

That's right, folks, housing recovery. As Fuller sees it, with the local economy likely to add another 40,000 jobs this year -- just slightly below last year's 44,000 -- and unemployment at historic lows, the only way to fill those jobs will be to recruit people from somewhere else. Obviously, those workers and their families will need somewhere to live. And with new-home construction at recession levels, it will be only a matter of months before the existing inventory is sold off and builders start breaking ground on new houses and condos.

And there you have it: a rebound in residential construction, a big new spurt of public construction and a steady flow of federal procurement contracts, all conspiring to keep the Washington economy growing at the modest annual rate of 2.8 percent in 2008.

It's just what the local business community desperately wants to believe. And it's all part of the larger story of how Washington has the strongest regional economy in the nation and is basically recession-proof.

Too bad it's also a fantasy.

For a more realistic assessment, let's begin with the stock market, which, for all its faults, is a pretty reliable leading indicator. Last year, the overall market, as measured by the Standard & Poor's 500-stock index, managed to eke out a 3.5 percent gain. But during the same period, an index of Washington area stocks showed a decline of nearly 18 percent.

Let's consider some of the bigger companies -- and some of the bigger local employers -- that are part of that index.

Among the biggest losers, of course, were Fannie Mae and Freddie Mac, the mortgage finance giants, and NVR, the big home builder. Investors and executives are not anticipating any rebound for those companies in 2008, nor should you.

Also hurting are other financial services companies such as credit card giant Capital One and Friedman Billings Ramsey, Washington's home-grown investment bank. They, too, have beaten-down share prices.

Marriott International is not only a big local employer, it's also a pretty good proxy for the local tourism industry, which posted record numbers during the first half of 2007. But the travel business is notoriously cyclical, and by the summer it was pretty clear to everyone that the cycle had peaked. Not surprisingly, Marriott shares fell 28 percent on the year.

Ah, but what about the tech and telecom sectors, which are booming in some parts of the country? Alas, in the Washington region, it is more of a mixed bag.

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