The relative stability that federal employment gave the Washington area in previous economic downturns has been eroded by cutbacks in the work force, and experts predict that the local economy will lag behind the national recovery expected to begin this year.
Continuing high unemployment, the threat of further cutbacks in the federal jobs sector and budget crunches projected by local authorities indicate further problems for the region's economy this year, economists and business leaders believe.
It's unlikely that an upturn in the local economy will occur within the next six months, says Robert R. Nathan, president of the Washington-based economic consulting firm of the same name.
"Historically, Washington has been as immune from economic conditions as any place one can imagine in the country," Nathan said. "This time, Washington has had nearly as adverse conditions as anyone, primarily because of the sort of antigovernment policies" of the Reagan administration, Nathan added.
Compared to other large metropolitan areas, the Washington region's economy remains relatively stable, but high interest rates and inflation have had significant impact on some sectors, particularly housing and the office leasing market. At the same time, high unemployment, especially in the District, shows little signs of abating any time soon.
Indeed, some of the staunchest boosters of the area's economy are conceding that Washington may no longer be recession proof.
"In the technical sense, Washington still is recession proof," counters James Cotter, district manager for corporate research at C&P Telephone Co.
If huge cuts in federal employment hadn't occurred last year, the area's economy would still have experienced slow growth, Cotter said. On the other hand, he added, "we would have had our own recession here if the federal government had cut back and nothing else had happened.
"The economy in this area will pretty much go its own way regardless of what happens nationally," Cotter observed. As a result, he added, "I would expect that we will lag the national economy.
"The national economy may pick up 2 to 3 percent this year, but we are not going to see the Washington area pick up as much because the government isn't growing."
Growth in the gross metropolitan Washington product declined from 3.5 percent in 1979 and 1980 to only 1.5 percent in 1981. It's estimated that the growth rate managed a gain of only 0.5 percent in 1982.
Meanwhile, in the 12-month period ended in October, unemployment in the Washington standard metropolitan statistical area increased by 13,000. During that same span, federal government jobs declined by 6,600; state and local government jobs decreased by 900.
The latest available figures compiled by the D.C. Department of Employment Services show that the region's unemployment rate climbed to 5.8 percent--considerably lower than the national seasonally unadjusted rate in October of 9.9 percent, but much higher than the 4.3 percent for the comparable period a year earlier. DES estimates that when final 1982 figures are compiled, the region's unemployment rate will have risen as high as 6.2 percent.
In the District, the unemployment rate that soared to 11.5 percent late last year is expected to hover around the 10 percent level for much of 1983.
"Generally, I would feel that the unemployment rate would not improve," said Rufus Daniels, chief of the division of labor market information, research and analysis at DES.
And based on employment trends throughout the region, Daniels said, "We feel the metropolitan area will mirror what's happening in the District."
Recent announcements that 14 Woolco stores and 13 Memco stores in the Washington area will close this month will add more than 2,000 to the region's unemployment total, pushing it to well over 100,000.
"I don't know what the hell all those people will do," said Jim Lowther, collective bargaining coordinator for the United Food and Commercial Workers Union Local 400.
Local 400 is optimistic about finding work for most of the 375 employes from Memco's food department, but obtaining employment for the others will be much more difficult. "I just don't know anybody who is hiring on the magnitude that we are talking about," Lowther said.
Figures compiled by the DES show that unemployment in most major categories of the region's private sector remained fairly stable during the past three years until Woolco and Memco issued their surprise announcements.
But recent cutbacks in federal employment, which hit the Washington area harder than most, coupled with the general slowdown in the nation's economy, have produced what one economist called a double whammy.
Actually, the trend in decreased federal employment began at least six years ago. Whereas federal employment once was the primary machine that powered the local economy, that is being supplanted by the services sector (health, business, legal), which is expected to grow substantially once the recovery begins.
"Our percentage of government employment will shrink to 37 percent by 1985 in the District," Daniels estimated.
Meanwhile, further reductions in federal aid could put heavy pressure on local budgets, especially in the District and Prince George's County.
A recent study for the Greater Washington Research Center concluded that most local governments' revenues are growing more slowly than their expenditures, causing a budget gap. "The abrupt slowdown in the area's economy, coupled with federal aid reductions, are now putting Washington area governments under new and more severe financial pressures," the GWRC report said.
Prince George's County may have to cut as many as 600 employes this year unless officials find a way to offset a projected $30 million budget shortfall. At the same time, county officials are worried about a possible cutback in revenue sharing, "which would be devastating," said Robert Duncan, Prince George's budget director.
On a more optimistic note, Duncan said it appears that lower interest rates are beginning to have a "positive effect" on property transfers. At the same time, there will be a considerable lag, he noted, between a decline in interest rates and increases in income tax yields.
In Montgomery County, where unemployment is about 4.1 percent, officials are optimistic about the overall economy in that jurisdiction, even though the fiscal 1984 budget is described as tight.
"We have a vibrant employment sector, and we think that's going to continue," said Ed Rovner, an assistant to Montgomery County Executive Charles Gilchrist. "The home-building sector and government contracts are the vulnerable areas of our economy, but home building is starting to come back."
Rovner acknowledges that cutbacks in federal aid are serious, but he maintains that "we've been weaning ourselves from that anyway."
In Fairfax County, where unemployment is said to be even lower (3 to 4 percent), John Herrity, chairman of the board of supervisors, says he feels "quite comfortable with the economy" and predicts this will be a better year than last in most categories.
"Assuming our revenue projections are correct, we can live with our spending limits," Herrity said.
There is a good deal more uncertainty about the District's economy, however. Serious unemployment and reduced federal aid prompted Mayor Marion Barry in his inaugural address to warn of "disquieting realities" faced by the city.
City officials are counting heavily on the new convention center to spur further development of the downtown area and to generate substantially higher revenues for local businesses. Even though there will be an increase in the convention and tourism business this year, "we don't think there will be anything dramatic," cautions Austin Kenny, executive vice president of the Washington Convention and Visitors Association.
Conventions are booked five years in advance, and the new convention center will begin to have more of an impact in 1984 when there are "some excellent bookings," Kenny noted.
By then, several new hotels will have been built or almost completed in the second phase of a commercial development binge that began in the downtown area last year. Construction starts on major projects this year will be substantially fewer than in 1982, however.
The massive buildup of office space last year and the slowdown in the economy saddled developers with a huge oversupply, which should make this a buyer's market for much of the year.
A survey taken at the end of 1982 by Coldwell-Banker's commercial real estate specialists showed developers built 3.9 million square feet of office space in 1982. Projects currently under construction will add another 5 million square feet this year.
While the demand for buildings completed in 1982 remains "about average," it's anybody's guess what the absorption rate will be this year, says George F. Voris, sales manager at Coldwell-Banker.
The outlook for retailing in the area appears to be just as uncertain. Retail sales were flat during the first three quarters of 1982 and only a late surge by consumers in the final days of the Christmas shopping season averted a disappointing year.
Although several retailers say they expect modest improvement in sales this year, others aren't as optimistic. "I think it's going to be more of the same," said Edwin K. Hoffman, chairman of Woodward & Lothrop Inc., the Washington-based department store chain. "Next year is going to be tough to do business because of the economy," Hoffman said.