Purchases of goods and services by the federal government have become more important than federal employment to metropolitan Washington's economy, a report by the Greater Washington Research Center shows.
The 24-page report, based on a study by George Washington University professor Stephen S. Fuller, shows that while federal employment in the area has declined in recent years, the value of federal purchases is increasing.
The report shows, in fact, that the annual increase in the value of federal purchases in this area averaged 17 percent over the past three years, substantially exceeding the inflation rate. Conversely, federal civilian employment has declined in recent years, and federal pay raises have failed to keep pace with inflation, Fuller points out in the report, which was released Friday.
In absolute value, federal purchases from Washington-area firms are not as big a part of the local economy as federal employment, Fuller pointed out during a briefing on the study. Nonetheless, federal purchasing "is taking on a more important role in the region's economy than federal employment," he said.
In fiscal year 1983, for example, the federal government awarded more than 32,000 contracts to local firms for goods and services worth $6.7 billion. In calendar year 1982, personal earnings from employment in the federal government totaled $11.8 billion. Thus, the report concluded, "the dollar value of federal purchases is over half the dollar value of the federal payroll."
The study covers a five-year period in which federal purchases from local businesses totaled more than $25 billion. The growth in that sector of the economy has been uneven, nevertheless. The distribution of federal purchases has undergone a dramatic shift over the five-year period covered in the study. The District's share, for example, declined from a high of 39.5 percent in 1980 to a 20.6 percent share in 1983, the lowest among the three major jurisdictions.
The shift away from the District, which has resulted in sharp increases in federal purchases in Northern Virginia and suburban Maryland, "may be partly explained by a general movement of economic activity away from the region's center," the study concluded.
Most assessments of the federal government's importance to the local area have focused on government employment, which traditionally has been the main engine driving metropolitan Washington's economy. But this latest study commissioned by the research center underscores the importance of federal purchases in generating private-sector jobs and in increasing the demand for goods and services provided by local firms.
The significance of these latest findings, said the research center's chairman, R. Robert Linowes, is that they provide a better picture of the makeup of the local economy. And, Linowes said, the study confirms what several members of the business community had concluded before now: there is "a total misunderstanding" of the region's economy.
Linowes added that in recent years, there had been a growing assumption that with the expansion of the private sector here the federal government was becoming less a factor in fueling the expansion of the region's economy. The results of the study show, however, that the federal sector "still accounts for a major portion of the area's economy," Linowes said.
Indeed, the emerging strength of the area's private firms, especially those in the services sector, is due partly to the stimulus provided by federal purchases, Fuller concluded.
Even though federal purchases are a boon to the economy, there is a "downside" to their importance, Fuller warned. He and Linowes agreed that the findings in the study suggest that there is a critical need to diversify the local economy to guard against the cyclical effects of a reduction in federal spending.