The year ahead will mean business as usual for Washington business.
As usual, that means a good year ahead.
And as usual, that means the region's economic health will depend on the federal government.
The government is no longer the engine that powers the local economy as it did in the days when Washington was a company town, but this year the federal budget is the crucial factor in the economic forecast.
Generally, the outlook is positive, Washington business leaders say. The regional economy is steadily creating new jobs; unemployment is down significantly from a year ago and continuing to fall; retail sales, housing and commercial construction, and payrolls are growing. The recession is behind us; the prognosis is solid, though well short of a boom.
"The first half of 1985 is likely to show what economists call a growth recession," said Julia Walsh, the brokerage firm chairman who recently became the first woman president of the Greater Washington Board of Trade. Considering the economic difficulties created by the federal budget deficit and the trade deficit, "one might consider a growth recession in the first half of 1985 to be as good a scenario as we can hope for," she added.
But if President Reagan or Congress decides to make a major reduction in the federal deficit solely by cutting government spending, all bets on the local economy are off.
The kind of cuts that would be necessary to make a meaningful dent in the deficit would have to go far beyond those that have already been made. Major new spending reductions almost certainly would target government contracting, which has continued to grow despite Reagan rhetoric about reducing the size of government.
Federal expenditures in the Washington area for equipment, services and research work added up to more than half the value of direct government payrolls, the Greater Washington Research Center reported recently in the most comprehensive study ever done on the importance of government contracting to the local economy.
Contracting expenditures grew by 17 percent a year in the first three years of the Reagan administration, reaching $6.7 billion in 1983, said Stephen S. Fuller, the George Washington University professor who conducted the study.
Reversing that trend -- or even curtailing the growth rate -- would have major implications for the Washington economy, warned Philip Dearborn, vice president of the nonprofit center.
Dearborn noted that the paychecks of federal workers already reflect efforts to hold down government spending. In a period in which private-sector workers' real incomes grew by 15 percent, government workers pay shrank by 6 percent when adjusted for inflation.
That loss of spending power by a key segment of the Washington work force has contributed to some weakness in local retail sales.
Retail sales generally were strong through the first half of last year, and then moderated later in the year, said Robert Vandemark, chairman of Garfinckel's. "We believe this steady growth will continue through 1985," he said. "Retailers look to 1985 for sustained, moderate economic growth."
Woodward & Lothrop Chairman Edwin K. Hoffman said Washington's biggest department store chain is "planning the first six months of 1985 with some degree of optimism."
A similarly cautious view was offered by Sheldon W. Fantle, chairman of Peoples Drug stores, who said, "I do not foresee a buoyant economy."
Retail businesses also have sufferred from what retailers call "overstoring" that resulted from heavy shopping center construction in previous years. Overbuilding plagues the office and hotel markets as well and is expected to lead to some slowing of new construction this year.
The office vacancy rate in the District grew from 11.7 percent in 1983 to 12.2 percent as of the end of the third quarter, as the entire region went through an unprecedented period of double-digit vacancies.
The region ranked second in the nation in absorption of office space in the 12 months ended last July and was third in new construction during the period, said James Eichberg, president of Smith Braedon, a major office leasing organization.
The firm estimates that throughout the Washington region 13.7 million square feet of new office space will be completed this year, a substantial jump from the 9.7 million feet that became available during 1984.
New construction slowed last year as developers concentrated on leasing their inventories rather than building more. Smith Braedon warned that it will take most of this year to find tenants for some of the buildings in Northern Virginia and Montgomery County, where the glut is worse than in the District.
The downtown office leasing situation turned the corner sometime last summer, most leasing agents agree. The statistics soon will show a major improvement in the vacancy rate because the giant Daon building at 13th Street and New York Avenue has been leased to the Inter-American Development Bank.
Ironically, many developers and brokers -- among them Coldwell Banker -- say there could be some shortages of downtown office space by the end of this year, if the economy and leasing pick up. That's because few buildings were started after the glut became apparent, so there will not be much new space available once the buildings nearing completion are finished.
The office vacancy rate is one of the few economic indicators that turned for the worst last year. Residential real estate sales continued to recover from record interest rates and are expected to stay strong as rates slide slowly downward.
The numbers that best reflect the strength of the local economy are the unemployment rate and the count of newly created jobs. Over the past year, the metropolitan area added 66,900 new jobs. The private sector work force totaled 1.733 million, up from 1.666 million a year ago. Federal employment was up as well, growing to 352,900 in November from 350,600 a year earlier.
For the region as a whole, unemployment declined from 4.7 a year ago to 3.8 percent as of November. Some employers in Northern Virginia say the job situation is so tight they are having trouble finding workers.
"Many contractors now face a skilled manpower shortage," noted Gerald Sigal, whose Sigal Construction Management is one of the fastest growing firms in its field. He said that situation should continue through this year, but predicted a slowdown in commercial construction -- and therefore jobs -- in the first half of 1986.
The District of Columbia's unemployment rate declined from almost 11 percent a year ago to 8.3 percent as of November, the best record for that month since 1980.
Greater Washington Research Center officials say the District itself is lagging in job creation and much of the decline in the center-city jobless rate results from Washington residents finding jobs in the suburbs.
One of the imponderables that troubles the local think tank is the gap between the amount of new office space being built in the District and the number of jobs being created. The work force is not growing fast enough to fill up those office buildings, Dearborn noted. That seems to mean that while the District is adding jobs downtown, it is simultaneously losing them elsewhere.
Looking beyond 1985, business leaders and economists see continued growth in the high technology sectors of the local economy as the result of the unique public/private partnership that pervades the Washington area