The Washington area's economy is more fragile than it appears, mainly because federal employment is contributing less to growth here, leaving the area increasingly dependent on federal contracting and private employment, according to a report released yesterday by the Greater Washington Research Center.
The federal government continues to be the dominant force in the area's economy, but its role is changing, according to a summary of the nonprofit research center's third State of the Region report.
Federal government employment policies, "measured by number of employes or real wages paid, are not currently providing any growth in the area economy, and the foreseeable outlook is for no improvement," the report said. Not only is the number of federal employes stabilizing or declining, but the spending power of the average federal worker is eroding, it added.
State and local government employment, meanwhile, is likely to parallel that in the federal government, with little or no increase expected over the next several years, center officials added.
Although the report recommends steps that local government and business leaders might take to realize the area's full economic potential, it concedes that much of what is occurring in the region's economy is beyond their ability to change. Changes caused by national and international forces, for example, cannot be prevented locally. There is room, nevertheless, for action to initiate local measures in response to changes, said the report, which was prepared by Philip M. Dearborn, the center's vice president.
The report also noted that the area's economy is so large that it must generate more than 35,000 jobs annually just to maintain a 2 percent average annual growth rate. Two percent is a fairly typical rate of grow for the area, according to an earlier study done for the research center. According to that study, average annual growth rates were 2.1 percent from 1967 to 1977 and 1.9 percent from 1977 to 1982.
The services sector -- the other key component of the area's economy in addition to the federal government -- continues to expand, but growth in its subsectors has been uneven during the past four years, the report shows.
"What we're saying is, our economy is perhaps more fragile than we realized," Dearborn said at a briefing yesterday.
He also said that the policies of the federal government still have a direct impact on the growth and development of the area's economy, despite the changes. "We can't escape the problem that very minor changes in federal policies can have a significant effect on the area's economy," Dearborn said.
The center's research and the conclusions contained in its State of the Region report show that the private sector has not developed a self-sufficient economy here, as some in the business community maintain, said R. Robert Linowes, a local lawyer and chairman of the research center. "We have got to develop an economy that can live without [heavy dependence on the federal government] or we will be subject to the vagaries" of federal policies, Linowes declared.
Dearborn emphasizes in the report that the area's economy has survived major changes with relatively few serious problems. But he says that hidden under this "hopeful" conclusion are three major developments that could cause problems in the future.
First, he explained, growth in the region's economy has become increasingly dependent upon federal purchases, not federal employment. As a result, changes in federal procurement volume or policies could change the area's economic performance substantially.
Second, the area is becoming more vulnerable to national cyclical changes and, as a result, may experience employment declines.
A third development shows that the District's employment base is being weakened by the reduced role of the federal government in the city and by changes in service-sector employment growth, which favors the suburbs.
Although the District has more wage and salaried jobs (640,000) than any other area jurisdiction, its economic outlook is "significantly less favorable than that of the region in general," the research center warns. As a result, the District continues to be the "focal point of problems associated with poverty and unemployment," Dearborn said.
In addition to advocating development of a strong financial services industry in the area as one way of strengthening the economy, the research center recommends a major effort to aid the expansion of existing businesses. In addition, it urges continued improvement in the quality of public school and post-secondary-education programs and fuller use of the skills of minorities and women, who appear to be underemployed.
The Greater Washington Research Center is an independent, nonpartisan organization that provides analyses of the area's economy, government and population trends. Yesterday's report is an overview of major findings and conclusions in a series of studies that it commissioned last year for its third annual State of the Region report.