To find enough new workers for all its building projects, Bozzuto Construction Co. had to hire a headhunter. Consulting firm Booz Allen Hamilton Inc. is wooing MBA students with fancy dinners and cocktail parties. Pohanka Automotive Group created a new position just to fill all the other vacant jobs.
After three years of standing still, the Washington region's job market is hopping, adding 60,600 jobs in the year ended in March, on pace with the boom years of 1997 and 1998. "This year everyone is starting to feel good again," said Ralph W. Shrader, chief executive of Booz Allen, which has been on a hiring binge.
What is different this time is the source of the new jobs. Instead of a roaring expansion driven by businesses, 4 out of 5 local jobs being created can be attributed to extremely low interest rates, created by government stimulus, and booming government spending.
The Federal Reserve Board lowered the federal funds rate to 1 percent last June, its lowest level since 1958, a key factor last year in booming sales of houses and autos in the Washington area.
Federal spending in the region rose by 7 percent in 2003, pumping an extra $6.1 billion into the local economy, driving hiring by government contractors while a tax cut put more money in the hands of local consumers.
Business and professional services firms, a sector that is dominated in the Washington area by federal contractors, added 21,400 jobs in the past year.
Retailers added 10,800 jobs, as they benefited from the tax cuts and mortgage refinancing that gave people more money to spend. Construction companies added 8,000 positions, mostly because of the interest-rate induced housing boom. Government added 8,700 jobs.
Together, those sectors account for nearly 49,000 of the new jobs, or 81 percent of the total. Employment was little changed in most local industries not directly influenced by fiscal or monetary stimulus, such as health and education, telecommunications and other information businesses, wholesaling and distribution, and manufacturing.
"The job growth we're seeing in Washington is a function of all the stimulus in the economy," said Charles W. McMillion, president of District-based economic consultancy MBG Information Services.
Reliance on government tax and spending policies and Federal Reserve policy on interest rates can create risks for the Washington area economy. Although many executives say they are confident in the local economy and expect to continue hiring at a steady clip, some caution that if the federal stimulus were to change -- if federal spending slowed, or interest rates rose -- they might have to pull back.
"As the stimulus fades, the growth in the economy will slow," said Mark M. Zandi, chief economist of Economy.com. He calculated that government fiscal and monetary policy contributed a combined 3.4 percent to the nation's economic growth last year but will contribute only 1.7 percent to growth this year.
Economic theory holds that all stimulus helps the economy, leading businesses to expand on their own even after the stimulus goes away. Economists generally think that is happening. But because industries dependent on government stimulus are such a large part of the Washington area economy, the region may benefit less from a private-sector expansion than most places.
Stephen S. Fuller, who studies the region's economy at George Mason University, predicts that government spending will increase at a slower pace this year, and as a result the Washington area economy will grow 4 percent, compared with 4.7 percent nationwide. He predicts a healthy but not extraordinary increase of 50,000 local jobs in 2004.
McLean-based Booz Allen, which has 9,400 employees in the Washington area, is likely to be part of that growth as one of the mainstays of Washington's professional and business services industry, the number two source of local employment behind the government itself. A year ago, the firm planned to hire 2,150 more people in the ensuing 12 months. Instead, it brought on 3,500 to fulfill such projects as advising the Army on its personnel management systems and helping the National Institute of Child Health and Human Development manage its large-scale computer systems. Both projects are part of a wide effort to apply private-sector technology know-how to government problems.
Booz Allen has more work than it can handle, Shrader said. "We have a backlog of business at this point. We're only limited by the time it takes to bring good people through the door."
Shrader is confident that the company will be able to continue its pace of expansion, adding business and staff members at 20 percent a year. But others see harder times on the horizon for the government technology sector. Christopher F. Penny, an analyst who tracks government technology contractors for investment firm Friedman, Billings, Ramsey Group Inc., argues that many modernization projects are now being completed, and that with the huge federal budget deficit there will be less money available for new projects.
Penny expects government spending on information technology to be up 4 percent in the federal fiscal year that begins Oct. 1, having grown an average of 7 to 8 percent in the past several years. He expects no net gain in tech spending in the 2006 budget year.
Fuller expects an 8 percent increase in local federal procurement of all varieties, not just technology, this year, compared with a 15 percent gain in 2002.
If federal spending in the region does slow, one open question is whether the region's private sector is large enough to make up the difference. After a two-year slump, Booz Allen's commercial consulting practice is expanding again. But in the Washington area, only a small portion of Booz Allen employees at any given time are working for private clients, though the firm would not give an exact number. And, Shrader said, the private-sector consulting it does out of Washington is generally for companies elsewhere.
The role of federal spending in the region gets lots of attention, but the nation's monetary policy had no less influence on the local economy in the past year. As the nation lumbered into a recession in 2001, the Fed began slashing interest rates. The flood of cheap money drove down mortgage and auto-loan rates, both of which helped drive Washington area job growth.
In the year ended in March, the median price for Washington area homes rose 19 percent, according to the National Association of Realtors, a rise partly attributable to rock-bottom mortgage rates. That led to a boom in residential construction; local governments issued permits for 38,696 new units of housing in the Washington area in 2003, about the same as in the boom year of 2000 and well above the levels of the late 1990s.
"Housing is clearly the biggest piece of the employment gains" in the construction industry, said Kenneth D. Simonson, chief economist of the Associated General Contractors, a construction trade group in Alexandria.
That is why it has been hard for Michael Schlegel to find enough new workers. Schlegel, the president of Greenbelt-based Bozzuto Construction., increased his crew of project managers and superintendents to 70 people from 45 a year ago, and plans to keep growing at that pace. "It used to be I'd get maybe one request a year to build a condo project," he said. "Now I get practically a call a week."
Mechanical, plumbing and electrical contractors are stretched thin, Schlegel said. "We're busier than we were in the late 1990s."
Less clear is how long the good times will last. A stronger local economy supports the housing market. But with the national economy growing robustly and inflation starting to emerge, economists say the Fed will probably begin raising interest rates, perhaps as early as next month. Already the rate on a 30-year, fixed-rate mortgage is up from 5.38 percent in March to 6.34 percent last week, which would increase the monthly payment on a $300,000 mortgage by about $184.
"I do worry about the direction of interest rates," Schlegel said. "I don't know what effect it will have when they start rising, but we are concerned about the housing market."
Construction is not the only industry to benefit from low interest rates. Retailers, especially in interest-rate-sensitive industries, are hiring in large numbers. There were 1,200 more jobs in building-supply stores in March than a year earlier, for example, a 7.4 percent jump.
"The housing market is doing phenomenally well, and that's what drives our demand for additional people," said Jeff Kmiec, a vice president of 84 Lumber Co., which has 18 building-supply stores in the Washington suburbs. On Aug. 1, the company plans to open a new store in Manassas, which will employ 20 people and which it anticipates will have the highest sales of any store in the nationwide chain within a year.
Kmiec said he is confident that if mortgage rates increase, it would be sufficiently gradual as to not disrupt the remarkable pace of housing construction in Washington.
Other retailers benefit less directly from low interest rates. Low mortgage rates and rising home prices have created a mortgage refinancing boom that Economy.com estimates saved Washington area consumers $5.2 billion in 2002 and a similar amount in 2003.
Local auto dealers have added 700 jobs in the last year, a 2.7 percent rise. One of the reasons is that interest rates are such that at many dealerships, a buyer with a decent credit rating can finance a new car interest-free.
"A low interest rate is the single most important factor," Jack Fitzgerald, president of Bethesda-based Fitzgerald Automotive Group , said of the increased business.
Pohanka Automotive Group, which has Lexus, Acura and other dealerships around the region, has sold 9.8 percent more vehicles through April than during the comparable period last year. As a result, President Geoffrey P. Pohanka said, it has increased its staff 3 percent in that time to almost 1,200 and still needs more workers.
Interest-free loan incentives were introduced to help spur car sales after the Sept. 11, 2001, terrorist attacks. With interest rates going lower and automakers struggling to maintain market share, Pohanka said, they never went away.
Pohanka said he is optimistic that even if rates rise, the company will keep growing. "Rates would go up because of improvement in the economy, and so if the economy is improving, it can only help car sales," he said. "It's not just about incentives."
There is one industry generating large numbers of jobs in Washington that is not such an obvious beneficiary of government stimulus: leisure and hospitality, which added 8,300 jobs in the past year as it recovered from the slump in travel since 9/11.
Courtesy Associates Inc., based in the District, plans conferences and other big events. Business picked up last year as travel rebounded, but to fulfill the demand President Sheila Stampfli hired part-time and contract workers rather than commit to full-timers. Now, she is sufficiently confident that the economy is recovering that she plans to add three full-time workers to her staff of 40 in the next few months.
She has some big projects coming up, organizing a Justice Department conference for 1,500 local law enforcement officials and perhaps a big event for the Homeland Security Department. Government events now account for 60 percent of the firm's business, from as little as 45 percent a few years ago.
"The commercial side of the business is still iffy," Stampfli said. "But government business has been pretty good, at least for now."