The Washington area’s longtime dependence on federal money has always been something of a blessing and a curse.
It allowed the region to be one of the nation’s few economic bright spots after the financial crisis gutted the national economy in 2009, attracting job seekers to the District in droves and spurring a development boom here. But four years later, hiring ground to a halt as congressional gridlock forced a government shutdown and federal budgets were slashed as part of the sequestration process, even though the recovery was gaining momentum elsewhere.
Today, some area economists say the countercyclical nature of the regional economy is starting to change, as new businesses push the local economy more toward commercial markets and less toward the government.
The shift became particularly evident in 2016, catching some economists by surprise. Broad-based gains in the health-care, hospitality and retail sectors often overtook new jobs in areas typically associated with government contractors. The region’s already-low unemployment rate dropped to an astonishing 3.7 percent, and the region consistently added jobs at a faster clip than the rest of the country.
A historical analysis of 22 economic indicators found the region’s economy hit a plateau in 2013 and 2014 after a sharp recovery from the financial crisis, then accelerated throughout 2015 and 2016.
“This makes  the best year for jobs since 2000, the third best in history,” said Stephen S. Fuller, an economist at George Mason University who has tracked the local economy for decades.
The gains came even as the level of federal spending remains relatively stable, suggesting the surge in jobs did not come from some sudden change in government budgets but rather from business outside of it.
Economists who study the area have tended to chalk last year’s success up to a growing cadre of commercial technology companies hiring in the region’s suburban periphery. They included growing tech firms such as the online events management company Cvent and the digital education firm EverFi. There was Opower, the Arlington-based energy analytics upstart; Evolent Health, specializing in health-care services; and analytics firm Applied Predictive Technologies. All were in the vanguard of a burgeoning tech sector that created tens of thousands of new jobs, mostly in Northern Virginia and suburban Maryland.
The emergence of a commercial-facing industry here is bolstered by a near-complete recovery among federal contractors, some of which used the post-recession period to build out new business units focusing on private industry.
The fact that more businesses in Washington sell to the commercial market could also mean local jobs are more vulnerable to the ups and downs of the national economy.
GMU’s Fuller says he sees a substantial slowdown coming in the local job market over the next few years. Macroeconomic factors, such as rising gas prices and interest-rate increases, will probably be a drag on the local economy, even with the arrival of President Trump’s more business-friendly policies.
“I think we’re going to experience another recession in the next four years,” Fuller said.
“We’re going to have to say ‘the party is over’ at some point after 2017, and [the D.C. area] will not be as cushioned from downturns as it has been in the past.”
An initial analysis produced by Fuller’s team predicts that the D.C. area’s job market will cool slightly over the course of 2017 with slower growth projected for 2018 and beyond.
In some ways, Fuller is going through his own transition. He officially stepped down from his longtime post as head of George Mason’s Center for Regional Analysis in 2015, ceding leadership to a transportation-focused economist named Terry Clower. Fuller stayed on in a semiretired role, staying plugged into the local economy while the center he used to run branched out into more nationally oriented projects.
Now Fuller is back to head a new research group at the university called the Stephen S. Fuller Institute, fueled for the next three years by $1 million from 32 private donors.
Fuller and his team plan to focus their research exclusively on the Washington area. Starting this month, they are producing a monthly “Washington Economy Watch” analysis that culls together 22 data sources to create a single indicator for the health of the local economy, a reprisal of a monthly analysis Fuller conducted at George Mason for about 20 years starting in 1990.
Rather than work for specific clients, the institute plans to carry out analyses free, targeting “the media and the general public,” Fuller said.