Eighteen months after Donald Trump came to Washington promising to “drain the swamp,” his presidency is proving to be a mixed bag for the regional economy. Far from gutting Washington’s biggest economic asset — the federal government — the direction of federal spending under a Republican-controlled Congress is creating winners and losers on different sides of the Potomac.
Job growth has softened in the District and suburban Maryland as some agencies are being drawn down. But in the outlying suburbs of Northern Virginia — where defense and intelligence contracts are a major source of business — the promise of new defense spending is breathing life into a once-stagnant job market.
“There’s a disproportionate federal stimulus to the benefit of Northern Virginia,” said Stephen S. Fuller, an economist with George Mason University who studies the local economy. “Suburban Maryland has so much of the domestic side of the federal government, but they don’t have the federal contractors that are going to benefit from this mix of federal spending.”
Job growth across the region has been steady but unimpressive. The D.C. metropolitan area added 51,500 jobs in the one-year period that ended in June, the Bureau of Labor Statistics reported Friday, a 1.6 percent growth rate that narrowly exceeded that of the nation as a whole. Some of the strongest gains came in the job classification that includes federal contractors, according to an analysis by the Stephen S. Fuller Institute at George Mason.
At the same time, unemployment rates have generally remained low: 5.6 percent in the District, 4.3 percent in Maryland and 3.2 percent in Virginia. The size of the labor force — a measure that includes the gainfully employed as well as those looking for work — increased substantially in the District, Maryland and Virginia, allaying some economists’ concerns that productive workers are leaving the economy.
The benefits have not been evenly distributed, however.
Federal employment in the D.C. area has shrunk by about 7,000 jobs over the past year — the largest decline of any job category — as the Trump administration has drawn down certain civilian agencies. The District was hit hardest by that decline, with about 4,200 federal jobs lost in the past year. Suburban Maryland experienced stagnant growth as well after construction wound down on MGM National Harbor, with no project of that size to take its place.
“For Maryland over the past year, job growth has pretty much leveled out to the point where we’re not seeing much job growth at all,” said Andy Bauer, a regional economist with the Richmond Fed. “But for whatever reason, Northern Virginia just hasn’t seen the weakness we’ve seen on the Maryland side.”
Northern Virginia added about 12,800 jobs in the one-year period that ended in June, about 5,700 of them coming in the professional and business services category that includes federal contractors. About 80 percent of the new jobs created here in the past year came in Northern Virginia, according to the Fuller Institute.
Regional economists say the disparity is a result of the direction of federal spending. The president’s most recent budget heavily favored the Defense Department while calling for cuts at the State Department and Environmental Protection Agency, among others.
Then in late February a bipartisan budget deal gave contractors a long-awaited reprieve from the “sequestration” budget caps, which have constrained defense spending since 2013. The deal gave the Defense Department more room to spend on existing contracts by allowing it to exceed congressionally imposed spending caps for fiscal 2018 and 2019.
“The federal budget deficit has been expanding briskly, and while that may be alarming to many Americans, for the near term at least, it is very good for the Washington metro area economy,” said Anirban Basu, an economist with Sage Policy Group.
The new spending is giving the region’s federal contractors reason to be optimistic. Maureen Stevens, a spokeswoman for Massachusetts-based defense contractor Raytheon, said hiring has increased moderately as the company competes for new work in areas such as cybersecurity and operational command and control.
The company’s Intelligence, Information and Services business unit, which employs about 3,000 people in the D.C. area serving defense and intelligence agencies, has hired 300 people in 2018. It hired 400 last year.
“Defense funding is clearly in a much better position than it was a year ago, and we see strong congressional support in areas where Raytheon has core capabilities,” Stevens said.
Others say the February budget deal has made it easier to plan, making contractors more comfortable with big hiring decisions.
Dave Cerne, who runs the midsize government services contractor Acclaim Technical Services, said business has been booming. Cerne says his Reston-based company has hired about 40 people so far in 2018, 75 percent of them for new positions that opened up on existing government contracts.
“It’s a very healthy, robust market right now,” he said.
The biggest thing holding him back from hiring even more people, Cerne says, is a slowdown in the process for clearing skilled workers to handle classified material, which has made it hard for contractors to staff certain projects.
The number of people waiting for security clearances swelled to 700,000 last summer and has changed little in the year since, with many reviews taking a year or more. Contractors will usually hold off on bringing in new hires while they wait for otherwise-qualified candidates’ clearances to process rather than pay people for work they aren’t cleared for.
Cerne said two of his recent hires had to wait almost two years to receive clearances, even after the company had expressed interest in hiring them.
“Right now for the highly skilled, cleared positions, all the big defense contractors are fishing in the same pond,” he said. “And there are no new fish to catch.”