Unemployment rates rose in the District, Maryland and Virginia in July, the Labor Department reported Monday, a sign that federal spending cuts may be starting to weigh on the region’s labor market.
Each jurisdiction was weak in two critical sectors — professional services and government — that were vulnerable to the budget cuts that went into effect in March.
“It’s finally here,” said Daraius Irani, director of the Regional Economic Studies Institute at Towson University. “I think we’re seeing the effects of the sequestration taking firmer hold in the overall job numbers.”
Maryland’s unemployment rate reached its highest level since November 2011, ticking up to 7.1 percent from 7 percent. The state’s labor force also shrank in July, to 3.13 million people from 3.14 million, which suggests the rate increase was not boosted by more people looking for work.
“It’s not one of these ‘bad news is good news’ situations,” said Anirban Basu, chief executive of Sage Policy Group, a Baltimore economic consulting firm. “Bad news is bad news.”
A weakening labor market could mark a turning point of sorts for the region’s economy, which continued to add jobs during the recession as many other metropolitan areas hemorrhaged them. Later, with a modest recovery underway, many local businesses spent much of 2012 hand-wringing over the prospect of sequestration and attempting to gird themselves against it by shrinking their real estate footprints, trimming staff or spinning off business units.
In the early months of sequestration, when the region’s labor market showed little evidence of change, some analysts said the steadiness might be a result of those planning efforts. But now it seems the cuts may finally be having an impact.
“The sequester is like an infection. It’s just in there,” said economist Stephen Fuller, who directs the Center for Regional Analysis at George Mason University. “It’s working slowly, and it’s taking a toll. And that will continue.”
Maryland shed 9,200 jobs, with the steepest losses coming from government, at 4,300 positions, and the professional services industry, at 3,200 positions.
Ginger Groeber, founder and chief executive of the contracting job search site Exfederal.com, said she has recently noticed an uptick in job seekers from Maryland in her database. And Groeber said they are not just former employees of small-to-mid-size firms; they are increasingly from large contracting companies.
“I think it’s because the larger companies who have been maintaining some of the ‘bench strength’ of people who they think they can use on other contracts, they’re not seeing those come through,” Groeber said.
Booz Allen Hamilton is one firm that has begun to let go of bench strength that it could not place on contracts. In an earnings call on July 31, the company said this strategy has been “a significant factor in our ability to control our indirect costs.”
The employment picture in the District was also dreary, with the jobless rate jumping to 8.6 percent after hovering at 8.5 percent since April. The city lost 1,600 jobs overall, many from the government sector, which shaved 1,300 positions. The only sector in the District that gained jobs was professional services, with 600 additional positions. But that was an anemic increase for a cornerstone of the city’s economy.
Virginia added 1,400 jobs overall as its jobless rate rose to 5.7 percent from 5.5 percent. Some sectors posted moderate job gains, including manufacturing, which added 3,300 positions, and education and health services, which added 2,100 positions. But the commonwealth also posted losses of 2,900 positions in professional services and 2,700 in government.
Alan Chvotkin, executive vice president and counsel at the Professional Services Council, said contracting firms across the region are beginning to more fully feel the burden of sequestration.
“We are hearing from more and more of our companies about actions the government is taking to modify or not extend services contracts,” Chvotkin said. “Companies are downsizing, and they’re certainly not increasing hiring except in very narrow specialized areas.”
Karen Kalantzis, chief executive of Corporate Network Services, said she has noticed other ripple effects of sequestration at her Poolesville information technology contracting firm. She said that government employees now seem to travel less frequently, and so her staff has had fewer opportunities to connect face to face and further develop their business with them.
Economists and recruiting professionals said sequestration’s effect on the local job market is probably only just beginning, with further job losses expected in the coming months. Basu, of Sage Policy Group, said looming congressional debates over raising the nation’s debt limit and funding the federal government could stoke a climate of uncertainty, putting more drag on local job growth.
All three jurisdictions lost jobs in the construction industry, a signal that the improvement in the housing market may not be translating into more hiring.
The nation’s unemployment rate dropped to 7.4 percent in July as the economy added 162,000 jobs.
Jobless rates increased in 28 states and declined in eight. Rates were unchanged in 14 states. The highest jobless rate, 9.5 percent, registered in Nevada. The lowest rate, 3 percent, was recorded in North Dakota.
