According to city-level data released this week by the Bureau of Economic Analysis, the gross domestic product of the Washington metro area fell 0.8 percent in 2013. At least some of that decline stemmed from the shutdown, presumably a one-off blow. But other factors, including a tighter defense budget, will likely pinch the regional economy for years to come. In retrospect, we’ll likely view 2010 and 2011 as D.C.’s fast-spending heyday.
“There is no easy way out,” said Stephen Fuller, a specialist in the local economy who heads George Mason University’s Center for Regional Analysis. “It will take quite a long time for the Washington economy to reposition itself — unless the federal government starts spending money again, and that’s unlikely because it doesn’t have that money.”
In the form of federal contracts, money ripples outward from D.C. — into the hands of the defense behemoths of Northern Virginia, the research centers of Maryland, the faceless security firms along Interstate 66. But those contracts don’t flow as they once did. Contracts doled out to regional companies — think Lockheed Martin, Northrop Grumman, Booz Allen Hamilton — fell about 10 percent from 2012 to 2013, according to data compiled by the Center for Regional Analysis. The biggest government spender, the Department of Defense, cut back on contracts by 16 percent in 2013, according to yet-unpublished research from the Center for Strategic and International Studies.
Compared with several years ago, these contracts tend to be structured to give the government more security against spiraling costs. Some companies, anticipating the relative austerity, have made painful but voluntary trims to their operations. On Wall Street, Lockheed was one of the big defense contractors that performed well in 2013, its stock rising 59 percent. But it has pared its workforce from 146,000 to 113,000 employees since 2008.
“The piece that is often missed here, there has been such downward pressure on companies” to grow leaner, said Stan Soloway, president and CEO of the Professional Services Council, a trade association for companies that work with the government.
The government is the main economic driver within D.C. and in the surrounding counties, and other sectors follow closely. Restaurants and certain retail areas are still thriving in the region, but jobs added in those areas tend to be low-paying.
“Our high-wage economy, which is federal contracting, is shrinking and our low-wage economy is growing,” Fuller said.
The latest census data, also released this week, seems to back that up, and may also take into account wages lost during furloughs. In 2012, the median income in D.C. was $65,246. In 2013, it was $60,675.