The Washington area grew more slowly than almost every major American metropolitan area on a variety of economic measures in the aftermath of the Great Recession, according to a new analysis of nationwide growth trends that hints at how much federal spending cuts have hurt the region.
There are signs that the region is emerging from that slowdown, which one local economist calls a “dark period” for jobs and wages, perhaps with a more diversified economy less dependent on government dollars. But the authors of the new report warn that Washington’s economy risks further leaving behind racial minorities and the poor in the years to come.
The new analysis, from the Metropolitian Policy Program at the Brookings Institution think tank, finds that from 2009 to 2014 the Washington region lagged New York, Boston, Philadelphia and even Baltimore when it comes to improvements in standards of living and prosperity. The D.C. area ranked 64th among the largest 100 metropolitan areas in job growth over that time. It ranked 84th in average wage growth and 97th in economic growth per capita.
Washington’s weakness reflects the mounting effects of a pull-back in federal spending, including a drawdown in defense procurement and across-the-board budget cuts approved by Congress in 2011. It also suggests that the region can’t continue to count on the plentiful and lucrative government work that, until now, has made this area among the most prosperous in the country.
“I’m not sure we have a choice” other than to diversify the local economy, said Alan Berube, a senior fellow at Brookings and one of the authors of the report. “The signs are not good for a return of robust federal spending benefiting a lot of D.C.-based industries.”
The effects of that drawdown appear to have rippled across the regional economy, hurting middle-class workers and the poor as much as they hurt high-end defense contractors. The past five years have also widened gaps between whites and minorities. Over this time period, the employment rate for whites in the region ticked up; for minorities it declined. Minimum wages for whites modestly increased, too. Minorities saw their earnings recede.
“To the extent you’re seeing any recovery in the economy and the labor market that’s reaching down below the middle class,” Berube said, “it’s not in the main reaching people of color.”
The report’s findings might seem at odds with so many more visible indicators about the local economy: the cranes dotting downtown, the dramatic redevelopment at Tyson’s Corner, the new residents who’ve moved into the District, pushing up demand for housing.
In the five years covered by this grim economic assessment, the District gained more than 65,000 new residents. And by many metrics, the Washington region still ranks among the wealthiest — if most expensive — in the country. It remains home to the four highest-earning counties in America. And the median household inside the District now makes more than $71,000 a year, according to Census data. That’s about $20,000 more than the typical American family.
But while the region has long been home to so much wealth, thanks to its unique tie to government, the juggernaut that created that wealth slowed even as other parts of the country emerged from the recession.
“This idea that D.C. is a prosperous place is still true. What we’re looking at in this report is change,” said Chad Shearer, a senior research analyst at Brookings and one of the authors of the report. “There we see that D.C. has indeed slipped.”
Des Moines, Iowa, for example, has fewer jobs, but job growth there is stronger. Detroit’s economy is smaller, but it’s growing faster than Washington’s. Baltimore has lower wages, but wages there have been rising, while in Washington they declined over the period.
D.C.’s slump could be ending, however: Data from 2015 suggest federal spending and hiring are no longer falling in the region, and that growth and wages rose faster than in previous years.
The local economy “ground to a halt” beginning in 2011, but 2015 “was a turnaround year,” said Stephen Fuller, an economist who directs the Center for Regional Analysis at George Mason University.
“The economy repositioned itself during this ugly period,” he said, adding back more than enough information technology jobs to compensate for those that were lost when government contractors trimmed their payrolls several years ago.
Across the country, the regions that have fared the best on economic growth and prosperity over the past five years are those that have built their economies around information technology, energy, high-end manufacturing and sectors like education and healthcare. San Jose, in the heart of Silicon Valley, tops many of these indicators. Seattle, Portland and every major metropolitan area in Texas look great, too.
None of these places count among their major employers a sprawling and big-spending government.
During the Great Recession, Washington’s government presence shielded it from the economic damage that battered most of the country. The D.C. area economy grew faster than the nation as a whole from 2008 through 2010, as federal procurement and hiring levels increased.
That pattern reversed in 2011. Federal spending in the region began to decline, due in part to drawdowns in Iraq and Afghanistan. Spending continued to fall through 2013, partly as a result of the so-called sequester budget cuts that Congress approved as part of a deficit reduction package in 2011. The federal government shed nearly 24,000 jobs in the area on net.
From 2012 through 2014, the Washington region posted almost no economic growth. Average wages fell across the region. Nearly 20,000 science and technology jobs in the region - mostly IT workers connected to government contracting - vanished. This is what Fuller calls the “dark period.”
Over the past year, though, the region added jobs at a much faster rate - about 2 percent year over year, which was middle-of-the-pack for the largest 15 metros in the country. Enough new science and technology jobs appeared to replace the lost ones, and then some. Fuller says that’s a result of the IT industry adapting to find clients outside the government.
The Brookings researchers said that regional leaders will need to look for new ways to help minority groups share in that prosperity, given how much federal employment has historically boosted the black middle class, for example.