Virginia Business has teamed up with up Chmura Economics & Analytics in Richmond to take stock of the commonwealth’s economy. Here are some excerpts from this report which offers an overall assessment and a look at conditions in regions throughout the commonwealth.
If you’re looking for good economic news, good luck, because there’s not a lot of it out there. In Virginia and across the U.S., many numbers that economists track now point in the wrong direction, says Richmond-based economist Christine Chmura. Unemployment is up and job growth is slumping, with many losses in Virginia’s hard-hit construction sector. Virginia’s job growth was an anemic 0.5 percent for 12 months ending in April, compared with 0.3 percent in the nation. Houses aren’t selling, consumer confidence is dropping and gas prices are pushing the cost of almost everything up. “The economy, at best, is creeping,” says Chmura. A standard rule of thumb for defining a recession is two consecutive quarters of declining real (inflation-adjusted) gross domestic product. Real U.S. GDP grew 1 percent in the first quarter, but there’s growing consensus that we’re in a recession. Chmura says the National Bureau of Economic Research likely will declare that the recession began in the first quarter and that it will last into the third quarter before the national economy begins a slow recovery. The question now is: How long will it take to get through this? This spring Chmura predicted real U.S. GDP would shrink 0.3 percent in the second quarter before beginning a slow rebound over the next several quarters. But the economy is shedding job 438,000 in the first six months of this year. With the Federal Reserve signaling it will hold firm on interest rates, home prices still falling, banks tightening credit, and oil prices rising, Chmura now is leaning toward a slower recovery. It’s not that things have been going terribly around the state, where growth typically is above the U.S. average and unemployment is lower. Virginia’s GDP was nearly $321 billion in 2007, up 1.9 percent from 2006, according to the U.S. Bureau of Economic Analysis, which has since stopped tracking state-level GDPs. In the 12 months ending March 2008, most regions around the state added jobs, though not many. Meanwhile, the state’s biggest regional economies, in Hampton Roads and Northern Virginia, still are getting billions of federal dollars. Plus, port business in Hampton Roads continues to grow but at a slower clip. Even so, the downturn in the housing market and the spillover effects of the subprime mortgage crisis on the banking industry are going to be tough to escape and could be a drag on economic recovery in many places, says Chmura. Northern Virginia, for example, saw months of double-digit appreciation in home values a couple of years ago. Now, just 31 percent of potential buyers in the Northern Virginia market could afford a median-price home in the first quarter, according to Chmura estimates, compared with 40 percent statewide and nearly 44 percent in the U.S. Overall, six of the state’s largest metro areas were above the national average in affordability during the first quarter. The presence of fewer home buyers means less construction, lower retail sales, and so on. “This time it doesn’t matter how much the Federal Reserve lowers interest rates,” Chmura says. “People are not going to start buying homes until they become more affordable. So this slow period is different.” Sectors faring poorly in Virginia include manufacturing, which shed 3,888 jobs in the past year. Construction lost 5,645 jobs, while the finance, insurance and real estate sector shed 3,124 jobs. The leading sector for employment growth was education and health, which added 11,546 jobs. Chmura says it’s not unusual for colleges to see higher enrollment during slow economic times, because students can’t find jobs and decide to stay in school. Plus, the health-services sector is generally immune to business cycles. Federal spending continues to pump up key economies here, mostly in Northern Virginia and Hampton Roads. Even that is slowing, though. “We just don’t have the growth rate” seen a few years ago, when federal spending climbed about 9 percent a year in the Washington region, says John McClain, deputy director of the Center for Regional Analysis at George Mason University. Last year’s spending was up just 2.5 percent over the previous year, he says. So while the region is still adding jobs it won’t add as many. This year’s projection is 12,000 new jobs, compared with 35,000 in 2006. “It hasn’t gone down; it’s just slowed way down,” McClain says. What’s to come? Building permits will keep dropping this year and next year, Chmura predicts. Job growth will be minimal for 2008 — 0.5 percent — but climb 1.2 percent next year. Retail sales should stay flat at 0.3 percent growth this year but climb 3.6 percent in 2009, she says. Still, much depends on how other factors — inflation, fuel prices, mortgage and unemployment rates — play out. Yet in the downside of a business cycle it’s worth keeping a little perspective, says McClain. “These aren’t bad times, really. They’re only bad by comparison to what they were.” ...
If you’re looking for good economic news, good luck, because there’s not a lot of it out there. In Virginia and across the U.S., many numbers that economists track now point in the wrong direction, says Richmond-based economist Christine Chmura.
Unemployment is up and job growth is slumping, with many losses in Virginia’s hard-hit construction sector. Virginia’s job growth was an anemic 0.5 percent for 12 months ending in April, compared with 0.3 percent in the nation. Houses aren’t selling, consumer confidence is dropping and gas prices are pushing the cost of almost everything up. “The economy, at best, is creeping,” says Chmura.
A standard rule of thumb for defining a recession is two consecutive quarters of declining real (inflation-adjusted) gross domestic product. Real U.S. GDP grew 1 percent in the first quarter, but there’s growing consensus that we’re in a recession. Chmura says the National Bureau of Economic Research likely will declare that the recession began in the first quarter and that it will last into the third quarter before the national economy begins a slow recovery.
The question now is: How long will it take to get through this? This spring Chmura predicted real U.S. GDP would shrink 0.3 percent in the second quarter before beginning a slow rebound over the next several quarters. But the economy is shedding job 438,000 in the first six months of this year. With the Federal Reserve signaling it will hold firm on interest rates, home prices still falling, banks tightening credit, and oil prices rising, Chmura now is leaning toward a slower recovery.
It’s not that things have been going terribly around the state, where growth typically is above the U.S. average and unemployment is lower. Virginia’s GDP was nearly $321 billion in 2007, up 1.9 percent from 2006, according to the U.S. Bureau of Economic Analysis, which has since stopped tracking state-level GDPs.
In the 12 months ending March 2008, most regions around the state added jobs, though not many. Meanwhile, the state’s biggest regional economies, in Hampton Roads and Northern Virginia, still are getting billions of federal dollars. Plus, port business in Hampton Roads continues to grow but at a slower clip.
Even so, the downturn in the housing market and the spillover effects of the subprime mortgage crisis on the banking industry are going to be tough to escape and could be a drag on economic recovery in many places, says Chmura.
Northern Virginia, for example, saw months of double-digit appreciation in home values a couple of years ago. Now, just 31 percent of potential buyers in the Northern Virginia market could afford a median-price home in the first quarter, according to Chmura estimates, compared with 40 percent statewide and nearly 44 percent in the U.S. Overall, six of the state’s largest metro areas were above the national average in affordability during the first quarter.
The presence of fewer home buyers means less construction, lower retail sales, and so on. “This time it doesn’t matter how much the Federal Reserve lowers interest rates,” Chmura says. “People are not going to start buying homes until they become more affordable. So this slow period is different.”
Sectors faring poorly in Virginia include manufacturing, which shed 3,888 jobs in the past year. Construction lost 5,645 jobs, while the finance, insurance and real estate sector shed 3,124 jobs. The leading sector for employment growth was education and health, which added 11,546 jobs.
Chmura says it’s not unusual for colleges to see higher enrollment during slow economic times, because students can’t find jobs and decide to stay in school. Plus, the health-services sector is generally immune to business cycles.
Federal spending continues to pump up key economies here, mostly in Northern Virginia and Hampton Roads. Even that is slowing, though. “We just don’t have the growth rate” seen a few years ago, when federal spending climbed about 9 percent a year in the Washington region, says John McClain, deputy director of the Center for Regional Analysis at George Mason University.
Last year’s spending was up just 2.5 percent over the previous year, he says. So while the region is still adding jobs it won’t add as many. This year’s projection is 12,000 new jobs, compared with 35,000 in 2006. “It hasn’t gone down; it’s just slowed way down,” McClain says.
What’s to come? Building permits will keep dropping this year and next year, Chmura predicts. Job growth will be minimal for 2008 — 0.5 percent — but climb 1.2 percent next year. Retail sales should stay flat at 0.3 percent growth this year but climb 3.6 percent in 2009, she says.
Still, much depends on how other factors — inflation, fuel prices, mortgage and unemployment rates — play out. Yet in the downside of a business cycle it’s worth keeping a little perspective, says McClain. “These aren’t bad times, really. They’re only bad by comparison to what they were.”
...
Read more in the original article: Slow home sales could continue to drag on Virginia’s economy, by Robert Burke
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