Washington economy’s pull may be fading, study says

From The Frederick News-Post:

 A report released earlier this month suggests that the Washington region’s economic impact has been fading compared to the influence of its metropolitan peers around the country.

The Houston metropolitan area’s economy is projected to move ahead of Washington’s in 2018, and Washington is expected to drop to sixth place, ahead of the San Francisco-Oakland area, according to a report by Stephen Fuller, an economist at George Mason University in Virginia and director of the Stephen S. Fuller Institute.

Washington’s economy is also growing more slowly than other cities’.

 Between 2010 and 2016, “the Boston region’s economy grew twice as fast as the Washington region’s economy, the Atlanta region grew three times as fast, the Seattle region grew almost four times as fast and Houston region and Dallas region each grew approximately five times as fast as the Washington region’s economy,” the report said.

And the region’s new jobs usually pay less — often significantly less — than the government-related jobs they’ve replaced.

“Rather than growing federal jobs and federal contractor jobs, with salaries averaging near $100,000, the region has been growing more jobs in local-serving sectors — education and health services, leisure and hospitality services (includes restaurants), and retail trade — having average salaries about one-half of those found in the federal and professional and business service sectors,” the report said.

A fading Washington area economy could have significant consequences for Frederick County.

About 40 percent of the county’s commuters travel out of the county for work, with many driving to Montgomery County or Washington for work.

But while there is an expectation of slowing economic growth, the region’s economy has remained steady, said Anirban Basu, an economist and CEO of the Baltimore-based Sage Policy Group.

Washington may no longer be at the vanguard of economic growth, but its housing market has held up well, unemployment is low, and the area has been adding jobs at a pace that’s consistent with the national average, Basu said.

The Fuller report doesn’t talk as much about some of the other factors that help determine quality of life, such as the quality of primary and secondary education in the region, said Sang Kim, chairman of the Department of Economics and Business Administration at Hood College in Frederick.

The region also has tremendous diversity, with almost half of the adult population born outside of the U.S., which can create lots of opportunity and creativity, Kim said.

Commercial construction grows

Meanwhile, not all the economic indicators for the region are reason for concern.

According to a report from the Metropolitan Washington Council of Governments, commercial construction in the Washington metropolitan area reached its highest point in seven years, although it remained below what it had been before the recession.

There was more than 12.4 million square feet of new commercial space in 160 new buildings in the region in 2016, more than 5 million square feet more than in 2015, according to the report.

About 4.4 million square feet of the 2016 construction was in Maryland.

A third of the construction — 4.1 million square feet — was industrial or flex space such as warehouses, including a 600,000-square-foot Costco distribution center in Monrovia.

Frederick County has seen a healthy growth rate of industrial and flex space, but less in office or retail space, said John Kent, a planner with the Council of Governments.

That’s pretty typical for the region, except for downtown Washington and parts of Loudoun County, he said.

Office space near Metro stations in the region is at a premium, while older space and traditional office parks are hurting, Kent said.

A more diverse economy

The Fuller report cites the region’s diverse population, educated workforce and connectivity to the world as some of its competitive advantages, among others.

But there are indications that the region may not be the draw for young, educated workers that it traditionally has been.

The region’s population growth has dropped from 1.9 percent per year in 2010 to 0.9 percent in 2016, according to the report.

And for the last three years, the region has seen net domestic outmigration — an average of 28,933 more residents leaving the metropolitan area than moving in from somewhere else in the U.S. — and has relied on international migration to increase its adult population, fill jobs and provide demand for housing.

 The report cites the high cost of living in the area as one of the key factors in fewer Americans moving to Washington and its surrounding area.

The region ranks third among the country’s 15 largest metropolitan areas, behind only New York and San Francisco-Oakland, with a cost of living 19.1 percent higher than the U.S. average.

“What is most troublesome is that it is the younger-age cohorts, including the millennials, who are moving out and/or not moving in,” the report said. “The outmigration of younger workers will result in the resident workforce becoming older and the region becoming more dependent on daily in-commuting from outside the metropolitan area boundaries to fill the economy’s growing labor force requirements.”

For a long time, many of the best and brightest young workers were drawn to Washington, Basu said.

But now young knowledge workers are being drawn to San Francisco, Boston, Austin or other technology-heavy areas, he said.

He’s skeptical that the cost of housing is a decisive factor, since areas like New York or California’s Silicon Valley are also very expensive.

Rather, other areas are making the case that they can provide better career opportunities than Washington, Basu said.

Washington needs to diversify its economy, and needs to develop a private sector that doesn’t sell its services primarily to the federal government, he said.

Kim believes the high housing costs will have a definite impact on young workers, if they have to consider how far their money would go in another city versus in Washington.

But if Washington can create conditions that entice people to come work there, others will be drawn to that talent, he said.

There’s no reason why industries such as biotechnology or information technology can’t flourish by doing work for the private sector rather than government research, especially by connecting with the large number of colleges and universities in the region, he said.

Meanwhile, government should focus on providing the infrastructure that companies need, and work to reduce traffic congestion and housing costs.

“I think other things will sort themselves out,” he said.

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