10 years later: Washington’s ups and downs since the recession

From The Washington Business Journal (subscription required):

For years, the economic forecasts have been painfully dim. Greater Washington isn’t growing as fast as its peers. It’s lagging in the high-paying jobs that count. It’s losing more millennials than it can hang onto.

Ten years after the Great Recession caused the national economy to buckle to its knees, we look at how the Washington region fared. Turns out, we were just fine. Our federal security blanket ensured we had one of the country’s softest landings and easiest rebounds.

But that security blanket has been fraying, and therein lies the real story. It wasn’t the recession that hurt us — it was sequestration. We’ve been trying to recover from those automated, across-the-board federal budget cuts ever since. We’re still down 5,900 federal jobs in the first eight months of this year compared with last year.

Now, finally, we’re seeing signs of recovery, according to the Fuller Institute at George Mason University. We’re adding more of the diverse jobs we’ve craved for so long: Our three largest nongovernment sectors — professional and business, education and health, and leisure and hospitality — account for 46.6 percent of our employment but generated 68.7 percent of new jobs so far this year.

These charts from the Fuller Institute, explained by Deputy Director Jeannette Chapman, show where we’ve been and where we’re headed today, one decade after the recession.

Change in gross regional product

This measures the baseline of Greater Washington’s economy, basically the market value of all goods and services we produce in a certain period of time. Below, you can see the U.S. gross domestic product sunk below zero in 2009 thanks to the recession, whereas our GRP not only stayed aboveground, it also rebounded quite nicely in 2010. But fast-forward to 2013, and our GRP hit bottom. That’s when stimulus funding and spending in Iraq and Afghanistan shrank and sequestration set in. And that hurt us. “Our economy shrank whereas most economies didn’t,” Chapman said. It wasn’t until 2015 that we got on more stable footing and have since been on an upward trajectory that’s been more in line with other peer markets (see bottom chart). This year, the GRP is projected to grow 3 percent, aligning with the projected 2.9 percent rise in GDP. “Because we had those flat years compared with other years, we haven’t quite gotten to where we used to be,” Chapman said. “But we’re on the right track.”

Housing sales and prices

Think of housing sales as a metric that reflects consumer confidence — the higher the confidence, the more sales. The region maintained strong sales until November 2013 — one month after a federal shutdown. Shrinking federal budgets in general and each shutdown in particular caused many to hit pause on homebuying. This year has been uneven, but Chapman warns many variables can play a role (weather, wages, inventory). One positive: Our prices didn’t fall as hard as they did in other metros.

Federal procurement

Many people have been working hard for the federal budget to no longer be as big a deal for the region, but until then: It’s still a big deal. When federal spending drops, as it did in 2012 and 2013 due to the stimulus drawdown and sequestration, it’s harder for this economy to grow. That’s since stabilized, and 2016 and 2017 offered us some increases while 2018 promises gangbusters federal spending. Though, fair warning, the growth rate still hasn’t matched that of before the recession.

Average wage

Don’t think of this as a chart that graphs the value of individual paychecks. This shows us the overall value of the types of jobs we retain or lose in the region. And the key takeaway here is that we shrank in the early part of this decade because we were losing more high-value jobs and gaining more lower-paying jobs. The good news is we reversed that in 2017, when we reached our highest average wage. “2018 looks like it’s going to be even better,” Chapman said.

Changes in our job types

The year 2009 stands out in the below chart because, yes, the region lost jobs after the recession — but we didn’t lose the workforce’s overall economic value. In other words, the lost jobs were mostly lower-paying, so-called “disposable” ones, while we kept most higher-paying professional, technical jobs. Yet our performance since then has bounced around. We saw our lowest growth in high-value jobs in 2010 and lagged national growth in professional and technical sectors in 2013 and 2014. That began to change in the last few years, with a jobs uptick in 2017 in certain advanced industry clusters that the institute thinks can drive the most economic growth (bottom chart). All signs point to that continuing in 2018, Chapman said. We had disproportionate gains in the professional and business sector this year — the region added 23,200 new jobs in the 12 months leading up to this past August, or 35.7 percent of all jobs added in that period. And yet, it makes up just 22.8 percent of the region’s employment base.

So, what does all that mean? Here’s Greater Washington’s standing, before and after the recession

OK, this doesn’t paint a great picture of Greater Washington’s economy, but don’t get too worried yet. Chapman pointed out a handful of variables can affect many of the data points below and some of them entail multiyear averages, so there may be a bit of a lag to the numbers. But it’s a good snapshot on how this region has compared, and ranks, with the 15 largest metro regions in the U.S. on each of these metrics. We might still trail our peers in several growth measures — we averaged the slowest annual growth rate, at 1.1 percent, of all 15 metros from 2010 to 2017 — but our upward trajectory in the last year positions us well to improve our rankings going forward.

Q&A

Jeannette Chapman

Deputy director and senior research associate, The Stephen S. Fuller Institute for Research on the Washington Region’s Economic Future, George Mason University

We just presented a slew of numbers, facts and figures to you. But nothing is complete with context, and Jeannette Chapman of the Fuller Institute at George Mason University helps us understand how all of the regional economic data fits into a larger economic snapshot — what it’s meant for us thus far, and what it means for us going forward.

Here is a conversation with Chapman, edited for space and clarity, to illuminate how Greater Washington fits in with other major markets and what may be its fate if, say, another recession were to hit home.

Where does all of this data ultimately put us compared with our peer markets now? In 2018, we’ve been doing broad strokes in the middle of the pack. But our trajectory has been improving. We’re not at the top of the rankings yet, but our rankings have been improving consistently for most of these metrics.

And it’s enough to be moving the needle for how we rank nationally? 2018 seems to be shaping up to a pretty good year. The data is preliminary, so it’s hard to say where we are. But in 2018, we should be on pretty solid footing.

What do you think made the difference for the region in 2017 and 2018? It goes back all the way to 2015 — things have been improving incrementally since 2015. Some of that has to do with the fact that the federal government has stabilized, federal procurement has stabilized and the private sector has had time to stabilize. And all of this is added on top of our population growth, which has bolstered different portions of our economy.

What can we expect for 2018 and 2019? We have actually a leading index that predicts economic growth about six to eight months out. It started to moderate as well and — don’t read too much into a one-month change — it looks like we will have growth through next year. It’s just that it might moderate some. The wild card is whether there’s another recession. We’re in the second-longest business cycle nationally going back to the 1850s. And anytime you start to have these really long business cycles, things start to get a little less certain.

Given the shrinkage we’ve seen in the federal sector, are we no longer recession-proof? We certainly could be just as recession-proof — it depends a little bit on what the trigger of the recession is. So, real estate hits everybody. If it’s a trade-based issue, we’ll get hit with the price increases, but we won’t necessarily get hit with the production side of the issue. If it’s a consumer debt issue, we’re going to get hit like anyone else. The second part is it depends on how the federal government reacts. If we get another stimulus, we’ll be more benefited by that — we have more tools, our businesses are well-positioned to be constructive with those dollars first. We just have the systems in place. But again, if it’s a small recession, or this administration decides not to act in the same way, we will be affected as much as any other metro.

What can we as a region do to either prepare or improve our conditions? It’s sort of the old checklist: Try to diversify as much as possible. Try to think more long term about what our internal infrastructure needs are, because if our infrastructure is lagging, it slows our growth in the long term. It’s the bigger quality of life issue that I know our region is addressing. There are lots of different approaches; there are no single magic bullets.

This all begs the question: What would our region have been without sequestration? The bigger question would have been if the federal government had not shifted its spending patterns — that includes both the run-up and the drawdown because that’s how it works. In the absence of the federal spending in the postrecession and the stimulus and conflicts in Iraq and Afghanistan, we would not have had the same growth prior. And we would not have had a drawdown. But it’s part of our economic trends. One of the things we should be thinking about is how to minimize those shifts going forward. When the federal government changes, how it grows in this area will have an effect on us, but what can the other parts of the economy be doing to mitigate that?