During a shutdown, the federal government stops contributing to key components of the Washington region’s economy, including civilian and military wages and salaries, procurement and grants. Altogether, the federal government accounts for 29.9 percent of the regional economy and pays $2.5 billion each week for work being performed in the region. During the shutdown, a significant portion of this activity will stop. The key question, however, is how much of that lost spending and economic activity will be made up later and how much will be forgone entirely. Even if the majority of the spending is made up post-shutdown, losses in efficiency, distributional impacts, and increased uncertainty will have a modest economic costs, which will increase as the shutdown continues. Without back pay, the economic impact is projected to be significant and a three-week shutdown could cost the region upwards of 0.26 percent of its gross regional product.
The Washington region’s economy outperformed its beginning-of-the-year forecast in 2017 growing at an estimated 2.1 percent and improving significantly on its 1.1 percent gain in 2016. While still not outperforming the national economy (GDP), the region’s economy has recovered sufficiently to closely mirror the current and projected near-term performance of the U.S. economy.
The outlook for the Washington region’s economy in 2018 is for accelerating economic growth (2.3%). The burden that the Washington region’s economy is carrying in 2018 and beyond is the likelihood of flat or declining federal spending. If this proves to be the case, then the region’s economic growth will fully depend on the growth of its non-federally dependent export-based sectors and local-serving sectors that also serve non-local markets.
This series from The Stephen S. Fuller Institute and Ellen Harpel, President, Business Development Advisors, is considering the implications for the Washington Region of recent national economic research on the future of work and jobs. Specifically the series will examine how the gig and sharing economy, other contingent and independent work arrangements, and technology trends may affect employment and competitiveness in our region.
Guest Series: The Impact of Changing Federal Procurement Outlays on Selected Sub-Sectors in the Washington Region’s Economy
Historically, the economic performance in the Washington region has been shaped by federal spending, including payroll outlays for the federal workforce and procurement outlays for the purchase of goods and services from the private sector. This series will examine the nature of federal dependence across several sectors of the Washington region’s economy.
With Congress debating the FY 2018 Budget and a tax reduction plan moving through Congress as well, there is an increasing likelihood that federal spending patterns in the Washington region will change in either magnitude (value) or distribution among agencies and programs or both in the coming year and beyond. By examining the economic impacts of reductions in federal spending precipitated by the Budget Control Act of 2011, the impacts of these spending reductions on the region’s economy and its job holders and their incomes can be measured.
Between 2000 and 2016, the population in the Washington region increased from 4.86 million people to 6.13 million people. This change was the result of three factors: the natural increase (births minus deaths), net domestic migration, and net foreign migration. During this period, population gains occurred from the natural increase and net foreign migration while the region lost population from net domestic migration.
The natural increase is relatively predictable and primarily based on an individual’s life cycle. As such, the patterns over time and the characteristics of new residents (babies) are stable and depend upon the characteristics of current residents. By contrast, migration is more dependent upon external factors, like economic opportunity, cost of living, and quality of life. These factors change, both in the Washington region and elsewhere, resulting in differing patterns over time. This report examines these trends.
This region’s slow economic growth since 2010, it ranks 15th out of the largest 15 metros, has been compounded by a weak mix of new jobs favoring lower-value added occupations. This, in turn, has resulted in the Washington region having the slowest personal income growth of any of the top 15 metropolitan areas, and still the region ranks third for its high cost of living and second for its high rental costs; these are 69% above the U.S. average. No wonder that population growth has slowed and the region has experienced net domestic outmigration for three consecutive years. On top of this, the region continues to rank at the top or near the top for traffic congestion and time spent commuting. The Region’s brand has been tarnished by its decline in its rankings as compared to its peers. The evidence is growing that the time is now to start re-branding the region based on its ample assets.
Federal procurement spending in the Washington region from 2008 to 2016 was marked by three major trends. The first major trend was the decline in federal procurement spending following its peak in 2010 after thirty years of growth. The second trend was a decrease in the concentration of federal procurement dollars by agency and sub-state portion of the Washington region that was primarily the result of large spending decline by DoD. The third trend was the homogenization of purchases by the federal government with fewer categories of products and services accounting for a greater percentage of annual procurement spending. Overall, these trends point to the region’s economy being less dependent on which agency is doing the procurement and more dependent on what products and services are being purchased. Still, the key variable remains the total value of federal procurement contracting as this is a critical determinant of the Washington region’s future economic vitality.
How have the region’s advanced industrial clusters performed since The Sequester? Has the performance of the region’s seven non-federally dependent clusters resulted in reducing the region’s economic dependence on the federal government thereby reducing its vulnerability to possible future reductions in federal spending? In the two years since The Sequester (March 2014-March 2016), jobs in these clusters grew by 1.9 percent substantially lagging the growth of non-cluster jobs in the region and the performance of their respective clusters nationally.
The Washington region gained residents faster than the nation and all but five of the 15 largest employment metros between 1990 and 2015. The age distribution of residents in the region shifted over this period and the region had a higher proportion of older residents in 2015 compared to 1990. The region became majority-minority in 2008 and continued to diversify in the next seven years. This report details the changing composition of the Washington Region and how it compares to both the nation and the 15 largest employment metros.
The research presented in this report confirms the findings of other research on the economic impacts of the Torpedo Factory Art Center; that is, the Torpedo Factory is the most cited major attraction of visitors to Old Town, 83% of its visitors are nonresidents of Alexandria, its visitors combine their trip to the Torpedo Factory with multiple visits to other Old Town attractions, and visitors attracted to Old Town by the Torpedo Factory spend on average $92.88 during their visit including purchases at the Art Center.
The Washington region has long depended on increased spending by the Federal Government for its economic growth. This report summarizes this history and provides an update on the region’s growth in 2014 through 2016.
The Roadmap for the Washington Region’s Future Economy, released in January 2016, identified seven advanced industrial clusters for which the region possessed a competitive advantage that were not federally dependent. Over the 2014 to 2016 period, job growth was strong. While the gains were not driven by increases in the Federal Government, they were also not driven by these advanced industries. Rather, the growth occurred in non-cluster based jobs, the majority of which are local serving. Overall, there is little evidence that the Washington economy has pivoted away from its historic dependence on federal spending to grow in the long run.
At the start of 2015, Dr. Fuller warned regional leaders that Greater Washington was at risk of falling behind other major metropolitan regional economies if there was not an increase in regional cooperation and a decrease in the region’s reliance on federal funding. Heeding his call for action, the 2030 Group and a strong cross-sector coalition of regional leaders came together to support The Roadmap for the Washington Region’s Future Economy.
The Washington metro area faces a new imperative: it must activate the private side of its economy. Doing so will likely mean increasing the region’s competitiveness in the global economy, as the domestic economy is simply not expected to grow at a very strong rate in the near future.