The Stephen S. Fuller Institute

The Washington Economy Shows Signs of Weaning Itself from Federal Dependence

The Washington area’s longtime dependence on federal money has always been something of a blessing and a curse. It allowed the region to be one of the nation’s few economic bright spots after the financial crisis gutted the national economy in 2009, attracting job seekers to the District in droves and spurring a development boom here. But four years later, hiring ground to a halt as congressional gridlock forced a government shutdown and federal budgets were slashed as part of the sequestration process, even though the recovery was gaining momentum elsewhere.

From The Washington Post:

The Washington area’s longtime dependence on federal money has always been something of a blessing and a curse.

It allowed the region to be one of the nation’s few economic bright spots after the financial crisis gutted the national economy in 2009, attracting job seekers to the District in droves and spurring a development boom here. But four years later, hiring ground to a halt as congressional gridlock forced a government shutdown and federal budgets were slashed as part of the sequestration process, even though the recovery was gaining momentum elsewhere.

Today, some area economists say the countercyclical nature of the regional economy is starting to change, as new businesses push the local economy more toward commercial markets and less toward the government.

The shift became particularly evident in 2016, catching some economists by surprise. Broad-based gains in the health-care, hospitality and retail sectors often overtook new jobs in areas typically associated with government contractors. The region’s already-low unemployment rate dropped to an astonishing 3.7 percent, and the region consistently added jobs at a faster clip than the rest of the country.

A historical analysis of 22 economic indicators found the region’s economy hit a plateau in 2013 and 2014 after a sharp recovery from the financial crisis, then accelerated throughout 2015 and 2016.

“This makes [2016] the best year for jobs since 2000, the third best in history,” said Stephen S. Fuller, an economist at George Mason University who has tracked the local economy for decades.

GMU’s Fuller says he sees a substantial slowdown coming in the local job market over the next few years. Macroeconomic factors, such as rising gas prices and interest-rate increases, will probably be a drag on the local economy, even with the arrival of President Trump’s more business-friendly policies.

“I think we’re going to experience another recession in the next four years,” Fuller said.

“We’re going to have to say ‘the party is over’ at some point after 2017, and [the D.C. area] will not be as cushioned from downturns as it has been in the past.”

An initial analysis produced by Fuller’s team predicts that the D.C. area’s job market will cool slightly over the course of 2017 with slower growth projected for 2018 and beyond.

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