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The D.C.-area economy weathered the recession better than just about any other in the country—-and then it started to tank. Now, the region’s prospects for future prosperity and competitiveness hinge on the choices it makes in the coming years.
That’s the conclusion Stephen Fuller, the D.C. area’s leading economic prognostication guru and director of the Center for Regional Analysis at George Mason University, draws from the data. Fuller is presenting a report on the regional economy this morning at a conference in Tysons, and laid out his findings in a media briefing earlier this week.
The D.C. economy “was a rising star in the ’60s, ’70s, and 80s,” Fuller says. “In 2010, we peaked. 2010 was a turning point. We are a company town, and at that point the company clearly began to tighten its belt.”
In 2009 and 2010, the Association of Foreign Investors in Real Estate named D.C. the top investment city in America. (In 2009, D.C. was also No. 1 in the world.) But that ranking slowly weakened, before dropping off the global top-five list altogether in 2014.
The reason had mostly to do with federal government spending. Federal employment fell 5.6 percent between 2010 and 2013, while federal procurement outlays dropped by 16 percent.
Some of those federal jobs were replaced with jobs in other sectors. The trouble is, those new jobs often didn’t pay as well. “For the first time in the history of Washington,” says Fuller, “we’ve had three consecutive annual decreases in wages. This isn’t a recession. This is a structural shift.”
While the median household income in the region dropped by more than $2,000 between 2009 and 2013, it rose by $2,919 in the District. Worst hit were Frederick (-$8,215) and Loudoun County (-$7,283).
But as a region, D.C. went from the star of the recession…
… to the runt of the recovery.
So what happens next? Fuller says we could go one of two ways. One is what’s predicted by the data. The statistical models, which simply project anticipated national trends onto the region’s job-sector breakdown, are actually quite rosy on D.C.’s long-term prospects. Fuller’s analysis of data from IHS Economics shows the region slowly shaking off its economic doldrums and actually overtaking the national average in economic growth in 2017.
According to this model, D.C. will shed 22.3 percent of its federal government jobs by 2019, but more than compensate with growth in a number of other sectors, particularly professional and business services.
Fuller cautions, though, that these projections assume that the region succeeds in attracting lots of new jobs in these sectors. It’s far from a given. Currently, much of the region’s growth is being driven by retail. “We can’t run an economy on selling stuff to people who are already here,” says Fuller. “We have to sell to other people.”
In other words, if we’re to create all the jobs and economic growth predicted by the models, we actually need to work to make it happen. “The key principle is to think about, how do we bring an export base here?” Fuller continues. “If you have a really strong export base, the rest of the economy takes care of itself.”
The trouble is, at present, the region hasn’t done a great job of defining the areas where it’s going to pursue a competitive advantage. “This region needs to assess what its assets are, besides federal,” says Fuller. “What horse are we going to ride forward? Right now it’s branded as the center of dysfunctional government. That doesn’t attract businesses.”
Fuller suggests a few areas of potential growth for the region. Some are the usual suspects: science and tech, higher education, and health. A few are more surprising, like manufacturing and agriculture. More specifically, the region should capitalize on assets like Union Station (where the planned redevelopment could enhance connectivity and create jobs), Dulles International Airport (which Fuller says could become a “center for global business”), and the region’s federal labs and military/security centers.
In all goes well, according to the models, our economy will go from this…
… to this:
Bob Buchanan, a longtime developer in the region who co-hosted the press briefing, emphasized that the key to getting there is regional cooperation. The jurisdictions in the region have acted independently, leading to a lack of coordination on transportation projects and economic growth.
“If we don’t start thinking top-down, regionally,” he says, “we’re doomed.”
All charts courtesy Center for Regional Analysis