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In January 2013, the New York Times‘ Annie Lowrey ticked off a cadre of proud Washingtonians with a Times Magazine story titled “Washington’s Economic Boom, Financed by You.” The District’s recent economic strength, she wrote, could be traced to rising federal government spending and contracting. “How Washington managed this transformation…is not a story that the rest of the country might want to hear, because we largely financed it,” Lowrey explained. And now that federal spending was starting to decline, “the capital’s boom days…might be over.”
“Old Gray Lady overlooks Washington’s true strength,” protested a headline in the Washington Business Journal. “The notion overlooks just how much talent and innovation there is in the Washington region,” the article asserted. I, too, noted that the fixation on federal dependence was overblown, given that the District economy was becoming far less reliant on federal spending.
And yet 20 months later, economic data would appear to be proving Lowrey’s forecast correct, at least in part.
The Center for Regional Analysis at George Mason University is out with a report today on changes in the D.C. area’s gross regional product (the regional equivalent of the better-known gross domestic product, or GDP). The news isn’t good. GRP dropped by 0.8 percent between 2012 and 2013, a steeper decline than during the recession. Of the 15 largest-employment metro areas in the country, the D.C. region is the only one that experienced a GRP decline.
And what accounts for D.C.’s decline? It isn’t the leisure and hospitality sector, which saw 2 percent growth, or the education/health or retail areas, which also saw gains. Instead, the biggest drag on the regional economy, shrinking by 1.8 percent, was…government.
The government component of GRP actually started declining after 2009, but other industries kept the total figure from tanking until the past few years. Total employment in the D.C. region decreased by 9,200 jobs, or 2.4 percent, between 2011 and 2013; during the same period, average pay for federal government employees dropped by nearly 1 percent. “The combined effect resulted in a decrease in the Federal component of GRP,” the report states. “Reductions in Federal spending have also impacted the private sector: Federal procurement in the WMA declined by 10 percent from FY 2012 to FY 2013, and 16 percent between FY 2010 and FY 2013. Both Department of Defense (DoD) contracts and non-DoD contracts have declined since FY 2010.”
It’s clear that government spending and the regional economy are closely linked, and that the decline in the former has dragged down the latter. But does that mean that “the capital’s boom days are over?” You wouldn’t know it from the restaurants popping up all over the city or the ever-rising housing costs, now the highest in America. That’s partly because the city’s cachet isn’t tied to government spending like its economy is. As the District’s appeal for new residents grows and the population steadily rises—-sometimes at the expense of its suburbs, a factor that’s not reflected in region-wide reports like these—-it can continue to enjoy good times, quite apart from General Services Administration office leases or defense contracts.
Charts from the CRA report