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2005 Wrap Up: Washington, DC Region’s Economy is Hottest in Nation
January 5, 2006; Washington , DC - Looking back over 2005, a brief analysis of key economic indicators confirms what most Washingtonians already know: the region’s economy, encompassing Northern Virginia, the District of Columbia and Suburban Maryland, is leading the nation in nearly every major indicator.
Federal Government Contracting Driving Growth
Record federal spending, which has increased significantly in the Greater Washington area since 9/11, continues to be the engine driving the current economic upswing. At an Economic Conference today, Stephen Fuller, PhD, Director, Center for Regional Analysis at George Mason University, announced that the U.S. Government spent $339 billion nationally in federal procurement in fiscal year 2004. More than 15 percent ($52.6 billion) of this national total stayed in the Greater Washington region. This represents a 19 percent increase over the previous fiscal year.
Which sector is benefiting most from the increase in federal dollars? The area’s technology sector has been the winner for the past few years. According to Dr. Fuller, the government accounts for more than 70 percent of the sales of technology products and services in Greater Washington.
Job Growth, Low Unemployment at Record Levels
A key measure of the region's economic strength is its robust job growth. Greater Washington continues to lead the nation in job creation, adding nearly 81,000 new jobs between November 2004 and November 2005. During this same time period, Boston and San Francisco added far fewer jobs:19,100 and 7,000 respectively, and San Jose lost more than 3,500 jobs.
Most of the recent job growth in the Washington area has come in business services, education and health services, state and local government services, and leisure and tourism/hospitality. In 2005, business services (including technology consulting services) accounted for the largest increase, gaining 25,800 jobs - an increase of nearly 4.2 percent over 2004.
The area’s new jobs were spread this year among Greater Washington’s strong technology clusters, including:
As highlighted in a recent Fortune magazine article, in the past five years the Washington area added 287,000 new jobs, 50 percent more than second-ranked Miami and nearly twice as many as third-ranked Phoenix. Five metropolitan areas lost jobs during the past years, including San Francisco-Oakland (88,000 jobs lost) and Boston (72,000 jobs lost).
The Washington area also continues to have one of the nation’s lowest unemployment rates at 3.1 percent, compared with the national average of 4.6 percent. In Northern Virginia, the unemployment rate is 2.3 percent, and in booming Loudoun County, VA, the unemployment rate is only 1.9 percent.
A Major Merger Adds to Strong, Diverse Corporate Base
Indicating a strengthening in the region’s telecommunications sector, Reston-based Nextel Communications merged in August with Kansas City, Missouri-based Sprint. The new company - Sprint Nextel - is headquartered in Northern Virginia. The $36 billion merger created the nation's third-largest wireless telecommunications company, with 40 million customers.
In addition, the Greater Washington Initiative directly assisted 28 firms expand their operations or relocate to the area during 2005, surpassing a record of 23 companies set in 2000 by the economic development organization. Of the 28 firms, 20 were international.
During 2005, the region set a record with 50 local companies (up from 40 in 2004) named to Inc. magazine’s Inc. 500 list of the fastest-growing private companies in the nation.
Reflecting the region’s increasingly diverse population, Greater Washington ranks second only to New York in the number of African- American-owned businesses. In 2005, the area was home to 10 of the nation’s 100 fastest-growing, Hispanic-owned businesses, according to Hispanic Business magazine.
Visitors, Conventions Bring Increased Revenues
According to the Washington, DC Convention & Tourism Corporation (WCTC), 2005 was a very strong year for tourism and conventions. Confirming the trend, the region’s leisure and hospitality sector added 11,100 jobs through November of 2005.
Although last year’s visitor stats are not yet final, the region is expected to top 2004’s total of 17.7 million domestic visitors. WCTC reports that hotel occupancy from January through October 2005 was significantly above the national average at 77%, up 2% over the same period in 2004.
Regional Challenges Remain on the 2006 Horizon
Despite a buoyant economy, area business, government and nonprofit leaders are working on a number of challenging issues, including a potential labor shortage, a lack of affordable workforce housing, growth and related traffic congestion issues, and uncertainties about the future course of federal spending.
More than 35,000 new housing units permitted across the region, supply has not kept pace with demand. As a result, housing prices in the Washington area rose more than 20 percent from the third quarter of 2004 to the third quarter of 2005. The average sales price for existing homes in the Washington area now tops $452,000.
In 2006, the tight labor market will impact Washington area employers seeking qualified workers to fill professional, skilled and unskilled jobs.
Transportation issues continue to be on the front-burner for the area’s political leadership and business community. Virginia Governor-elect Tim Kaine has pledged to provide leadership on the issue. Transportation issues will also dominate the 2006 gubernatorial and legislative campaigns in Maryland. Jurisdictions across the region are working to find a long-term, dedicated funding source for the popular but aging “Metro” public transit system, which requires major capital improvements. Also, with the financially troubled airline industry and the demise of low-cost carrier Independence Air, the region is expected to experience higher prices for air travel.
Finally, with the current emphasis on the nation’s rising federal debt and post-Hurricane Katrina costs, most insiders expect increases in Federal procurement spending will level off after 2006. This trend will clearly affect future growth in Greater Washington’s technology and professional services sectors.
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The Greater Washington Initiative ( GWI) is the regional economic development marketing organization that assists firms in expanding their businesses in the District of Columbia, Northern Virginia and Suburban Maryland. GWI provides complimentary and confidential client services and research and is an affiliate of the Greater Washington Board of Trade. For more info, visit www.greaterwashington.org.
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