By Will McDermott
What the locals say
Virginia’s economy is driven by federal dollars.
The commonwealth of Virginia suffered more from the contraction of government spending in the aftermath of the Great Recession than any other state
in the nation. In the first five years after sequestration began in 2010 — which
placed spending caps on federal budgets — Virginia’s gross domestic product
(GDP) growth lagged behind the national average every year and did not exceed 1 percent growth until 2015, according to a 2016 State of the Commonwealth report out of the Strome College of Business at Old Dominion University.
Federal funding accounts for almost 30 percent of Virginia’s GDP, according to
the report, either through employing Virginia residents or awarding contracts to
the commonwealth’s businesses. In 2010, federal contracts alone accounted for
14 percent of Virginia’s GDP. That percentage had fallen to 11 percent by 2015.
The areas hardest hit by this reduction in federal spending are Northern
Virginia, which lies across the Potomac River from Washington, D.C., and
accounts for 37 percent of all jobs in the state; and the Norfolk, Newport
News, Virginia Beach areas on the Chesapeake Bay.
In addition, the number of Virginia residents on active duty in the U.S. military declined by 25,000 between 2000 and 2015. In fact, the entire Virginia
labor force contracted from the end of first-quarter 2014 through the end
of second-quarter 2016, as the commonwealth shed more than 50,000 jobs,
dropping below 4.2 million for the first time since 2011.
Recently, Virginia’s economy has shown signs of coming back to life. The
commonwealth’s GDP rose 1.7 percent in 2016, according to a report from
the Virginia Department of Planning and Budget. And although this fell
short of projections, it was still the largest increase since 2010. Plus, the commonwealth’s labor force topped 4. 3 million this past April, according to the
U.S. Bureau of Labor Statistics. As of this past July, Virginia had added more
than 120,000 jobs since the low point 13 months earlier.
The largest areas of employment growth came from two sectors: professional and business services, which showed a 3. 4 percent increase in employment
year over year as of this past July; and education and health services, which
increased 3.1 percent over July 2016. Professional and business services alone
added 24,000 jobs year over year as of July 2017, according to a report from the
Federal Reserve Bank of Richmond.
Unfortunately, government employment — still the largest sector in the
commonwealth, employing 715,800 Virginians as of this past July — had
practically no growth year over year. Government spending was flat in 2016,
according to the state’s Department of Planning and Budget report, which
forecasts that government spending will remain neutral in 2017, which will
become a drag on the commonwealth’s economic activity by 2018. n
Home sales and prices
Median home prices in the Commonwealth of Virginia have remained
relatively stable over the past four years, although they do show fairly
dramatic seasonal variations. Second-quarter prices are generally the
highest across the commonwealth, and these have risen 7. 4 percent from
$268,242 in second-quarter 2013, to $288,000 this past second quarter,
according to data from the Virginia Realtors Association.
Closed sales across the commonwealth show the same seasonal variations, with the second and third quarters showing the highest activity
each year. Annual sales volume has increased more dramatically over
the past four years than prices, however, increasing 15. 7 percent from
100,940 closed sales of single-family homes, townhomes, and condos in
2013 to 116,827 sales in 2016. Closed sales at the end of this past second
quarter were already 6. 7 percent ahead of the same period in 2016.
Virginia Home Sales*
Source: Virginia Realtors Association
Closed sales Median sales price
*Data includes single-family homes, townhomes and condos
President, Virginia Realtors Association
“The Virginia market with the most potential for growth over the
next few years is Central Virginia. It is more affordable than the
northern Virginia suburbs [outside] of Washington, D.C. and does
not depend as heavily as the Hampton Roads area on defense
spending for regional economic health. The Central Virginia region has a strong jobs market and is within commuting distance
of jobs in surrounding regions.”