Category Archives: Economy

Has Virginia’s Economy Turned the Corner?

employment_growthGood news on the Virginia employment front. After two years of sequestration-related stagnation, employment in Virginia grew faster than the national rate year-to-year through February 2016 — 2.5% compared to 1.9% — according to figures released by the Virginia Employment Commission. Growth was strongest in the Winchester and Richmond MSAs but it was solid where it counts the most, Northern Virginia, the state’s largest metro. Hampton Roads and Lynchburg continue to lag the state and national economies.

As a resident of the Richmond region, I am particularly heartened by the Richmond numbers. Northern Virginia and Hampton Roads had an excuse for their lagging performance in recent years — their military-dependent economies were hammered by sequestration-related budget cuts. Richmond had no such excuse; federal spending is modest here. As memory serves, this past year is the first in the current business cycle that Richmond has significantly outperformed the national economy.

Not only do the overall employment numbers look good, the strongest growth in the Richmond region took place in the professional and business services sector, a highly compensated occupational category. Growth was up 9.6% of the period, the Richmond Times-Dispatch quotes economist Chris Chmura as saying. State government employment, down 0.4%, was not a factor.

Since getting hammered during the recession, Richmond has been reinventing itself. Dramatic change has taken place not reflected by the overall employment numbers. The economy is less dependent today upon a handful of large employers like Infineon, Circuit City and LandAmerica, all of which disappeared in the recession. A new generation of entrepreneurs is rising to the fore. The region is more vibrant than it has ever been in the 30 years I have lived here.

Fed Theft Update: $749 Billion from Bank Depositors

silent_theftFederal Reserve Bank suppression of interest rates has cost bank depositors $749 billion in interest income on savings accounts, CDs, and money market accounts over the past six years, according to Richard Barrington with

Quantitative Easing has made possible one of the greatest redistributions of wealth in United States history. Unlike with taxes, which tend to be highly visible, most people don’t understand how interest rate suppression affects them. Low interest rates have devastated not only bank account savings but public and private pension funds and savings vehicles such as insurance policies. Beneficiaries are borrowers, including house buyers, car owners, college students, credit card owners, corporations leveraging their balance sheets, and, of course, the U.S. government. Every percentage point in interest rate suppression across the yield curve benefits Uncle Sam to the tune of $180 billion a year.

So, how did Barrington calculate the cost to bank depositors? starts with the total amount on deposit at U.S. banks as of March 31, per the FDIC. That total is then increased by average money market rates over the subsequent year … and then adjusted for the inflation rate over the same period. The difference between the resulting figure and the original amount on deposit at U.S. banks represents the hidden cost of the Federal Reserve’s low-rate policy.

The little guy knows the system is stacked against him. He just doesn’t know how. Pass this blog post around.


The Decimation of Coal Production and Alienation of the Working Class


In rejecting the extension of coal tax credits Friday, Governor Terry McAuliffe noted that the number of coal miners employed in Virginia has tumbled from 11,100 in 1988 to less than 3,000 in 2015.

At one time — the late 70s and early 80s, as I recall — coal mining employed more than 20,000. Since then, many jobs have been lost to automation, and more to declining production. Coal has been mined in Virginia for more than 100 years, and all the thick, easily accessible seams have been tapped out; it’s not easy extracting coal profitably from three-foot-thick coal seams. In the past decade came the fracking boom, which allowed natural gas to displace coal in the utility market, as well as the Environmental Protection Agency crackdown on mercury and other toxic byproducts of coal combustion. The Clean Air Act, assuming it moves forward, likely will be the death knell of steam coal in Virginia, leaving only a handful of mines producing metallurgical coal for steel making.

From 1988 until 2015, McAuliffe said, coal mine operators, electricity generators and other coal-related companies claimed more than $610 million in tax credits. “It would be unwise to spend additional taxpayer dollars on a tax credit that has fallen so short of its intended effectiveness,” stated McAuliffe in a press release.

It seems cruel to kick the coal mining industry when it’s down, but McAuliffe has a point. A 2012 report by the Joint Legislative Audit and Review Commission (JLARC) found that while the credits had slowed the decline of coal production and employment, both declined at the same or even faster rates than were predicted before the credits were created.

If we want to help the economy of far southwestern Virginia, there are probably better ways to do it. If there are only 3,000 coal mining jobs left, there’s nothing much to save anyway!

Not surprisingly, inhabitants of Southwest Virginia are among the most disaffected and alienated in the state, as can be seen by these two maps from the Stat Chat blog showing the percentage of votes that went for Donald Trump in the Republican primary, and, less lopsidedly, to Bernie Bernie Sanders in the Democratic primary.



Buchanan County, in the heart of Virginia’s coalfields gave 70% its votes to Trump in the Republican primary.

Clearly, alienation is not limited to coal miners — it permeates the southern tier of counties across Virginia where local economies traditionally were built around tobacco, textiles, apparel and light manufacturing. Trump voters have been the losers in the world of globalization and the knowledge economy.

I wish I had an answer for what it takes to salvage Southwest Virginia, but I don’t. The Tobacco Indemnification and Community Revitalization Commission has been throwing money at the problem — workforce development and incentives for light manufacturing, mostly — but doesn’t have much to show for it. The region is just too rugged, too isolated, too hard to get around, and too bereft of workers with skills valued in the knowledge economy to attract much investment.

Sadly, the only long-term solution may be the emigration of young people in search of job opportunities elsewhere.


Assembly Punts on Airbnb

puntby James A. Bacon

Virginia could have been one of the first states in the nation to legalize the short-term rental industry, but after taking a good hard look at HB 812, the so-called Airbnb bill, the General Assembly decided to punt. The legislature will revisit the issue next year, reports the Washington Post.

Airbnb, whose web-based platform connects visitors with homeowners renting rooms, suites and entire houses, has run into opposition from the lodging industry around the country on the grounds that individual renters should be subject to the same taxes, laws and regulations as hotels. Rather than negotiate rules on a locality-by-locality basis, the San Francisco-based company has tried to hammer out laws at the state level.

Here in Virginia, Del. Christopher K. Peace, R-Hanover, took up the cause of small property owners and submitted a bill that would have legalized Airbnb while establishing a framework for collecting taxes and protecting neighbors against nuisances. He got pushback from Del. Tommy Norment, R-Williamsburg, who represents the hotel & lodging industry in the Williamsburg area.

According to the Post, legislators amended legislation to require stricter tax collection and penalties for noncompliance, but the laws must be revisited and approved again by the legislature in 2017. Meanwhile, the state will conduct a study of the short-term rental industry.

“We were making an effort to put Virginia on the map as being proactive, welcoming and embracing the new economy,” said Sen. Jill Holtzman Vogel, R-Fauquier, sponsor of a companion Senate bill.

“Airbnb is here to stay,” said Eric Terry, president of the Virginia Restaurant, Lodging & Travel Association. “It’s something the consumer is interested in and wants to do. We welcome Airbnb, but we just think they should be subject to the same requirements that a bed-and-breakfast or a hotel has to go through.”

Bacon’s bottom line: Technology is scrambling the old economic order. Established industries instinctively utilize the power of government to buttress their dominant position from incursions by newcomers — see how the taxi industry lobbied to freeze out Uber and Lyft — but they are justified in asking competitors in the lodging industry to play by basic rules regarding the collection of taxes, protection of consumers, and the regulation of nuisance. If it takes a year for Virginia lawmakers to work out a thoughtful set of rules that allow small property owners to compete on a level playing field, the delay is arguably worthwhile. If used instead to allow the lodging industry to regroup and defeat the legislation, the delay will be a shameful blow to property owners.

The greatest debate of our era is over the distribution of income and wealth. Airbnb allows small property owners to generate income from empty basements and bedrooms. It is an equalizer that does not rely upon punitive taxation to redistribute wealth. Virginia legislators should make it their business to foster the adoption of new technologies that empower Virginians in small ways.

Another Year Older and Deeper in Debt


Back in January, Bacon’s Rebellion published a WalletHub ranking of Virginia communities by average credit score. Today, the consumer finance website has dug deeper into the data, compiling a ranking of communities by personal “money management.” The ranking, a composite of indebtedness ratios and related indicators, provides a snapshot of the consumer health of some 2,570 communities around the nation. I have extracted the Virginia communities in the listing.

This list does not differ greatly from the one I published in January, but it contains more data, showing the considerable variation in different types of debt — mortgage, credit card, car and student loans. (What a surprise, Blacksburg, home of Virginia Tech, is loaded up with student loan debt!) Northern Virginia consumers enjoy the least debt as a ratio of income, while Hampton Roads consumers are most deeply mired in debt overall, with Richmond-area consumers close on their heels.

The big surprise is the extent to which consumers outside the Golden Crescent (seen in blue) have refrained from piling up debt. Even down-in-the-mouth mill towns with high unemployment rates, like Danville and Martinsville, maintain a more manageable debt load than communities in Hampton Roads and metro Richmond. Whether that’s due to a rural prudence, institutional reluctance to push credit in these areas, or the prevalence of an older population that has saved more, I don’t know. But the numbers suggest an underlying resilience. As for Hampton Roads, entire region (excluding Yorktown) looks weak — a hangover from sequestration, I suppose, but not one that Northern Virginia appears to be experiencing.

— JAB  

Econometric Studies at Fifty Paces!

Pipeline construction in West Virginia.

Pipeline construction in West Virginia.

by James A. Bacon

From the perspective of theoretical economics, the debate over the proposed Atlantic Coast Pipeline (ACP) is getting quite interesting: To what extent do natural gas pipelines diminish the value of property they cross?

A coalition of five community groups opposed to the pipeline contend that landowners along the proposed route will lose up to $141 million in lost property value and environmental benefits– and that doesn’t include long-term losses to economic development and tourism. That estimate comes from a study performed by Charlottesville-based Key-Log Economics LLC.

But Dominion Resources, managing partner of the pipeline project, cites Federal Energy Regulatory Commission (FERC) research that there is “no consistent information suggesting that the presence of a natural gas pipeline easement would decrease property values.” Pipelines co-exist with tourism, agriculture and residential development in many parts of the country, the company says.

The debate fascinates me because, as I have argued previously on this blog, the determinants of property value are changing. Fifty years ago, rural property was valued on the income stream that could be generated by farming the land or cutting timber. Today, income is a secondary consideration for many people living in the country. Increasingly, land owners value their property for scenic vistas and environmental preservation. But there is no consensus method for compensating property owners for those lost values in eminent domain disputes, such as the uproars in Virginia over the proposed ACP and Mountain Valley Pipeline.

Viewshed impact of proposed Atlantic Coast Pipeline route through Highland, Augusta, Nelson and Buckingham Counties. Source: Key-Log Economics LLC study.

Viewshed impact of proposed Atlantic Coast Pipeline route through Highland, Augusta, Nelson and Buckingham Counties. Source: Key-Log Economics LLC study.

The Key-Log Economics study focused on a study region of four counties — Highland, Augusta, Nelson and Buckingham — in the path of the proposed ACP route. The area is one of the more economically vigorous non-metropolitan areas in Virginia, the study says. The area has a higher human amenity index (based on scenic amenities, recreational resources and access to health care), more investment income per capita and more entrepreneurship than most Virginia counties. Between 2000 and 2014, population grew 8.5% compared to a 0.2% loss for non-metro Virginia. Growth in employment and measures of personal income grew significantly faster as well.

“Trends suggest that entrepreneurs and retirees are moving to (or staying in) this region. They bring their income, their expertise, and their job-creating ability with them,” states the study. “Just as retirees and many businesses can choose where to locate, visitors and potential visitors have practically unlimited choices for places to spend their vacation time and expendable income. If the study region loses its amenity edge, other things being equal, people will go elsewhere, and this region could contract. … The ACP could tip the region into a downward spiral.”

The perception of safety risk from gas explosions will negatively impact property values along the route, as will proximity to the noisy compression station proposed for Buckingham County, the report says. Additionally, the loss of “million-dollar” views will diminish property values, and the loss to pipeline construction of “ecosystem services” such as clean water filtration could cost communities millions of dollars to replace their water supply.

Under the Key-Log methodology, the biggest contributor to lost property values by far is “aesthetic value,” accounting for 71% to 79% of total losses. The pipeline would be visible to an estimated 31,000 parcels, diminishing property values from between $8.4 billion and $30.5 billion each year.

Dominion responds that the Key-Log report “lacks factual basis and credibility.” Neighboring counties in Virginia have pipelines but haven’t seen any of the impacts Key-Log describes. Said Media Relations Manager Aaron Ruby in a prepared statement:

There are many examples in Virginia and around the country where tourism, agriculture and residential development co-exist alongside natural gas pipelines. In California’s Napa Valley, for example, hundreds of miles of natural gas transmission pipelines operate through one the most successful tourist, agricultural and wine-producing regions of the country.

Here in Virginia is more proof. For several decades a major natural gas pipeline has safely operated alongside many farms, homes and businesses in Augusta County. Far from inhibiting the economy or residential development, the pipeline passes through shopping center parking lots and in between new housing subdivisions. That pipeline extends into neighboring Albemarle County, where it passes through White Hall Vineyards, which for more than 20 years has been a successful tourist destination and producer of award-winning wine. In Fluvanna County, four major natural gas pipelines have operated for decades through the Lake Monticello residential development, which attracts vacationers, retirees and outdoor enthusiasts from across Virginia.

Dominion cited the 2014 Final Environmental Impact Statement for the Constitution Pipeline in New York, which concluded that there was no solid information suggesting that natural pipelines decreased property values. (Key-Log dedicated more than two pages in its report disputing the findings of that study.)

Other Dominion-commissioned studies found that the pipeline would result in almost $38 million in economic activity, support 1,300 jobs and, by 2022, generate $10.4 million in local tax revenue in 13 counties and cities along the route.

Bacon’s bottom line: These are weighty issues. In the abstract,, Key-Log’s economic logic makes sense to me (although its calculations of lost economic value entail numerous assumptions that I have not examined). On the other hand, Dominion has a point — Virginia has as many miles of natural gas pipeline as it does Interstate highways, but the existing pipelines haven’t sucked the life out of the state.

Perhaps one way to approach the problem is to conduct a thought experiment. What would happen if someone waved a magic wand and made an existing pipeline disappear? Would we see a leap in property values along the no-longer-existent route? That’s hard to imagine. Unlike electric transmission lines, pipelines are so unobtrusive that I can’t even think of where one is located. And that says a lot.

The Great Inversion Continues Apace

Renovated house for sale in Church Hill for $310,000. Twenty-five years ago, I purchased a house on the same street about seven blocks away for $28,000, renovated it to comparable condition and sold it a few years later for $110,00. I should have stayed in Church Hill!

Renovated house for sale in Church Hill for $310,000. Source: ZIlllow

by James A. Bacon

The Richmond metropolitan economy has been an also-ran since the 2007-2008 recession, so it came as some surprise to see that Zillow, the online real estate marketplace, listed our burg as the expected 4th hottest housing market in 2016.

The bizarre thing about the ranking is that forecast home value appreciation of 2.2% was half that of the other Top 10 metropolitan regions (Denver, Seattle and Dallas-Fort Worth led the way, with anticipated appreciation of 5% of more). But Zillow included unemployment rate and income growth in its metrics of “hotness,” and by those measures Richmond scored pretty well. Anticipated income growth of 1.2% was the highest of the Top 10 metros by a small margin, and unemployment of 4.4% was in the middle range.

Of greater interest was Zillow’s dive into real estate sub-markets. (I couldn’t find these numbers online, so I quote them from the Richmond Times-Dispatch story.) Despite horrendously bad schools and a lingering crime problem, real estate values are booming in the city. Predicted performance for selected neighborhoods:

Church Hill — + 6.7%
Carytown — +5.3%
Fan — +4.8%
Barton Heights — + 4.7%
Forest Hill Terrace — + 4.6%

If neighborhoods in Richmond’s urban core are hot, values in outlying neighborhoods likely are growing slower than the 2.2% average rate. Thus, despite record low gasoline prices (the lowest in decades, on an inflation-adjusted basis) that reduce the cost of commuting, people still want to live in walkable communities in the metropolitan center.

The Great Inversion — the shift in preferences for walkable communities in urban cores — continues apace.

Update: Speaking of the Great Inversion, how about this news — GE is relocating from the leafy Fairfield, Conn., suburbs to downtown Boston. Quoth the Wall Street Journal: The move to Boston’s waterfront is “a bet that the talent it needs is better recruited and groomed in a city than an office park.”

It didn’t hurt that Boston offered $145 million in incentives, including $25 million break in city taxes and $120 million in state infrastructure spending such as roads and parking. But New York, which recruited GE heavily, reportedly offered even more. The incentives influenced which downtown urban setting GE selected, not whether to stay in the ‘burbs or not.