Hampton Roads Crawls Out of Recession Hole

Source: “State of the Region: 2018 Hampton Roads”

After shrinking 1.1% in 2016 and growing only 0.9% in 2017, the economy of the Hampton Roads metropolitan area is on track for a 2.2% expansion this year, and employment has surpassed the peak reached before the 2007-2008 recession, reports the new State of the Region report by Old Dominion University’s Strome College of Business. Summarizes the report:

Hampton Roads finally appears to be putting the Great Recession in the rearview mirror. By mid-2018, we had about 0.3 percent more jobs than at the prerecessionary peak of July 2007. … By 2010, Hampton Roads lost more than 38,000 jobs from its previous peak level of employment, in 2007. In 2017, our region had about 4,000 more jobs on an annual basis than in 2007, making 2017 the first year our annual level of employment exceeded the prerecessionary peak.

However, the report sounded a cautionary note for Virginia’s second-largest population center:

Compared to our neighbors, we have fared poorly in generating jobs. While Virginia added almost 212,000 new jobs by May 2018 compared to the prerecession peak, only a few of these jobs have been in Hampton Roads. Most have been in Northern Virginia (149,400) and Richmond (54,800).

Defense spending. The rebound this year is driven by an increase in defense spending. The region remains captive to the fortunes of the defense industry, which is dictated not by market fundamentals but the ebb and flow of politics in Washington, D.C.

From 2013 to 2016, defense spending in our region remained around $19 billion. In 2017, direct defense spending approached $20 billion and we forecast that it will be $21.5 billion in 2018, subject to how much of the increased spending is for multiyear procurement contracts (ships, for example) and how much is for operations and maintenance.

In 2011 defense spending accounted for 46.1% of the region’s economic activity. The percentage declined to 40.8% in 2017 and has inched back up to 42.0% this year.┬áCompounding the impact of defense spending on regional prosperity, the average compensation of a military service member was on average 2.2 times that of the average compensation of someone working in the private sector.

The authors take a sober view of how long the burst in military spending can continue. Interest expenditures on the national debt are projected to climb from $316 billion in FY 2018 to $992 billion in FY 2028, crowding out discretionary funding, including that for defense. “The optimism for the next two years is due in large measure to the lack of fiscal restraint by lawmakers in Washington,” the authors write.

Port of Virginia. Outside the military, the major driver of economic activity in Hampton Roads is the port. After suffering from a brutal contraction in seaborne trade during the 2007 recession, volume has recovered smartly. In the past two years general cargo tonnage and container traffic have leaped ahead by 5.3% and 7%. The state budget included $350 million this year to start the process of dredging shipping lanes to a depth of 55 feet and widening the channel to 1,400 feet, maintaining the Virginia’s ports competitive advantage of accommodating cargo ships of ever-increasing size.

The biggest uncertainty is the prospect of trade war with China, which is the No. 1 country of origin and destination for shipping in and out of the Virginia ports.

Affordable housing. One benefit of Hampton Roads’ slow-growth economy is that housing remains more affordable than the national average — as it has for many years. While the monthly payment for a median-price resale house comprises 24.4% of median household monthly income nationally, it’s takes up only 20.2% in Hampton Roads. If the region can get its economy cranked back up, there isn’t much danger that high housing prices will discourage in-migration.

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2 responses to “Hampton Roads Crawls Out of Recession Hole

  1. When we talk about unfunded pension and benefit liabilities, DOD is the 600lb gorilla in the room.

    Manpower is by far the biggest cost and despite the cries of low paid, military personnel receive a phalanx of retirement benefits after only 20 years of service. Pensions, health care, VA education and housing benefits and Congress exacerbates the problem by insisting on keeping bases open in their states that the military wants shuttered.

    So the Military is adopting the same 21st century technology that the private sector has to reduce labor costs. Autonomous vehicles instead of manned vehicles, drones instead of piloted aircraft, submarines that patrol – unmanned… Navy ships today require 1/2 or less that their older versions.

    Aircraft carriers and large ships are huge sitting targets that are harder and harder to defend against smaller and cheaper weapons that are in the hands of virtually anyone who wants them.

    I see that as both a threat and an opportunity for Hampton Roads and region because ships are becoming uber automated weapons platforms that
    require a workforce that is highly educated in 21st century technologies – in addition to the metal hulls and superstructures.

    If Hampton has the right workforce – they will prosper. If their competitors end up with more and better educated workforces – future work will go to the places that have those workforces.

    Unlike Hampton, NoVa has less worries since they are basically HQ for most Federal Agencies – no matter how big or small the agency is or how many or few field offices it has.

    Ditto Richmond.

    I think what Hampton needs is a Major University that specializes in the technologies that the military wants. Looks like Tech and UVA are already engaged in other areas so it’s an opportunity for others.

    • Makes sense. Military contractors if not the military itself. But once housing costs there in Hampton Roads rebound, the jurisdictions there ought to start now requiring all that new housing be built on higher ground.

      The problem is, that reduces tax revenue for the local jurisdiction, plus, if the low land is already in private hands the owner has a good argument for compensation due to the “taking” of his land value if his development rights are severely limited by the government; yet that is exactly what they ought to be doing.

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