Old Dominion University economists delivered a prediction May 15, during their mid-year economic forecast, that the Hampton Roads economy would grow “robustly” in 2018.
The projection of 2.19 percent growth marked a significant improvement from the outlook projected in January (1.19 percent), based in part on anticipated increases in defense spending, an improving labor market and the continuing strong performance of the region’s hotels and the Port of Virginia.
The economic report was delivered in Newport News by Robert McNab, director of the Dragas Center for Economic Analysis and Policy; and Vinod Agarwal, director of the Economic Forecasting Project in partnership with the Virginia Peninsula Chamber of Commerce.
“We are currently in the second longest (economic) expansion since end of World War 11,” McNab said, adding that recovery from the Great Recession has been slow and steady.
“We will probably see U.S. economy continue to grow through 2018 and there is a distinct likelihood – barring political upheaval or a war – we will have the longest economic expansion in U.S. History in 2019.”
According to the report, labor market conditions continue to improve in the U.S. and Virginia, with 18.7 million jobs added nationally since the trough of the Great Recession in February 2010 while Virginia has added 391,100 jobs over the same period. There are now 7.2 percent more jobs in the U.S. than there were at peak employment prior to the Great Recession. Virginia has generated 5.2 percent more jobs over the same period. The number of unemployed individuals per job opening nationally fell to 1.01 in March 2018, signaling a challenge for employers to fill open positions.
“We need to have the private sector create jobs,” Agarwal said. “GO Virginia is a good start but we need more regional cooperation… the economy is ready to be going faster.”
Other predictions included in the forecast include:
- Annual civilian jobs in Hampton Roads will increase by about 3,900 during 2018. Job growth is likely to be concentrated in firms providing professional and business services, leisure and hospitality, and health care services;
- The region’s annual unemployment rate will decrease to 3.8 percent in 2018;
- Retail sales increased by 2.8 percent in 2017 and, given economic conditions in Hampton Roads, continued improvement in sales is expected in 2018.
- Taxable sales are projected to increase by 3 percent in 2018 due to improve economic activity, increasing consumer incomes and improving business expectations;
- Hotel revenues are expected to increase by 3.9 percent in 2018 due to moderate increases in federal travel; slightly higher per diem rates; and growth in the national economy, particularly in the Hampton Roads’ main tourist market areas;
- Tonnage and TEUs at the port should increase by 2.8 percent and 4 percent, respectively, in 2018; and
- The residential construction industry in Hampton Roads is expected to grow moderately in 2018. The relatively small inventory of existing homes in the market, low mortgage rates, and increasing sales prices of existing prices of existing homes should help stimulate the growth in new construction homes.
Despite the overall good news, the economists cautioned that, although mortgage interest rates are expected to continue to be at relatively low historic levels and household income in our region is recovering, recent changes in the tax code providing fewer benefits for homeownership and the persistent substantial proportion of the distressed market activity likely will mean only a modest recovery in sales prices of homes in Hampton Roads in 2018.
Other concerns included:
- The federal deficit will exceed $800 billion in FY 2018 prompting a return to $1 trillion deficits in FY 2019 and a rapid increase in interest expenditures on the debt over the next decade;
- While the recent increases in equities markets have created over $6 trillion in wealth, 50 percent of Americans do not participate in equities markets, so these gains are not spread evenly across the population. Equities markets are due for a correction if adverse information becomes available;
- Given tightening labor market conditions and an improving global economy, input prices will rise in 2018, spurring increases in inflation;
- The federal government and states have significantly less fiscal space than prior to the Great Recession. U.S. federal debt exceeds $20 trillion and Virginia’s Revenue Stabilization Fund is well below the $1 billion reserve prior to the Great Recession.
- Political shocks have grown increasingly frequent over the last five years. The federal government appears unable to pass appropriations bills in a timely manner, increasing uncertainty and hampering growth in Virginia. A significant shock, to include a substantial partial shutdown in the Fall of 2018 would undoubtedly slow U.S. economic growth. While many private firms are likely to adapt to the ‘new normal’ of uncertainty emanating from Washington, D.C., Virginia is especially vulnerable given its relatively large dependence on federal spending.
“With these factors in mind, we project that national and Virginia real GDP growth will increase in 2018,” McNab said. “While the risk of an economic correction is increasing, we believe that a recession is unlikely to occur in 2018 but is a possibility in 2019, subject to the usual caveats of economic and political shocks.”
To read the full report, visit the Economic Forecasting Project website.