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War's economic impact
limited
by Peter Galuszka
Virginia Business
May 2003
At Checkered Flag Motor Car Inc.
in Virginia Beach, sales of foreign cars from Audis
to Jaguars have yet to be much affected by the war with
Iraq. “It hasn’t had a big effect as far as
automobile sales,” says Chief Financial Officer
Sue Marley of the auto dealership. “In fact, we
had a very good March.”
Indeed, economically, the second
war with Saddam Hussein is shaping up as being very
different from the one 12 years ago. Back then, money
flowed in the run-up to the war, but then rescinded
as millions in purchasing power left the region when
tens of thousands of sailors and troops deployed. This
time, it appears that the impact will be nowhere near
as strong as it was before, one way or the other.
For one thing, fewer military
from Hampton Roads — totaling about 17,000 —
are being deployed to the Persian Gulf. Only two Norfolk-based
carrier battle groups are involved instead of three.
Banking on advances in tactics and high-tech weaponry,
Washington is trying to rid Iraq of the Saddam Hussein
regime with about half as many troops over all. “The
war right now has had a very different effect on the
region,” says Gilbert Yochum, an economics professor
at Norfolk’s Old Dominion University, who tracks
the area’s economy.
An analysis Yochum oversaw in
January predicted a minimal impact on Hampton Roads
if war lasted only about three months, with a spending
loss of $87 million and a loss of only 33 jobs. As of
mid-April, this seemed to be the case. A worse-case
scenario in a much longer war could mean up to $144
million and 500 jobs lost.
Twelve years ago when Saddam invaded
Kuwait, the U.S. had few military assets deployed in
forward areas. Ships needed to be taken out of mothballs
from the James River Fleet and refurbished in Hampton
Roads shipyards, giving the local economy a boost. “In
the 1991 war, the logistical tail was different,”
says Yochum, noting that it was underdeveloped and needed
Hampton Roads’ ports to put it in place. J. Robert
Bray, executive director of the Virginia Port Authority,
says that the military load-out to the Persian Gulf
this time hasn’t been very dramatic. “There’s
been some, but it hasn’t been major.”
Defense industries in Hampton
Roads are likely to get some bounce from the war, but
more in the form of increased purchases of higher-tech
items, such as computer-based technologies. Not faring
as well are traditional weapons, although Northrop Grumman
Newport News has a backlog of orders for warships. “The
reality is that it is a general misconception that the
war means something like it did in World War II —
that when you go to war, you crank out a thousand tanks
a day,” says Eric Hugel, a defense industry analyst
for the Arkansas-based investment house of Stephens,
Inc.
Defense information technology
is a different story. A Stephens report predicts a 10
to12 percent growth over the next five to 10 years.
While Hampton Roads may benefit indirectly, Northern
Virginia will be the real beneficiary. “If you
go to the Hyatt Hotel in Fairfax, you have about 90
percent of these companies within a two-mile radius,”
says Tim Quillin, another Stephens analyst. Even with
the fall of Saddam, “the world will remain a very
dangerous place” and the Pentagon’s reliance
on software-based communications and detections systems
will continue.
One economic uncertainty is the
war’s near-term impact on tourism. Hampton Roads,
being closer to population centers, enjoyed a big up-tick
in visitors following the 2001 terrorist attacks. Yet
this time around may be a different story, according
to Professor Roy L. Pearson of the College of William
and Mary’s School of Business Administration. “Consumer
confidence is well below Sept. 11,” he says. “People
are much more cautious and pessimistic and they are
making plans right now about where to go and, more important,
how much to spend.”
Overall, some analysts believe
that continued defense-spending growth — from an
increase of 3.4 percent last year to 4.1 percent this
year — will keep the country’s sputtering
economy from slipping into recession again. Virginia
will get a taste, but it will be largely in Northern
Virginia.
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