| Entrepreneurs
and Northern Virginia will help drive Virginia’s
economy in 2004
Related
links:
- The business of business
incentives
- Economic
growth in the U.S. and Virginia, 2002-2005
- Job
growth in Virginia and Northern Virginia, 2003-2005
by
Stephen S. Fuller
For Virginia Business
February 2004
After
three tough years of mostly bad economic news, signs
at the national level are pointing to a strong economic
performance in 2004. In fact, the economy will likely
record its best performance of the decade this year,
spurred on by favorable interest rates, larger-than-usual
tax refunds and continued deficit spending. These factors
are boosting consumer and business confidence, and accelerating
job and income growth. The indicators look so good that
economic forecasters are raising their expectations:
the consensus gross domestic product forecast for this
year is 4.4 percent, up from 3 percent last year, and
it could hit 5 percent if productivity and job growth
continue.
The economy, though, will lose some steam next year
when the stimuli that pushed it forward begin to weaken.
GDP growth predictions are just under 4 percent —
still high enough to drive unemployment rates down toward
5 percent, and the shortage of qualified workers will
constrain growth in the years beyond 2005.
Still, there’s reason to think the picture may
be brighter than the numbers indicate. As was true for
the national economy, Virginia’s economic recovery
during 2003 was underestimated. The state actually produced
more jobs and revenue than was predicted. Why? In part
because it’s becoming tougher to track economic
growth as Virginia’s economy becomes more dependent
on service-producing businesses and less dependent on
agriculture and manufacturing. Plus, the growth of small
businesses and self-employment has a long history of
being underreported.
In addition, the state’s large gain in foreign-born
residents during the past decade (accounting for 30
percent of the 10-year population gain, even though
most undocumented workers remain uncounted) includes
many workers likely to hold part-time and multiple jobs,
further complicating the economy’s measurement.
Furthermore, the service-based economy encourages a
less formal employment structure, which is also hard
to track. As a result, the entrepreneurial dimensions
of the state’s economy in 2003 have been seriously
undercounted and this yet-to-be-accounted-for economic
capacity will help drive the economy to faster growth
in 2004 than is currently being forecast.
So it’s not a “jobless recovery.”
The state’s job growth has just been undercounted.
Compare the difference between the jobs being reported
by the payroll survey and the household survey. The
payroll survey counts employees of established firms,
while the household survey is more likely to include
self-employed and contract workers, workers in start-ups
and military personnel. As of November 2003, the payroll
survey for the state reported 24,600 new jobs (on a
monthly over-the-year basis) while the household survey
reported 64,400 more jobs in Virginia than in November
2002.
While the two surveys are not the same (the payroll
survey includes jobs filled by non-state residents and
the household survey only counts residents of Virginia
holding jobs), the gap between them points to job gains
that have been overlooked in many estimates.
The strength of Virginia’s economy depends largely
on Northern Virginia. The economy of that region is
less cyclical than the rest of the state and it has
performed better throughout the recent slowdown. The
driving forces behind its continuing above-average growth
are gains in federal contracting and professional services
supporting the federal government. These high-value
added services — which set apart Northern Virginia’s
economy from the rest of the state — will continue
to support higher wages and stronger job growth there
in the coming year and beyond. These differences can
be seen in the job growth projections. Job growth in
Northern Virginia is expected to be almost twice as
fast as at the state level, accounting for approximately
45 percent of the state’s new jobs.
Overall, the economic outlook across all of Virginia
is good. Both income and job growth will expand at levels
that are likely to exceed their respective national
averages in 2004 and 2005. However, the performance
of the Northern Virginia economy is critical. If federal
outsourcing and procurement continues to raise the region’s
fortunes, it will give the entire Virginia economy a
boost not enjoyed in other states.
Return
to Virginia Business - February 2004
|
