Virginia employment growth stuck in neutral

Posted on April 7, 2014 by Chris Chmura

This article was originally published in the Richmond TImes-Dispatch on April 2, 2014.

Employment in the nation is finally starting to pick up. Nonfarm payrolls rose by 192,000 in March, which is 1.7 percent higher than a year ago. The Richmond metropolitan area is seeing similar growth. Employment rose 1.5 percent over the year ending in February, which is the latest data available at the regional level.

In contrast, employment growth in Virginia has stalled. Employment declined in seven of the past 12 months. In fact, Virginia’s employment in February 2014 was 3.767 million — slightly below the February 2013 level of 3.769 million. This is unusual. Over the past two decades, Virginia’s employment growth typically outpaced that of the nation.

Even more unusual is the sector that is leading the decline. The professional and business services sector, which grew at a 2.2 percent annual average rate in the 10 years ending in 2013, contracted 3 percent in the year ending in February 2014.

The Northern Virginia metro area, which has been the engine of growth in the commonwealth, appears to have run out of steam. Employment fell 0.2 percent for the year ending in February; and similar to the state, the professional and business services sector contracted 2.5 percent over the same period.

Why is this happening? Chalk it up to cuts in defense spending.

There is no industry sector called “defense” because businesses that receive defense contracts range from manufacturers to retailers and service providers. However, almost half of the defense contracts awarded to firms in Virginia during the past two fiscal years were for professional and business services.

Defense contracts awarded to firms in Virginia more than doubled from $20 billion in fiscal year 2003 to a peak of $43.1 billion in fiscal year 2011. Over that period, Virginia’s economy became more dependent on defense contract awards as they made up 6.5 percent of gross state product in 2003 and rose to 9.9 percent of GSP in 2011. Contract awards to Virginia firms have since dropped to $33.5 billion in fiscal year 2013.

It stands to reason that just as Virginia benefited from the surge in defense spending, the drawdown will now dampen its growth.

This blog reflects Chmura staff assessments and opinions with the information available at the time the blog was written.