Hampton Roads Economy Expected to Grow in 2018, but Uncertainty Looms
Hampton Roads is continuing its slow crawl back from the Great Recession, but persistant uncertainty could put a damper on further economic growth in 2018, according to Old Dominion University economists who presented their annual forecast Jan. 31.
The Economic Forecasting Project at the Dragas Center for Economic Analysis and Policy, in ODU's Strome College of Business, projects that the U.S. economy will surge in 2018 due to increasing global demand, the short-term impact of the Tax Cuts and Jobs Act and increased discretionary spending, along with increases in business and consumer confidence.
"The story is simple: We're doing well, and it's going to get better," said Robert McNab, director of the Dragas center. "We are in the third largest economic expansion since World War II and may go into the second largest this year and possibly the longest expansion in 2019."
McNab presented the annual economic forecast along with Vinod Agarwal, director of the Economic Forecasting Project. The event was held in partnership with the Hampton Roads Chamber of Commerce and Chartway Federal Credit Union.
The forecast predicts the Commonwealth of Virginia's annual real Gross Domestic Product (GDP) growth rate will also increase in 2018 but will continue to lag behind the national rate because of political uncertainty in Washington.
"We do not forecast a recession in 2018 but are increasingly concerned about a steeply rising federal deficit, near historically high price-earnings ratios in the stock market, and the forecasted return of wage and price inflation in the second half of 2018," McNab said.
Meanwhile, Agarwal said the Hampton Roads economy is expected to grow at a slightly higher rate (1.19 percent) in 2018 than in 2017 (0.8 percent), but the area's growth will again be slower than its historical annual average of 2.46 percent seen over the past 30 years and slower than that of the nation.
"Since 2009, we have not been doing well" in Hampton Roads, he said. "There are three reasons: the recession, 40 percent of the economy depends on the Department of Defense (which has not increased spending in recent years), and the private sector hasn't been able to replace the jobs lost in the recession."
The economists expect the number of annual civilian jobs in the region to increase by about 3,800 during 2018 and mostly be concentrated in professional and business services, leisure and hospitality, and health care services.
Agarwal said many of the jobs lost during the recession were high paying and many of those created since then have been low-paying positions.
"Thus, the changing mixture of jobs in our region has not been favorable and is a phenomenon that decision-makers should not ignore," he said.
Still, there were other encouraging economic indicators.
- Retail taxable sales are expected to rise 3 percent in 2018 due to anticipated growth in regional economic activity, rising incomes, continued relatively low gasoline prices, rising consumer confidence, decreased withholding of federal taxes and an increase in wealth of households;
- Hotel industry revenues are expected to increase by 3.9 percent in 2018, building on increases of 6.7 percent in 2016 and 4.8 percent in 2017. However, the economists pointed out that competition from short-term rental properties (like Airbnb), which have experienced "phenomenal growth," are expected to significantly challenge hotels for market share;
- The Port of Virginia continues to set record volumes in Twenty-foot Equivalent Container Units (TEUs), as well as in tonnage, which are 23.2 percent and 33.5 percent higher than pre-recession peak levels, respectively. The rail segment of the port's business has also continued to increase; and
- Single-family housing permits are expected to grow moderately at 2.4 percent in 2018. The report noted that the sale of newly constructed homes has been rising each year since 2010 (with the exception of 2014), and the relatively small inventory of existing homes in the market, low mortgage rates and continued moderate pricing should help stimulate growth in new home construction.
The economists cautioned that several factors could undermine GDP growth in 2018 and beyond, including a federal deficit that will exceed $700 billion in fiscal year 2018; significant inflation, which could spark a correction in equities markets that could spill into the real estate sector; potential curtailing of expenditures by federal and state governments, and political shocks that have grown more frequent over the past five years, including the inability of the federal government to pass appropriations bills in a timely manner.
"The current stalemate in Congress shows no signs of alleviating without a broad-based agreement on immigration, which has so far remained elusive," McNab said. "A significant shock, to include a substantial partial shutdown or failure to raise the debt ceiling, would undoubtedly slow U.S. economic growth."
Citing the fact that many Hampton Roads residents work in one city while living in another, Agarwal said regional cooperation is critical to move the economy forward.
"We still don't really work as a region. GO Virginia is a good start, but it needs to get bigger and faster," he said. "BRAC (the Base Closure and Realignment Commission) is real, and we need to get ready for it now."
For more information on the 2018 Hampton Roads Economic Forecast, visit Old Dominion's Economic Forecasting Project website.