The post-Sept. 11 economic boom that created hundreds of thousands of new jobs and pumped billions into the region’s economy is headed for a slow down as defense-related spending decelerates, according to projections released Thursday by the George Mason University Center for Regional Analysis.
“The economy peaked [in 2004] and we won’t see a peak like this again until the middle of the next decade,” said Stephen Fuller, director for the Center. “Our economy benefited from the ramp-up in federal spending after 9/11.”
Federal spending accounts for about one-third of the Washington area’s economy with 16.5 percentof that spending going directly to federal procurement. Between 2001 and 2005, federal procurement spending increased by nearly 86 percent, going from $28 billion to $52 billion, in Northern Virginia, the District and Maryland. The procurement engine helped bring 359,000 new jobs to the area — more than any other region in the U.S.
But as federal budgets are tightened — federal procurement in the region increased only 2.5 percent between 2004 and 2005 as compared to a 19 percent increase between 2003 and 2004 — it will have a ripple affect throughout the local economy.
Job growth is expected to slow to between 1 percent and 2 percent through 2010 and gross regional product is expected to hover between 3 percent and 4 percent for the region, down from about 4.5 percent over the last few years.
The change is already evident as some of the biggest local defense contractors see the growth of their revenue decline. For example, just-released financial results show revenue growth at Science Applications International Corp. slowed during the second quarter. SAIC increased revenues by only 5 percent, down from a 10 percent increase for the same period last year.
“Our revenue growth has slowed as many of our customers have experienced funding delays,” said Ken Dahlberg, SAIC chairman and CEO, in a statement following the earnings release earlier this week.
But despite the expected slowdown, the region will still continue to outperform the rest of the country, according to Fuller’s projections. Though job growth will slow, for example, the region is still expected to add an average of nearly 55,000 jobs per year through 2010. And the growth will largely remain tied to federal spending.
The region, Fuller said, has 2.2 percent of the nation’s work force, but 15.5 percent of total federal procurement spending.
“That’s why we’re so rich,” he said.
