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Virginia Association of Chamber of Commerce Executives

Virginia Association of Chamber of Commerce Executives. The Impact of Sequestration on the Virginia Economy. Stephen S. Fuller, Ph.D. Dwight Schar Faculty Chair and University Professor Director, Center for Regional Analysis George Mason University. June 27, 2013.

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Virginia Association of Chamber of Commerce Executives

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  1. Virginia Association of Chamber of Commerce Executives The Impact of Sequestration on the Virginia Economy Stephen S. Fuller, Ph.D. Dwight Schar Faculty Chair and University Professor Director, Center for Regional Analysis George Mason University June 27, 2013

  2. Recession Recovery Patterns of GDP Past Four Recessions % Change in GDP* Quarters After Trough *in 2005 Chained Dollars Sources: Bureau of Economic Analysis, GMU Center for Regional Analysis

  3. The National Economic Climate Four Years Into the Recovery Head Winds • The sequester • Weaker growth in emerging markets is hurting manufacturing (exports) • Business is cautious re: hiring and capital spending The Sequester • $85b reduction in budget authority • $44b in actual spending reductions in FY 2013 • $66b in spending reductions in calendar year 2013 • Spending cuts lag cuts in budget authority

  4. The National Economic Forecast • Sequester and payroll tax increases in January may reduce overall GDP growth in 2013 by 1 percentage point. • DoD spending down 7% in 2013; up 0.8% in 2014 • Non-DoD spending down 5.9% in 2013; up 0.4% in 2014. • Sequester replaced in FY 2014 Budget agreement plus tax increases (caps on deductions) and entitlement reductions beginning January 2014. • GDP in 2013 = 1.8-2.0%; in 2014 = 2.9-3.0% • GDP in 2015 = 3.4%

  5. U.S. Gross Domestic ProductQuarterly Change: 2007 – 2015 % Forecast > > > > Source: Bureau of Economic Analysis, Global Insight June 11, 2013

  6. The Potential Impacts of the Sequester on the Virginia Economy

  7. Federal Spending Trends in DC, Maryland and Virginia, 2000- 2010 (in billions of dollars) Area20002010%Change% Total ** United States $1,637.2 $3,276.4 100.1 100.0 District of Columbia 28.2 61.9 119.2 1.9 0.2 Maryland 45.1 96.3 113.5 2.9 1.9 Virginia 62.7136.1117.04.22.6 Total Area $136.0 $294.3 116.4 9.0 4.7 Source: Consolidated Federal Funds Report, 2010 **population as a percent of US

  8. Total Federal and DoD Spending in DC, Maryland and Virginia, 2010 (in billions of dollars) AreaTotal $sDoD $s% Total $s%US DoD United States $3,276.4 $557.0 17.0 100.0 District of Columbia 61.9 8.7 14.0 1.6 Maryland 96.3 18.7 19.4 3.4 Virginia 136.158.142.710.4 Total Area $294.3 $85.5 29.0 15.4 Source: Consolidated Federal Funds Report, 2010

  9. The Employment Impact of Sequestration Budget Cuts on the Maryland-DC-Virginia Region in 2013 State Job Losses* Job Losses* Total Job* DoD CutsNon-DoD CutsLosses Maryland 29,677 54,499 84,156 District of Columbia 11,419 81,126 92,545 Virginia 102,525 51,593 154,118 Totals 143,621 187,218 330,819 % U.S. job losses 17.5 24.7 21.0 *actual or equivalent job losses based on reductions in payroll spending Source: “The Economic Impact of Sequestration Budget Cuts to DOD and non-DOD Agencies as Modified by the American Taxpayer Relief Act of 2012,” Stephen S. Fuller, March 14, 2013.

  10. The Virginia Economy: Recent Performance

  11. Job Change by SectorMay 2012 – May 2013Virginia Total 50,000 (000s) Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  12. Job Change by SectorApril 2013 – May 2013Virginia Total 19,200 (000s) Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  13. Unemployment Rates in the WMSA By State Area, 2006-2013 8.5 – DC 7.6 – U.S. 6.7 – MD 5.3 – VA Source: Bureau of Labor Statistics (Seasonally Adjusted)

  14. Federal Spending Trendsin the Washington Areaand Its Current Performance

  15. 2010 Structure of the Greater Washington Economy Non-Local Business 12.0 % Other Federal 10.7 % Fed Wages & Salaries 10.0% Total Federal 39.8% Procurement 19.1% Local Serving Activities 34.8% Other 1.5% Assn1.8% Hosp. 2.1% Health/Ed. 4.5% Int’l 3.5% Source: GMU Center for Regional Analysis

  16. Federal Procurement in the Washington Metro Area, 1980-2012 $ Billions $80.0 B $75.6 B TOTAL = $1,023.5 Billion | < 80-90 = $96.5 B > | < 91-00 = $207.9 B >| < 01–10 = $563.5 B > | 2012 2011 Source: US Census, Consolidated Federal Funds Report

  17. Professional & Business ServicesWashington MSA Annual Data Annual Month over Year 2008 2009 2010 2011 2012 (000s) Tot 2012 = 702,300 Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  18. Federal Employment in the Washington Metro Area, 1950-2012 000s Kennedy – Johnson Nixon - Ford Eisenhower Carter Reagan Bush 1 Clinton Bush 2 Obama +17.5 + 17 0 -8.6 + 35 - 37 + 24 + 74 - 5 Source: US Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  19. Federal GovernmentWashington MSA (000s) Annual Data Annual Month over Year 2008 2009 2010 2011 2012 Tot 2012 = 377,400 Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  20. Summary for Federal Spending Trends in the Washington Metropolitan Area, 2010-2012 • Federal Procurement Outlays declined 8.4% between FY 2010 and FY 2012. • Federal employment has declined since peaking in July 2010, losing 8,700 jobs or 2.25%. • Federal payroll declined by 0.6% between FY 2010 and FY 2011 and will continue to decline as the workforce shrinks and older workers retire and are replaced by younger workers.

  21. The Relative Importance of Federal Spending in the Maryland-DC-Virginia Region The Region’s Share of U.S. Population 4.7% The Region’s Share of All Federal $s 9.0% The Region’s Share of All DOD $s 15.0% Share of Total Federal Spending Subject to Sequestration 21.0% Federal Spending as a Percent of the Region’s GRP in 2011 39.0%

  22. Annual Job ChangeNorthern Virginia, 2002-2013 Annual Data Annual Month over Year 2009 2010 2011 2012 (000s) Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  23. Job Change by SectorMay 2012 – May 2013Northern Virginia Total 23,900 (000s) Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  24. Job Change by SectorApril 2013 – May 2013Northern Virginia Total 9,800 (000s) Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis

  25. Federal Budget and DoD Spending Trends and the Outlook for the Virginia Economy

  26. Federal Budget Trends and Outlook (dollars in billions) YearAnnual % ChangeBudget Deficit 2007 1.2 $161.5 2008 7.2 454.8 2009 6.1 1,415.7 2010 4.5 1,294.2 2011 - 2.8 1,296.8 2012 - 2.2 1,089.2 2013 - 5.9767.2 2014 0.4618.6 2015 - 0.9540.1 2016 - 1.4 511.2 2017 - 0.7 584.5 Source: IHS Global Insight “US Executive Summary” June 11, 2013

  27. DOD Procurement Forecast (in billions of current dollars) YearProductsServicesTotal 2011 $277.6 $250.2 $527.6 2012 261.9 232.9 494.8 2013 228.4 222.8 451.2 2014 213.6 212.1 425.7 2015 210.4 207.6 418.1 2016 211.8 207.2 419.0 2017 211.8 209.1 420.9 2011-13* - 8.8 - 5.5 - 7.2 2013-17* - 1.8 - 1.5 - 1.7 *average annual % change Sources: Deltek; GMU Center for Regional Analysis

  28. DOD Procurement Forecast: RDT&E, Equipment, MILCON,O&M (in billions of current dollars) YearRDT&EEquipment**MILCONO&M 2011 $67.7 $130.2 $20.9 $191.4 2012 63.7 121.3 14.2 133.6 2013 60.5 103.7 11.2 127.3 2014 60.2 101.4 11.8 104.8 2015 59.2 102.2 12.5 106.8 2016 57.5 104.4 11.0 109.9 2017 57.1 105.4 10.0 113.0 2011-13* - 5.4 - 10.2 - 23.1 - 16.7 2013-17* - 2.7 + 0.4 - 2.7 - 2.8 *Average Annual % Change **space, missiles, ships, ordinance, tactical vehicles, aircraft, C4ISR, support systems Sources: Deltek, GMU Center for Regional Analysis

  29. The Impact of Projected Changes in DoD Spending In Virginia, 2012-2017 • Total potential changes in DoD procurement outlays over 5-year period: $36.9 billion in 2012 down $5.5 billion to $31.4 billion in 2017. • This loss of DoD procurement spending represents $21.7 billion in lost Gross State Product (GSP). • The potential decline in DoD procurement spending will have an associated negative impact on the state’s employment base: - 333,197 jobs or 9.3%; 192,431 direct jobs, 32,170 indirect jobs, and 108,597 induced jobs at risk.

  30. Virginia’s Economic Performance and Outlook, 2000-2018 (in billions of 2005 dollars) YearGross State ProductAnnual % Change 2000 $298.3 2007 366.8 3.3 2010 374.7 0.7 2013 383.5 0.8 2018 $445.3 3.2 Source: IHS Global Insight; GMU Center for Regional Analysis

  31. Virginia’s Job Growth, 2000-2018 (annual percent change) YearTotalP&BS* FederalMilitaryPY** 2000 2007 1.0 3.5 0.3 - 0.6 3.9 2010 -1.1 2.2 3.8 - 1.7 0.2 2013 1.3 2.4 - 0.2 - 0.1 2.4 2018 1.6 1.1 - 1.4 0.2 3.1 Source: IHS Global Insight; GMU Center for Regional Analysis *professional and business services includes federal contractors **total personal earnings

  32. Virginia’s Job Growth, 2000-2018 (annual percent change) YearT&U*HealthRetailL&H**Construction 2000 2007 0.4 3.6 0.6 2.3 2.0 2010 -2.3 3.4 -2.3 -0.4 -7.9 2013 1.4 2.5 1.0 2.3 -0.6 2018 1.1 3.2 0.5 0.2 8.2 Source: IHS Global Insight; GMU Center for Regional Analysis *transportation and utilities **leisure and hospitality

  33. Federal Spending Trends in the Washington Metropolitan Area: 2010-2017 (in billions of current dollars) YearGRP%Change* Fed $s% GRPProcurement 2010 $425.0 3.0 $169.0 39.8 $82.5 2011 433.7 2.6 168.2 38.8 80.0 2012 447.9 2.4 165.6 37.0 75.6 2013 466.9 2.1 162.7 34.8 71.8 2014 489.8 3.0 161.1 32.9 70.0 2015 517.2 3.6 162.7 31.4 69.3 2016 544.1 3.3 164.3 30.2 69.0 2017 $ 571.8 3.2 $166.8 29.2 $68.6 *real (inflation adjusted) percent change Source: GMU Center for Regional Analysis

  34. Thank You Questions cra.gmu.edu

  35. The Economic Impact of Sequestration Budget Cuts in 2013 ($s in billions) Sources of GDP Labor Job ImpactImpactIncome Losses DOD Budget Reductions ($42.7) $71.1 $35.0 820,825 Non-DOD-Agency Reductions ($42.7) $87.1 $45.5 757,035 Total Impacts ($85.4) $158.2 $80.5 1,577,860 Federal Workers* 36,245 165,607 201,852 Contractors** 421,548 247,176 668,724 *actual or equivalent based on reductions in payroll; **total supply chain effect Source: “The Economic Impact of Sequestration Budget Cuts to DOD and non-DOD Agencies as Modified by the American Taxpayer Relief Act of 2012,” Stephen S. Fuller, March 14, 2013.

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