Economist: Region relies on military
Published 10:35 pm Thursday, April 19, 2012
The ports, tourism and healthcare will continue to drive the Hampton Roads economy in 2012, but the threat of decreasing military spending remains a threat, according to the speaker at an economic forum Wednesday.
Dr. Gary A. Wagner of the Old Dominion University forecasting team presented the state of the regional economy to about 130 people at the event, which was presented by TowneBank in partnership with the Suffolk Foundation.
Although the presentation was on the regional economy, Wagner began by talking about the national economy.
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“We may have a couple of peninsulas, but we’re not an island,” he said. “It’s hard to go against the flow of the national economy for a long period of time.”
The nation, as part of a trend that has continued since 1981, is taking longer to recover from each recession than from the last one. He said the economy “bottomed out” in February 2008 but will not reach its pre-recession peak until February 2015.
“We have a long way to go, but the economy has clearly turned a corner,” Wagner told the invited audience of bank members and government and business leaders. “2012 is going to be better than 2011, but we’re still dreaming of 2007.”
A number of global problems cropped up in 2011 that slowed the gradual recovery, Wagner said. A rise in oil prices, disruptions to global supply chains caused by Japan’s earthquake and the deepening debt crisis in Europe all caused economic problems around the world, he said.
In addition, America’s sluggish housing market is contributing to unemployment because people are afraid to move to find jobs, Wagner said.
“People are afraid to move because they’re afraid they can’t sell their house,” he said.
Even so, Hampton Roads has largely been sheltered from the nationwide lows — and high spikes, as well — because of one factor.
“(The military) is an amazing stabilizer for growth in Hampton Roads,” Wagner said.
Almost half of the Gross Regional Product — the regional equivalent of the nation’s Gross Domestic Product — is attributable to the Department of Defense, he said.
But general defense spending cuts are already in place, and two rounds of Base Realignment and Closure have been slated for the next three years, although one of them may not happen, he said.
In the worst-case scenario, there could be a 5-percent Gross Regional Product loss if the military suffers an 11-percent spending cut, he said.
“There’s certainly the possibility that Congress could change its behavior,” Wagner said. And there is the potential that the area could benefit from cuts because its infrastructure would allow displaced ships to homeport here.
In the private sector, the Port of Virginia could begin contributing even more to the area’s economy in two more years. Because it is deeper than any other major East Coast port, ships that are able to come through the larger Panama Canal when it opens in 2014 would have no choice but to berth in Hampton Roads.
“We’re sitting in a very nice position, potentially, when 2014 comes around,” Wagner said.
He also said tourism is rising in Suffolk, with the Chesapeake/Suffolk share of area tourism having almost doubled from 1999 to 2011. Hotel revenue per available room, however, dropped 20 percent in that time period because of a large jump in new hotel construction.
Nationwide risks for the coming year include the continuing Eurozone recession, oil supply concerns, the housing market, fragile consumer and business confidence and what Wagner calls the “wait and see” behavior of an election year.
However, he said, the Gross Regional Product will continue to grow in Hampton Roads this year, and home prices may be stabilizing soon. Overall, things are looking up.