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					                            The economic forecast




V
         irginia's economy has        tobacco. In addition, the fed-             Growth in Gross Domestic
         an enormous impact on        eral government, which ac-                 Product again posted
         both the need for gov-       counts for 4.6 percent of the              a strong advance
ernment services and the state's      state’s employment base, is not                The value of all goods and
ability to provide them. When         expected to be a considerable              services produced within the
the economy is strong, more           drag on job growth, as it has              U.S., adjusted for inflation,
Virginians are working in jobs        been for much of the 1990s.                grew at 3.9 percent in fiscal
that pay higher salaries and          The first real increase in de-             year 1999, matching the
more taxes are paid into the          fense spending in more than a              growth rate for fiscal year 1998.
state treasury. A strong econ-        decade will contribute to the              Growth in total personal in-
omy allows the state to return a      Commonwealth’s growth.                     come was 5.0 percent, while
portion of its tax revenues to its                                               growth in wages and salaries
citizens in the form of tax relief.                                              increased by 6.4 percent.
                                      1990s expansion
                                      expected to become                         The new economic paradigm:
    Conversely, when the
economy is weak, jobs are lost,
                                      longest in U.S. history                    high growth, low inflation



                                      T
more people are out of work,                he current economic ex-              The productivity trend is one
and tax revenue declines. At                pansion continued un-                of the most important single
the same time, a weak econo-                abated in 1999. The                  variables for the long-term
my increases the demand for           slowdown that was expected to              forecast of economic growth.
government services. More             come from the deterioration of             The ever-growing advance-
people become eligible for un-        the worldwide economy failed               ments in productivity have al-
employment compensation,              to materialize.                            lowed companies to boost pro-
food stamps, welfare, and oth-
er services.
    Virginia’s economy is well                            U.S. economic indicators
suited to outperform the na-                              point to moderate growth
tion’s for many years to come.
Virginia is one of the fastest                                        ACTUAL                    FORECAST
growing technology states in                                       1998      1999         2000      2001 2002
the nation, and is expected to         Real GDP                    3.9%       3.9%         3.2%     2.5% 2.9%
increasingly attract suppliers,
competitors, and consultants to        Total employment*           2.6%       2.3%         1.5%     1.0% 1.3%
the state. In the manufacturing        Unemployment rate           4.6%       4.4%         4.5%     4.5% 4.5%
sector, high-tech production           Inflation -- CPI            1.8%       1.7%         2.5%     2.4% 2.4%
jobs in the Commonwealth will
offset the losses in old-line          *Total nonagricultural employment. Figures represent percent change over
                                       previous year, except unemployment rate, which is a percentage. Data based on
manufacturing jobs such as             October WEFA standard forecast. Source: Department of Taxation
apparel, textiles, metals, and

A-16 ECONOMIC FORECAST
duction, lower costs, and pass      substantially exceeded the               fiscal year 2001 before rising
those savings on to consumers       forecast.                                in fiscal year 2002 to 2.9
in the form of relatively stable                                             percent.
prices for goods and services.      Inflation reaches lowest rate
                                    of the 1990s
                                                                            Moderating job growth
    It is increasingly clear that                                            over the forecast horizon
the explosive growth of the              Notwithstanding historical-         with growth rates of 1.5
information technology indus-       ly low unemployment rates                percent, 1.0 percent, and
try has been instrumental to        and extremely tight labor mar-           1.3 percent in fiscal years
the economy's success. The          kets, the consumer price index           2000 through 2002, respec-
advances in the information         increased by only 1.7 percent,           tively. Growth is expected
technology industry are boost-      the lowest rate of this expan-           to slow in all the major
ing productivity for businesses,    sion.                                    employment sectors, with
as highlighted by the tremend-                                               especially strong declines
ous growth in the Internet and      Interest rates hiked back to             in construction employ-
e-commerce.                         September 1998 rates after               ment.
     The Internet boosts prod-      foreign woes dissipate
                                                                            A slight rise in inflation is
uctivity by lowering transac-            The Federal Reserve Board,          expected in fiscal years
tions costs, lowering search        reacting to concerns about fi-           2000 through 2002, al-
costs for suppliers, and provid-    nancial liquidity, made three            though the increase in the
ing dramatic increases in a         25 basis points cuts in interest         Consumer Price Index is
business’ presence in the mar-      rates at the beginning of the            expected to remain at
ketplace. The power and con-        fiscal year. However, by No-             about 2.5 percent per year.
tinuing evolution of the Inter-     vember 1999, the Fed had                 Although largely offset by
net, made possible by the           raised rates by 75 basis points          gains in worker productivi-
information technology indus-       in three separate hikes, thereby         ty, low unemployment and
try, is enhancing productivity      taking back the three rate cuts          rising wage gains are still
growth in nearly every indus-       it had made a year before.               likely to create some infla-
try.                                                                         tionary pressure. Howev-
    These historic gains in                                                  er, the forecast is for sub-
worker productivity are play-       U.S. economic                            dued inflation despite the
ing a key role in moderating        growth to continue                       strong-growth outlook.
inflation. Consequently, we
have not experienced the
                                    at a solid pace                         A leveling out of interest



                                    B
                                                                             rate changes. After raising
strong upward pressure on                  y February 2000, this
                                                                             rates three times within the
prices that were witnessed dur-            expansion is expected to
                                                                             last six months, the Federal
ing the previous periods of                become the longest in
                                                                             Reserve Board is expected
economic expansion.                 U.S. history. The expansion
                                                                             to keep interest rates steady
                                    has accelerated to a pace not
                                                                             for the foreseeable future.
Job gains exceeded                  seen since the 1960s. Further-
the forecast                        more, none of the imbalances
                                    that usually mark the end of a
    Total nonagricultural em-       business cycle have yet ap-
ployment in the U.S. increased      peared. Economic predictions
by 2.3 percent during fiscal        for the next few years include:
year 1999, compared with the
forecast of 1.9 percent. Growth         Real Gross Domestic Prod-
in construction, services, and          uct (GDP) growth is ex-
finance, insurance and real es-         pected to slow slightly to 3.2
tate (FIRE) employment also             percent in fiscal year 2000,
                                        then drop to 2.5 percent in

                                                                               ECONOMIC FORECAST A-17
Virginia's economy                             forecast of 3.3 percent.              ven by its high-tech industries,
                                                                                     as well as business services.
continued                                           An important result of the
                                                                                     Northern Virginia’s large and
with explosive                                 economy’s stellar performance
                                                                                     rapidly expanding business
                                               is the improvement in the qual-
growth in 1999                                                                       and professional services sec-
                                               ity of jobs being created. The


E
                                                                                     tor, which represents over 36
       mployment growth was                    strength in the services sector is
                                                                                     percent of services employ-
       broad-based, income                     a reflection of this, because
                                                                                     ment, advanced 11.0 percent.
       growth was robust, and                  high-tech employment is con-
the housing market grew at a                   centrated primarily in the ser-           Construction employment
double-digit pace. The most                    vices industry.                       grew by a strong 7.0 percent, a
important driver of the Virgin-                                                      result of the building boom in
                                                   Here is a look at regional
ia economy heading into the                                                          Northern Virginia.
                                               employment in Virginia during
new millennium has become                      fiscal year 1999:
the rapidly expanding high-                                                          Richmond/Petersburg
tech industry.
                                               Northern Virginia
     Virginia nonagricultural
                                                   Virginia’s employment                  Job growth in the Rich-
employment grew by 2.7 per-
                                               growth is mainly being driven         mond-Petersburg Metropolitan
cent, increasing by 86,700 jobs
                                               by the rapidly expanding              Statistical Area (MSA) lagged
during fiscal year 1999.
                                               Northern Virginia economy.            the statewide average, growing
Growth in most sectors was
                                               The region's employment               at a 2.0 percent rate during fis-
considerably stronger than an-
                                               growth of 3.9 percent generat-        cal year 1999, adding 10,400
ticipated. The only sector to
                                               ed over 39,700 jobs, accounting       new jobs. This represents al-
experience negative growth,
                                               for 46 percent of the statewide       most 12 percent of the state-
the manufacturing sector, ac-
                                               increase. Growth in services          wide increase. Services growth
tually performed better than
                                               employment continued to lead          of 2.2 percent contributed most
shown due to the temporary
                                               the region by creating 21,200         of the gain (3,100 jobs), fol-
impact of a strike at Newport
                                               jobs, a superb 5.3 percent in-        lowed by wholesale and retail
News Shipbuilding. The un-
                                               crease.                               trade employment (2,700 jobs)
employment rate fell to 2.8
percent, a half of a percentage                                                      with growth of 2.2 percent.
                                                  Employment growth in
point lower than the official                  Northern Virginia is being dri-            Because of the mergers of
                                                                                     its banks and investment firms,
          Strongest growth has been in services                                      Richmond is no longer a major
            and trade sectors of the economy                                         player in the finance industry.
                                                                                     Driven by growth in nondepo-
                                 Jobs in thousands                                   sitory institutions, however, the
      Manufacturing
                                                                                     FIRE sector added 2,200 jobs,
                                                                     1999
                                                                                     increasing by a robust 4.9 per-
               Federal                                               1998            cent.
                 FIRE*

       State & Local                                                                 Norfolk/Newport News/
                                                                                     Virginia Beach
        Construction
                                                                                         Employment in the Nor-
                 Trade
                                                                                     folk-Newport News-Virginia
             Services                                                                Beach MSA outpaced state-
                       -20            0           20            40              60
                                                                                     wide job growth with an in-
                                                                                     crease of 2.8 percent. The
* Finance, Insurance, and Real Estate (FIRE). Source: Department of Taxation.
                                                                                     Tidewater area added 19,000


A-18 ECONOMIC FORECAST
new jobs -- 22 percent of the            duced the most new jobs in this         pected to increase 8.7 per-
statewide increase.                      region, increasing by 9,900             cent in fiscal year 2000, 6.9
                                         jobs.                                   percent in fiscal year 2001,
    The services and trade sec-
                                                                                 and 6.5 percent in fiscal
tors led the growth with annual
                                                                                 year 2002.
increases of 5.1 percent and 3.0
percent, respectively. Em-               Virginia’s job and                     In fiscal year 2000, Virginia
ployment in transportation               personal income                         is expected to add 80,300
equipment declined by 2,400              growth expected to                      nonagricultural jobs for
jobs; however, the strike at                                                     growth of 2.4 percent. The
Newport News Shipbuilding
                                         outpace the nation’s
                                                                                 service sector is expected to


                                         T
was responsible for these tem-                  he Virginia standard             again lead job growth with
porary job losses. The insur-                   forecast expects the             gains of 35,200 jobs.
ance industry is showing                        Commonwealth to out-             Wholesale and retail trade
strength in the Tidewater area,          perform the nation in both job          is expected to add almost
driving an increase of 4.5 per-          and personal income growth              20,700 jobs.
cent in FIRE employment.                 over the forecast horizon.
                                                                                Job growth is expected to
Balance of the state                         Here is a look at what              slow in fiscal year 2001.
                                         economists are predicting for           Jobs are expected to grow
    The balance of the state             Virginia over the next few
lagged statewide job growth                                                      by only 1.7 percent.
                                         years:
with an increase of 1.7 percent,                                             
or 17,500 jobs. This represents             Total personal income in
almost 20 percent of the state-              Virginia is forecast to grow       Services employment is
wide increase. Services, trade,              at 6.5 percent, 6.0 percent,        forecast to grow at 3.4 per-
and construction employment                  and 5.7 percent in fiscal           cent in fiscal year 2000, less
were responsible for the bulk of             years 2000 through 2002,            than the fiscal year 1999
the growth in the balance of                 respectively. Wages and             growth rate of 4.5 percent.
the state. Like the other re-                salaries, the largest portion       In fiscal year 2001, services
gions, the services sector pro-              of personal income, is ex-          employment growth is ex-
                                                                                 pected to slow to 2.1 per-
                    Virginia employment growth                                   cent.
                  expected to outpace the nation’s
                                                                                Construction employment
            Percentage growth in nonagricultural employment                      is expected to grow at 2.9
                                                                                 percent, 3.3 percent, and
                                                                                 2.4 percent over the bien-
                                                                                 nium.

                                                                                Employment in wholesale
                                                                                 and retail trade is expected
                                                                                 to continue the slow,
                                                                                 steady growth seen in fiscal
                                                                                 year 1999.

                                                                                Virginia's manufacturing
                                                                                 sector is expected to lose
                                                                                 some jobs in fiscal year
                                                                                 2000 before rebounding in
      Data for 2001 and 2002 are forecasts. Source: Department of Taxation       fiscal years 2001 and 2002.
                                                                                 Job gains in nonelectrical
                                                                                 machinery and transporta-

                                                                                  ECONOMIC FORECAST A-19
    tion employment account
    for the bulk of new jobs in                   Personal income in Virginia
    this sector while the old-
                                              expected to be slightly above the U.S.
    line industries of apparels,
    textiles and tobacco con-                           Percentage growth in personal income
    tinue to shed jobs.


   The Finance, insurance,
    and real estate employ-
    ment (FIRE) sector is ex-
    pected to show continued
    job growth over the fore-
    cast horizon, adding 4,800
    jobs in fiscal year 2000.
    This sector will continue to
    experience positive net
    growth due to the strong
    performance of real estate
    brokers, nonbank credit in-         Data for 2000, 2001, and 2002 are forecasts. Source: Department of Taxation
    stitutions, and insurance
    headquarters.                   of job growth and personal in-
   State and local government      come growth over the forecast
    employment is expected to       horizon.
    grow moderately at 3.6
    percent in fiscal year 2000,
    2.7 percent in fiscal year
    2001, and 2.7 percent in fis-
    cal year 2002.
       Local governments are
    expected to add 35,300
    new jobs over the next
    three years, providing most
    of the growth in this sector.


Summary


I
    n summary, the strong
    growth that the Virginia
    economy has had during
the latter part of this expansion
-- mainly driven by informa-
tion technology advances -- is
expected to continue as Virgin-
ia remains one of the fastest
growing technology states.
   The Virginia economy is
well positioned to continue to
outperform the nation in terms

A-20 ECONOMIC FORECAST

				
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posted:3/17/2010
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