The last year that Hampton Roads outperformed the national economy was in 2009. That year, the region’s gross product declined by 0.8%, compared with a national decline of 2.5%. The years that have followed the Great Recession have been tough for Hampton Roads. Since 2003, the region has lost almost 32,000 uniformed military personnel. This significant loss to the region’s military employment base has been exacerbated by a reduction in defense contracts resulting from cuts to federal expenditures (sequestration) that began in 2011. Over the past decade, the region’s private sector has been struggling against a consistent outflow of federal resources. When compared to similar sized metropolitan areas, Hampton Roads’ 10-year growth rate in gross product ranks 37th out of the 39 metropolitan statistical areas with populations between 1 – 4 million.
Over the past year, economic conditions in Hampton Roads have begun to improve. The steady out-flow of federal resources has receded, and we are once again beginning to see increases in federal expenditures. Civilian employment grew modestly over the past year, continuing the slow growth trend that the region has experienced since early in 2010. Employment gains in the Construction, Leisure & Hospitality, Scientific, and Healthcare industries more than offset employment declines in the Retail Trade, Local Government, and Administrative sectors.
The region experienced healthy growth in the labor force, adding 12,000 participants over the past year while reducing the number of unemployed residents by over 2,000. Unfortunately, the healthy labor force figures and the low unemployment rate have not yet resulted in significant gains in regional wages, though wage rate growth is expected to increase in 2020.
Tourism expenditures continued to grow in the region, notching 10 continuous years of growth for Hampton Roads’ tourism industry. Hotel revenues, employment in the leisure and hospitality industry, and visitor expenditures have all experienced positive growth in the past year.
Residential real estate has continued to see a slow but steady climb in home values, as building permit activity remains below long-term averages. While housing price growth remains tepid, the housing market is healthy and vibrant, with record average home sales prices, a record number of housing sales, and continued declines in the average length of time it takes to sell a home.
Projected increases in Department of Defense spending, unprecedented transportation infrastructure construction projects, continued growth at the Port of Virginia, and a healthy regional labor force are expected to push Hampton Roads’ economic growth rate past that of the Nation for the first time in a decade. 2020 looks to be a good year!
To view Janaury’s full economic monthly report, click HERE.
Annualized Growth in GDP
Gross Domestic Product combines consumption, investment, net exports, and government spending to determine the size and general health of the economy. Real GDP slowed to 2.0% in Q2 2019, with that growth driven by a strong rebound in consumer spending (+4.7% over the previous quarter). Investment decreased by 6.1%, though this was largely driven by changes to inventories. Significant regionally, national defense spending grew for the 7th consecutive quarter (+3.1%).
Retail sales in Hampton Roads, as measured by the 1% local option sales tax, serve as an indicator for consumption in the region. Retail sales have bounced around, but after a surprisingly weak June, they have recovered again in July, increasing to $2.07B (seasonally adjusted 3 month M.A.). Sales increased by 7.9% year-over-year in July, which was even higher growth than seen in May (7.3%); May in particular has seen strong growth over the past several years.
New Car Sales
Car sales, as a durable good, may be put off until an individual’s economic prospects improve; thus, the number of new car sales indicates the level of confidence that households in Hampton Roads have in their financial future. While the industry saw a decline in national car sales in September due to Labor Day sales counting in August, Hampton Roads numbers tell a different story. Car sales in the region increased significantly compared to both last month and September of 2018. This continues the trend of strong summer sales, and will be interesting to see if it continues.
Hotel sales indicate the performance of the region’s tourism sector. In Q2 2019, accommodation sales increased by 6.8%, growing to $231.7 million. This continues a pattern of strong growth stretching back to the third quarter of 2014. The tourism industry continues to play a significant role in the regional economy as one of Hampton Roads’ basic sector industries.
Non-agricultural civilian employment figures are considered the best estimate of labor market activity by the National Bureau of Economic Research. According to data from the BLS, Hampton Roads employment continues to decline for the third month in a row, to 792,400 positions in September of 2019. While the lower estimates of August were revised upwards slightly, the downward trend is something to keep an eye on; especially as U.S. employment continues to grow, albeit slower than the previous three months.
Employment Growth by Industry
As the job market grows or declines, there will be some industries that do not resemble the regional trend. Several industries have seen significant decline year-over-year using BLS data, including Administrative & Support industries, Local Government, and Transportation. Manufacturing jobs in the region, an important indicator of economic health in the current political climate, continue to show positive growth over the previous year, although it should be noted that the rate of increase each month is shrinking (with a loss from August to September both regionally and nationally).
The unemployment rate is the percentage of the population actively seeking work but unable to obtain a position. Hampton Roads’ unemployment rate decreased yet again to 3.07% in August 2019, making it the lowest unemployment rate recorded in the region since spring of 2007, before the Great Recession.
The number of initial unemployment claims is a leading economic indicator reflecting those who are forced to leave work unexpectedly, thus revealing the strength of the job market with little lag time. Seasonal adjusted unemployment claims increased in August of 2019 to 2,601 claims. While this is still below the long term average, it has risen above the average levels of the past twelve months. As employment in the region continues its slight downward trend, initial unemployment claims may respond accordingly.
Permit data signals the level of construction employment and confidence regarding the future trajectory of the local economy. The level of new construction permitting for single family homes in September decreased from August’s 2019 high of 435 permits to 362, yet still rising compared to earlier this year. As the market responds to the Federal Reserve lowering interest rates in August and September, this indicator will be interesting to watch closely.
Home Price Index
The home price index measures the value of homes by evaluating changing price levels through repeated sales of properties. The index provides the highest quality data available on the trends in the real estate market. Hampton Roads’ home prices increased by 3.1% in Q2 2019, remaining below both the state and the nation. Regional housing values remain 6.2% below those seen during the peak of the housing boom.
Settled Home Sales
Settled home sales measure the level of transactions on the real estate market over time, and a healthy real estate market should have a consistent level of activity. The levels of existing home sales have been strong recently, with sales maintaining the same average level as during the housing boom in 2005. While the new construction segment of the market continues to lag, notable is a 16% year-over-year increase in existing home sales from September of 2018 to 2019.
Foreclosures have a significant impact on the real estate market and community, depressing home values on a neighborhood and regional level. Distressed homes’ share of total sales has particularly been shown to impact the sale price of existing homes. The foreclosure level is still elevated from the housing boom. Foreclosures constituted 4.8% of all home resales in August of 2019, down from a high of 8.1% in April of 2016 (12-month average).
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