Experts: Pandemic should be economic wake-up call for Hampton Roads
The Hampton Roads economy could grow faster this year than any time in the past decade, local economists say. It would be a swift rebound from the coronavirus pandemic, in which 1 in 10 workers were unemployed at its peak.
Even so, the region still needs to diversify its economy to avoid serious damage from future cuts to Department of Defense spending, Old Dominion University economists argue. The university’s Dragas Center for Economic Analysis and Policy presented the findings as part of its annual “State of the Region” report Tuesday.
With the Department of Defense accounting for around 40% of the local economy, much of the region’s fate is controlled by President Joe Biden and members of Congress, ODU economist Bob McNab told attendees of Tuesday’s presentation in Norfolk.
“If Congress sneezes, we’re going to the hospital,” McNab said.
Fortunately, he expects defense spending to continue to increase over the next few years. However, if the federal government decides to rein in spending, McNab said it could seriously affect the regional economy.
The report cautions against returning to the pre-pandemic status quo.
Like most of the country, the pandemic shook the Hampton Roads economy. Unemployment skyrocketed from 3% to 12.4% from
March to April last year. By May 2020, the civilian labor
force was 5% smaller than in February that year.
Just looking at the topline unemployment rate, the economy appears to have mostly recovered, McNab said. The figure dropped to 4.6% in August.
But he said the true employment situation is worse — about 50,000 people in Hampton Roads have left the labor force altogether. They aren’t looking for jobs or filing for unemployment benefits. If those people were factored in, the region’s actual unemployment rate would have been 10% in August.
“That’s the challenge because as employers are looking for labor, they’re taking from a smaller and smaller pool,” McNab said.
One upside of the recent labor shortage, at least for workers themselves, is wages are beginning to rise, he said. Average hourly wages for nonsupervisory workers in the leisure and hospitality sector increased from $14.72 in August 2020 to $16.60 a year later.
“We should expect, as the demand for labor increases in 2022 as travel season starts, that wages will continue to rise,” McNabb said in an email after the presentation.
As long as COVID-19 infections stay low, the region’s tourism and hotel industries are poised for a strong recovery this year, fellow ODU economist Vinod Agarwal said. Additionally, the house-buying frenzy from earlier in the pandemic has subsided somewhat.
That means good news for prospective buyers, as the regional inventory of existing homes has increased around 45% from January to September.
Additionally, the report casts doubt on the economic effects of two incoming Hampton Roads casinos. The economists predict that the industry will only increase the region’s economic output by 0.4%, with diminishing returns over time.