Latest Forecast Analysis
OLD DOMINION UNIVERSITY
ECONOMIC FORECASTING PROJECT
COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION
January 30, 2013
ANNUAL 2013 ECONOMIC FORECAST AND ANALYSIS FOR THE HAMPTON ROADS MSA
The Hampton Roads MSA (formally the Virginia Beach-Norfolk-Newport News MSA) includes Currituck County, Gloucester County, Isle of Wight County, James City County, Mathews County, York County, Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Surry County, Suffolk, Virginia Beach and Williamsburg.
Real Gross Regional Product (+1.68%)
The Hampton Roads economy is expected to grow at about the same rate in 2013 that the region experienced in 2012. However, we anticipate that regional growth in 2013 will be slower than our historical annual average of 3.2 percent and slower than that of the nation.
The debt-ceiling crisis in the U.S. and the sovereign debt crisis in the Eurozone created both anxiety and uncertainty in the world economy. As we begin 2013, we continue to face uncertainty due mainly to three factors: across the board spending cuts required by the sequester, the continuing resolution that is funding the Federal Government through March 27 at the same level as 2012, and the debt-ceiling crisis.
The region's economy, as measured by Gross Regional Product, expanded at a rate of 1.63 percent in 2012. However, this growth was not accompanied by commensurate employment growth. While, Department of Defense spending has continued to provide stability to overall growth in Hampton Roads, military spending within the region grew by only 1.62 percent in 2012. This was the smallest growth observed since 2001, and there is a real threat that military spending may actually decline in 2013.
Rising demand in the national economy will be a major factor affecting regional growth. Other important changes in 2013 that are likely to raise regional income in Hampton Roads include growth in port activity, the health care industry, and tourism spending. Compared to past economic downturns, the region's recovery process will be unusual in the sense that, despite rising income and expenditures, employment growth in Hampton Roads is expected to proceed at a relatively slow pace. As far as jobs are concerned, local firms, like their counterparts in other areas of the country, appear to have learned to do more with less.
Employment (Non-Agricultural Civilian Employment +0.7%) and Unemployment Rate (Civilian Labor Force 5.6%)
Annual civilian employment is expected to increase by about 5,200 jobs during 2013. Employment growth is likely to be concentrated in firms providing professional and business services, education, leisure and hospitality, and health care services.
The Hampton Roads economy created about 44,700 net new jobs during the period from 2001 to 2007, which yields about seventy-five hundred net new jobs annually. From 2007 to 2010, the recession and its aftermath have been responsible for the loss of an estimated total of 40,000 civilian jobs in Hampton Roads. The regional economy has been able to recover only 7,000 jobs since 2010. Even with the expected gain in jobs in 2013, annual civilian employment in Hampton Roads is expected to be below the level of employment observed in 2004, or at about 748,000 jobs.
The region's unemployment rate is expected to fall from 6.4 percent in 2012 to 5.6 percent in 2013.
Retail Sales (Taxable Sales +3.7%)
Taxable sales include all retail sales except new automobile registrations and gasoline sales. Compared to the pre-recession peak in 2007, retail sales in Hampton Roads fell by 8.6 percent through 2009 and continued to decline slightly, -0.2 percent, during 2010.
However, retail sales began to generally recover in January 2011. Sales increased by 3.2 and 3.0 percent in 2011 and 2012, respectively. Retail sales in the region are expected to grow by 3.7 percent in 2013 over the levels observed in 2012.
Growth in regional economic activity, rising incomes, consumer confidence, and increase in wealth of households are all expected to result in positive growth in taxable sales.
Tourism (Hotel Room Revenue +3.3%)
The recession has had a particularly negative affect on travel and tourism nationwide as businesses attempted to control costs and households adjusted to a significantly tighter credit market by curtailing travel. Hampton Roads tourism industry also experienced tough years in 2008 and 2009. For instance, hotel revenue in Hampton Roads was 9.2 percent lower in 2009 compared to pre-recession revenue in 2007. The recovery has been slow with revenue growing 0.5 percent in 2010 and 1.9 percent in 2011. However, the industry saw its revenue grow by 4.5 percent in 2012. This is attributed to a recovering national economy, a moderate job growth in tourist market areas and almost no change in the number of hotel rooms in 2012. Despite a modest recovery observed in 2012, the hotel industry in Williamsburg market continues to have serious problems in attracting tourists.
Positive growth in the national economy, particularly in Hampton Roads' main tourist market states, a continued slowdown in additional supply of hotel rooms and appreciation of the Canadian dollar will contribute to higher tourism revenue.
Port (General Cargo Tonnage +4.2%)
As part of the down cycle in international trade created by the recent recession, the Port of Hampton Roads experienced a decline in general cargo tonnage of 16.4 percent in 2009 compared to 2008. Twenty-foot equivalent container Units (TEUs) declined by almost the same percentage. This decline was likely not a result of structural problems with the port but rather that the recent economic downturn was spread globally. The port saw a modest increase in both general cargo tonnage and TEUs during 2010 and 2011. However, we saw substantial growth in 2012. General cargo tonnage increased at a rate of 12.2 percent, while TEUs expanded at a 9.8 percent clip. For the first time since 2007, the port's share of TEUs handled on the east coast ports also increased in 2012.
The port has gone through a transition as it prepares itself to improve its relative competitiveness, especially with other east coast ports. Norfolk Southern's Heartland Corridor, its new service to Greensboro, and CSX Corporation's on-Dock rail services at the Portsmouth APM terminal all contributed to its growth in 2012. Other major factors that contributed to its growth were larger ships, access to round-the-clock deep water, new first-in and last-out services and additional business from the region's economic development efforts. These factors will continue to help in the growth of the port in the coming year.
Housing (Value of Single Family Housing Permits +8.2%)
The residential construction industry in Hampton Roads is expected to continue to grow in 2013. Several factors, most significantly lower new home prices, should help prompt this growth. For example, the median price observed for newly constructed homes in 2012 was $273,950 or 21.7 percent lower relative to its peak in 2006. Likewise by 2010, the number of newly constructed homes declined from its peak of 4,969 homes sold in 2002 to 2,265 homes sold in 2010, which is a 54.4 percent reduction.
Despite the fact that sales of newly constructed homes have been rising since 2010, sales increased by 12.6 percent in 2012 compared to their levels in 2011, current sales levels are still about 46 percent lower than those observed in 2002. Low mortgage rates and smaller homes with continued moderate prices should have a positive effect on the new homes market.
The Hampton Roads' existing residential housing market has been improving since April 2012. All indicators point to a continued improvement in this market for 2013.These include: a rising volume of sales, a smaller inventory of homes in the market, a decrease in number of days on the market, and low mortgage rates. Measures of supply and demand indicate that it will take approximately 5.8 months to clear the existing inventory based on the current absorption rate, which is about the normal time period for the local residential market.
However, we continue to be concerned with the volume of distressed homes in the local residential market. Distressed homes, whether measured in sales as a proportion of all existing homes sold or measured in listings as a proportion as listing of existing homes currently on the market, continue to represent a significant proportion (nearly a third) of the residential market activity.
Although mortgage interest rates are at their lowest levels in 50 years and household income in the region is recovering, lack of substantial employment growth, relatively tight home loan requirements, and a large proportion of distressed market activity are likely to lead to a modest recovery in the Hampton Roads residential real estate market during 2013.