Taking its toll
- February 28, 2009
While politicians in Washington bickered over bailout money for Wall Street last summer, many people began to wonder if the Main Street economy was in trouble, too. Basil Edwards
already knew the answer. He is the economic development director in Radford, which owns an electric utility and sells power to city businesses. Edwards watched the meters and saw that Radford’s biggest manufacturing employers were buying less juice. “We can tell when their production starts dropping,” he says. “We knew they were really struggling.”
By November, Texas-based Intermet Corp., which makes auto parts for Ford, General Motors and Chrysler, announced plans to lay off 140 people at its New River Foundry in Radford. Soon more workers in Southwest Virginia, including 650 at a Volvo truck plant in Dublin, lost their jobs as the auto industry began to slump. “We all know what’s going on in Detroit. New cars aren’t moving right now,” says Edwards.
The global recession that clobbered Detroit has cut a wide swath across Virginia. Dozens of businesses big and small have slashed staff or closed their doors. The casualties include two Richmond-area Fortune 1,000 companies that now are in liquidation, Circuit City Stores Inc. and LandAmerica Financial Group.
In all, 24,500 people in Virginia lost their jobs in December, the most recent data available at press time. That brought the state’s unemployment rate to 5.2 percent, according to the Virginia Employment Commission. Historically, Virginia’s rate stays below the national unemployment average, but the U.S. number has shot upward in recent months, hitting 7.6 percent in January, up from 7.2 percent the pervious month. The map on this page shows that unemployment rose in every region of Virginia in December 2008 in comparison to the same month the year before. In some areas, rates were in double digits. Since then the number of layoffs have continued to pile up.
Nationwide, consumer confidence measured by the Bureau of Labor Statistics dropped to 37.7 percent in January, the lowest level since the index began more than 40 years ago. Companies soon will report their first-quarter results, and nobody is expecting good news. “It’s clear the recession that we’re in is the worst that we’ve seen since at least the early 1980s,” says Christine Chmura of Chmura Economics & Analytics, a Richmond-based firm.
Chmura thinks that it’s been an odd recession in many ways. It began last year with fallout from the collapse of the housing market and dubious subprime mortgage practices, spreading next to credit markets. “Starting about September and October it’s turned into more what you would expect,” she says, with rising job losses and hiring freezes, consumers getting nervous about spending, and companies struggling, especially those selling big-ticket items that require buyers to borrow.
Overall, Virginia’s bulwark against hard times is the federal government — the state’s “rich uncle,” as George Mason University economist Stephen Fuller calls it. And in the urban areas of Northern Virginia and Hampton Roads, that is true to a degree. But even in those places, the pain and length of this recession depends on where you are and what you do for a living.
Relative calm in Hampton Roads
The Hampton Roads region is poised to skip much of the worst effects of the recession, says Gilbert Yochum, professor of economics at Old Dominion University and director of the school’s Economic Forecasting Project. “What we’re seeing right now is it’s doing much better than the national economy.”
One of Hampton Roads’ main economic engines, the Port of Virginia, expects cargo to decline 12 percent this fiscal year, forcing the Virginia Port Authority to delay plans to build a fourth marine terminal at Craney Island in Portsmouth. Nonetheless, Yochum’s department projects the region’s gross domestic product will rise 0.6 percentage points to $63.4 billion, with a meager 0.2 percentage point increase in employment overall. Still, adding even a few jobs is a good trend in this down economy.
The increase in regional GDP will be driven largely by defense spending, which is projected to rise 4.5 percent this year. In general, 2008 wasn’t such a bad year overall for the region’s employment: only the manufacturing sector lost jobs, 1,200 in all. The biggest growth sector was education and health, which added 3,000 workers.
An example of the region’s economic strength came in October, when Northrop Grumman Shipbuilding — the region’s largest private employer and the sole builder of nuclear-powered aircraft carriers for the Navy — announced a deal with French energy company Areva to build a $363.4 million manufacturing plant in Newport News. The project is supposed to break ground this year and begin production in 2012, eventually employing 540 people. It will produce parts for nuclear power plants, though no radioactive material will be at the plant. And in September, Northrop Grumman signed a $5.1 billion contract with the Navy to build the nuclear-powered carrier USS Gerald R. Ford. Work on that ship is supposed to begin this fall.
Yochum says Hampton Roads saw a striking drop in taxable sales last year, down about 4 percent for the year, even though average income and employment were rising. The drop was especially stark from September through November, when taxable sales in Hampton Roads dropped 7 percent. Obviously, people didn’t have a lot of confidence in the direction of the economy. “Essentially it boils down to households are saving more,” he says.
Contracts aid Northern Virginia
Joining Hampton Roads as one of the state’s anchors in a tough economy is Northern Virginia. It is hard to understate how important federal spending is to Northern Virginia’s economy, and how important its economy is to the state. Northern Virginia has 1.2 million workers — more than a quarter of the state’s total civilian work force — and unemployment in December was just 3.9 percent. “It’s government contracting, and a lot of those contracts continue,” says John McClain, deputy director of George Mason University’s Center for Regional Analysis. “One of the reasons the unemployment rate continues to be so low here is because some of those contractors are still having problems finding certain kinds of workers.”
But the region has lost jobs in some sectors. Retail employment dropped 3.4 percent last year, and the housing industry took a beating in 2007 and 2008 as sales dropped and construction work dried up, losing almost 5,000 jobs last year, McClain says.
But the region still has a very resilient economy. Of the country’s 15 largest job markets, only five added jobs in the 12 months ending last November. The Washington, D.C., region was third-highest, adding 31,000 jobs in that period, behind oil-rich cities of Houston and Dallas. And, it had the lowest unemployment rate among those 15 regions, at 4.4 percent. That includes the District of Columbia and the Maryland suburbs, but Northern Virginia is the dominant player: McClain’s office predicts the Washington region will add 23,700 jobs this year, with more than half of them coming to Northern Virginia.
In the region, Fairfax County dominates. It has nearly 111 million square feet of commercial office space, about a third of the state’s total, and generated nearly a quarter of the state income taxes paid last year, says Jerry Gordon, president and CEO of Fairfax County’s Economic Development Authority. “When Fairfax sneezes, Virginia gets a cold,” he boasts. Northern Virginia contributes about 45 percent of state income taxes, Gordon says, “so we’re funding a lot of programs throughout the commonwealth.”
High-profile losses in Richmond
Just as Northern Virginia leans on the federal government, the central Virginia region gets much of its stability from state government in Richmond. But lately the region has suffered some high-profile losses: Circuit City is closing its remaining 567 consumer electronics stores, eliminating 34,000 jobs, including 1,500 at its Henrico County headquarters. LandAmerica has sold off its title insurance companies and will terminate its last 291 employees by the end of the year. Genworth Financial, another Fortune 1,000 company, laid off 400 people at its headquarters, and another 230 people at its operations center in Lynchburg. German memory chipmaker Qimonda — hailed in the 1990s as the harbinger of a high-tech regional economy — will close its plant in eastern Henrico County, eliminating 1,500 jobs.
But the news isn’t all bad. London-based Rolls-Royce plans to build three factories in Prince George County over the next five years, a $500 million investment that eventually will create 500 jobs. In mid-January, Astoria, N.Y.-based food manufacturer Sabra Dipping Co. broke ground on a manufacturing facility that it plans to open in mid-2010, employing about 260 people. State and local officials were almost giddy about the deal. “A 260-person [project] in an up economy is a home run,” says Patrick Gottschalk, Virginia’s secretary of commerce and trade, at the groundbreaking ceremony. “Frankly in a down economy, this is a grand slam home run.”
Richmond needs it. Chmura says the recent layoffs and the region’s job losses in two previous recessions hint that the Richmond region could lose 11,000 to 20,000 jobs. A strong prospect for adding jobs is the six-year, $2 billion expansion that began in 2007 at Fort Lee, an Army base on the banks of the Appomattox River near Petersburg. The 2005 Base Realignment and Closure plan calls for developing a new logistics training center at Fort Lee and adding 16,000 personnel by 2011.
Fallout from reduced spending
It’s been a tough few months in the Roanoke and the New River Valley region, which have been hit by string of layoffs, caused mostly by fallout from the decline in spending in the housing and auto sectors. The Volvo layoff announced in January was the biggest in the region by far, but there have been others linked to the slumping automotive industry. In January textile-dye maker Fred Whitaker Co. said it would close in March and lay off 136 workers.
And in February Germany-based TMD Friction Group announced it would close its factory in Pulaski County, laying off 140 people by June. The factory makes brake pads and linings.
The layoffs and closings came at the tail end of what had actually been a year of job growth, says Aric Bopp, executive director of the New River Valley Economic Development Alliance.
Overall, he says, the region — which encompasses the counties of Floyd, Giles, Montgomery and Pulaski, and the city of Radford — had a net gain of 1,222 jobs last year. Bopp doubts, however, that the jobs added are equal to the ones lost. “I think we’ve traded out some better-paying jobs in manufacturing with some service-sector jobs and retail jobs that don’t pay as well,” he says.
The region has some advantages to fighting off a recession, Bopp says. The local job market isn’t tied to any one sector, and its work force benefits from the presence of local colleges. Virginia Tech in particular helps small startups through its Corporate Research Center, home to about 2,000 workers. Still, this year looks to be flat at best, Bopp says, as the region tries to absorb the jobs already lost. “I’m hopeful we can make good things happen, but as the global economy tightens, as the national economy tightens, I think it’s bound to tighten here.”
Tough times continue
In Southern Virginia, many localities have been hurting for years from job losses in furniture manufacturing, textiles and tobacco. To some residents here, the rest of the state is playing catch-up in terms of economic trouble.
In December, Martinsville’s jobless rate was 15.4 percent, the highest in the state, while the rate in Henry County surrounding the city was 11 percent. In the neighboring Danville metro area, which includes the city and Pittsylvania County, the overall jobless rate was 11.5. That breaks down to 13.9 percent in Danville and 9.9 percent in Pittsylvania. In addition to layoffs, the jobless rate figures numbers reflect a growing number of companies putting employees on temporary furlough, according to the Virginia Employment Commission.
Despite tough times, both areas announced new industrial projects last year that ranked among the top 10 in the commonwealth in terms of capital investment or projected employment (see pages 64 and 65). RTI International Metals Inc., a producer and distributor of titanium, plans to invest $100 million and hire 150 workers in Henry County. Likewise, Com. 40 Ltd., a maker of mattresses and upholstered furniture, is expected to invest $36.3 million and hire 813 people in the Danville area. Since 2004, the city has recruited businesses creating more than 6,600 jobs.
Forecast getting gloomier
In trying to gauge how deep this recession will get, Chmura points to data from recessions in 1990 and 2001. During those periods, Virginia lost 3.2 percent and 2.2 percent, respectively, of its total employment. For most of last year the state was actually adding jobs, but the number of layoffs picked up in fall and winter, so that trend is shifting. Plus, Virginia’s economic health in this recession is worse than the previous one in two key areas — auto registrations and building permits. Chmura’s forecast has gotten gloomier. Initially she predicted job losses this year of about 0.5 percent in Virginia, but now she leans toward more severe losses of 2 percent for the year. Plus, Chmura has pushed her prediction of the recession’s end from late this year to early 2010. “It’s a longer and deeper recession,” she says.
Besides the first-quarter results from many companies, still to come are the possible effects of President Obama’s $787 billion stimulus plan. The stimulus package is expected to give Virginia $1.22 billion for budget balancing, $1.47 billion for Medicaid and $810.6 million for transportation plus hundreds of millions of dollars more for education, training, energy and nutrition programs.
Obama signed the bill the day after Gov. Timothy M. Kaine announced that the revenue shortfall for the state’s $77 billion, two-year budget had grown another $821 million to $3.7 billion. The governor and the legislature already had cut $3.2 billion to keep the budget balanced, a requirement of the Virginia Constitution. In mid-February, the legislature was still mulling how the stimulus money could be used, but Kaine said he believed that the additional federal dollars would prevent more budget cuts.
If that plan holds true, it will be good news for Radford where the local university is that city’s biggest employer, with about 1,700 employees. The city also benefits from the money students spend. “We’re not feeling the impact [of the recession] quite as much as if we didn’t have these schools,” says Edwards. But even with student dollars the Christmas retail season wasn’t especially bright, and a few stores at the local mall have closed. Edwards senses people “are tightening their belts. I’m afraid to look ahead to how many more bankruptcies and store closings we might see between now and July. I think everyone has got this mood of, ‘let’s wait and see if there’s going to be another shoe to drop