ODU ECONOMIC FORECAST TEAM GIVES 2008 OUTLOOK AT ANNUAL CONFERENCE
Old Dominion University's Economic Forecast Team made its annual presentation of the regional economic forecast on Wednesday, Jan. 23rd. ODU professors Vinod Agarwal, Mohammad Najand and Gil Yochum presented the forecast during the Annual Economic Outlook Conference, a part of the Economics Club of Hampton Roads speakers' series.
The forecast follows:
2008 ANNUAL ECONOMIC FORECAST FOR HAMPTON ROADS MSA
(All forecasted changes are relative to calendar year 2007)
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, Surry County, York County, Chesapeake, Hampton, Newport News, Norfolk, Poquoson, Portsmouth, Suffolk, Virginia Beach and Williamsburg.
Real Gross Regional Product (+2.4%)
Hampton Roads economic growth in 2008 is expected fall below that of 2007 and to be lower than that of the region's 3.4 percent average annual growth over the past 45 years. The region's 2008 growth rate is expected to exceed that of the nation and roughly equal that of Virginia.
A combination of factors will be responsible for the lower rate of 2008 regional economic growth. Due to the interrelation between the national and Hampton Roads economy, the anticipated year-over-year growth slowdown in the national economy in 2008 will spread to Hampton Roads as well; the loss of 1% of potential national growth results in a loss of about $570 million in gross output in Hampton Roads. In addition, implementation of BRAC's decisions and lingering effects of Ford Plant closing are expected to reduce 2008 GRP growth by about .3 percent. Residential housing construction is likely to continue to decline as the inventory of unsold homes continues its recent increase into 2008.
Offsetting these dampening influences on the regional economy in 2008 is anticipated growth in defense spending, port-related activities, health-care industries, tourism and the expected fiscal stimulus package. Rising income for uniformed military personnel, locally outsourced defense contracts and an increase in goods spending should all act to boost regional economic activity. Analysis of federal budget and military spending for this fiscal year indicates that nominal defense spending will increase in Hampton Roads by about 5 to 6 percent. Increases in cargo tonnage along with the continued development of the accompanying warehouse and trucking industry will generate additional income for the area.
Employment (Non-Agricultural Civilian Employment +0.9%) and Unemployment Rate (Civilian Labor Force 3.4%)
We expect that about 7,000 new jobs will be created in the region in 2008. Implementation of BRAC's decisions, secondary effects of Ford Plant closing, declining new residential construction, and a slower growth in commercial construction are all likely to act as a drag on employment growth in 2008. Employment growth is likely to be concentrated in firms providing professional and business services, port services, health care services, and services to the tourist industry.
The region's unemployment rate is expected to rise slightly to 3.4 percent.
Retail Sales (Taxable Sales +3.1%)
Slowing national economy, and a slower growth in State spending will act as a drag on Taxable sales. However, rising regional income, increased tourist expenditures and federal stimulus package are expected to fuel retail sales spending through 2008 though at a slower rate than in 2007.
Tourism (Hotel Room Revenue + 2.4%)
We anticipate a good year for the Hampton Roads tourist industry, though not quite as strong as in 2007. A number of factors should help create additional spending in this industry in 2008. First, increased advertising spending is expected to have a positive impact on tourism. Second, growth of income and employment in the tourism market area of Hampton Roads, though at a reduced rate than that of 2007, is anticipated to increase the number of visitors to the region and the level of spending per visitor. Third, the number of Canadian visitors is expected to surpass the high volume of 2007 visitors because of the expected continued appreciation of the Canadian dollar and economic growth in Canada. The U.S. dollar is expected to continue its slide against that of Canada as the U.S. increases its dependency on Canadian oil.
Port (General Cargo Tonnage +4.1%)
The port has benefited from and will continue to benefit from structural changes in the distribution of Asian import cargo destined for U.S. ports. Forth coming contract negotiations with International Longshoremen and Warehousemen Union on the west coast in July 2008 and current increased fuel surcharges for intermodal transportation are further likely to divert cargo traffic to the east coast. In addition, export traffic is expected to increase as a result of the continued strong increase in world income and trade and depreciating dollar. The new Maersk cargo terminal should speed cargo processing and add some new cargo but the full effect of the new terminal will not be felt until rail connections are completed.
Housing (Value of Single Family Housing Permits -24.2%)
The residential construction industry in Hampton Roads will continue to experience a significant downturn from its recent high level of activity. We anticipate that this industry shake-out and a reduction of unsold inventory will continue into 2008 and 2009. The level of building permits issued in the region is likely to reach those experienced during the industry contractions of the early 1980's. The median price for newly constructed homes in 2007 has fallen relative to 2006. New construction residential median home price is expected to continue to decline in 2008.
Appreciation in the price of all single-family resale homes is likely to be flat to slightly negative. We expect a decline in the price of single-family resale homes in the $250,000 to $600,000 price range. Current data on residential sales and the latest data on the active listings of unsold homes indicate that at the current pace of residential sales, it will take approximately 6 to 7 months to exhaust the current active residential listings of real estate agents. Continued significant reduction in new residential construction in 2008 will help cushion the expected decline in residential prices in 2008. Closing cost assistance, builder interest rate buy-downs and broker commission assistance will continue to be featured in both the region's resale and new housing markets in 2008.
This article was posted on: January 23, 2008
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