Washington’s Boom Goes Bust

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Pedestrians walk up 14th Street NW near Rhode Island Ave. on July 17, 2013 in Washington, D.C.
Pedestrians walk up 14th Street NW near Rhode Island Ave. on July 17, 2013 in Washington, D.C. Photo: Ricky Carioti/The Washington Post via Getty Images

If you have read the papers in the past few years, you have probably heard how Washington, our capital city, came to resemble Panem from The Hunger Games.

While the rest of the country got battered by the recession and struggled to recover, the Washington metro area blossomed, flush with taxpayer dollars from the wars and the stimulus. Its unemployment rate never reached anything like the heights seen in San Francisco or New York. Its housing market started rebounding as the country’s continued to languish. Nowadays, six of the ten wealthiest counties in America lie in the Beltway.

The transformation was visible, very visible. New restaurants and bars crowded into Washington, D.C., transforming street after street, neighborhood after neighborhood. Developers built scores of swanky apartment buildings and thousands of suburban mansions, including ones with reflecting pools and gardens modeled “after those of Henry VIII’s Hampton Court palace.”

But around 2010, that federal spigot started to close — and as a consequence, Washington’s economy started to slow down just as the rest of the country’s started to pick up. It is hard to see if you’re dodging the diners crowding 14th Street Northwest or the bar-hoppers on H Street Northeast or the visitors still clogging those open houses in Arlington’s new condo complexes. But a growing body of statistics does not lie. Washington is Panem no more.

Take these numbers on the growth of the 15 biggest metro economies put together by Stephen Fuller of George Mason University, the foremost expert on incomes and growth in the Beltway. Between 2012 and 2013, Washington actually contracted a little bit. That was not true for Philadelphia, New York, Seattle, San Francisco, Los Angeles, or Chicago. Indeed, of those 15 big metro areas, Washington was the only one to shrink. “We’re being left out of the national trends,” said Fuller. “We’ve had 12 months of significant job growth at the national level, and the overall economy is doing well. But the Washington area is struggling.”

Let’s slice the data another way, looking at job growth in those big cities. Between 2009 and 2010, Washington came in second only to Boston, adding jobs in a year when the 13 other cities lost them. In 2011, it came in tenth out of 15. In both 2012 and 2013, it came in 14th out of 15. A Bureau of Labor Statistics analysis comes to a similar conclusion, showing the area’s overall employment up only 0.6 percent year-over-year in July. That’s less than a third of the national average. Jobs-wise, Detroit is growing faster than Washington is.

At the heart of Washington’s slowdown is the federal government’s slowdown, specifically the cutbacks in spending due to the drawdown in the wars in Iraq and Afghanistan and broader budget cuts. The number of federal procurement dollars that remain in the Washington region, rather than being funneled to contractors in California or Texas or anywhere else, fell 16 percent between the 2010 and 2013 fiscal years, translating into tens of billions of dollars of lost output. The federal payroll declined, and the Beltway’s contractors started shedding a number of highly paying jobs, too.

Still, Washington is going through a soft landing rather than a crash. There is growth, but it’s in the lower-income areas of the economy that service those contractors and the young, well-off, college-educated individuals that continue to flock to the city — retail shops, restaurants, bars, and yoga studios. That means average wages, which climbed through 2010, have since started to fall. “Never before have we had three consecutive years of average lower wages,” said Fuller. And household income — it might be No. 1 in the country, but it’s declined almost $2,300 since the recession.” 

It’s true that the city itself might continue to grow as more people elect to live there rather than moving to the suburbs, but that doesn’t help the region overall. “Restaurants don’t create value to the economy,” said Fuller. “Restaurants can’t survive unless someone else is paying for those meals. The economy can’t grow without having exports. And the federal sector was our export sector. Otherwise, you’re just churning money around.” And while the city’s building boom looks set to continue, the construction of high-end apartments is plateauing, landlords are tempting prospective renters with free months of rent, and investors are expecting smaller returns.

So is Washington fated to fade, as long as the federal belt remains tight and the economy keeps up its athletic pace of economic growth? Might the slowdown even become a recession if the Republican Congress passes draconian new budget cuts or procurement reform? Not quite. In recent years, the area has actually become less reliant on federal dollars — even if they remain the beating heart of the local economy. The Beltway’s enormous base of highly educated workers has attracted technology and business-services firms to the city, for instance, along with a number of corporate headquarters looking to be close to Capitol Hill. The “upside resides in the highly skilled and well educated labor force,” said a report by Delta Associates, a local real-estate analytics firm. “Creating a supportive environment for new companies, especially tech companies, will be critical in order to spur future growth.”

Over time, the idea is that Washington might become a little less like Panem, reliant on its outlying states to support it. Instead, it might start to look a little more like Paris, Tokyo, or London: all political capitals but also business, cultural, and financial centers. The question is whether the region’s economy will diversify quickly enough to offset the decline in federal spending. And in the short term, at least, the answer has been no.

But the upshot for the rest of the country is clear. Did we really want our smallish, sleepy capital to be rolling in so, so much taxpayer dough? Was all that security contracting really the best use of our collective resources? Isn’t Panem the capital of a dystopia? Those questions seem a little less relevant now than they did a few years ago. Boosted by lower unemployment, falling gas prices, subdued inflation, and flush corporate profits, overall growth has started booming — and in a reversal, it is the country leaving the capital behind.