DC Diminished? Not So Fast

WASHINGTON, DC-Auction.com Research delivered some good news for the US last week: crunching Bureau of Labor Statistics July metro area data, it painted a positive jobs picture for the country, minus a few markets. Unfortunately one of these markets is the DC area.

It reported that the DC area continues to underperform, "as federal fiscal pressures are impairing the local economies." Washington DC shed 300 jobs in July, and is now one of very few metro areas showing longer-term declines as well, Auction.com noted.

Other discouraging observations from the report: DC employment has fallen 0.3% over the past three months and 0.4% over the past six as the sequester continues to take its toll. Suburban Maryland was one of just ten major metros that contracted payrolls in July, losing 600 jobs on a seasonally adjusted basis, leaving employment up just 0.3% over the past three months. Meanwhile, Northern Virginia has yet to see any spillover from the sequester, as the area has seen jobs grow in five of the past six months, adding 400 jobs most recently in July.

On one hand, Auction.com's analysis makes perfect sense. Sequestration, while not as onerous as originally portrayed, is clearly having an impact in the DC area. Decisions are being put on hold, companies are hanging on to their space instead of expanding and federal government employees are leery of making big purchases.

Don't put much weight in anecdotal evidence?—then consider these stats. No other US region depends more heavily on federal government spending than Washington. According to the George Mason University's Center for Regional Analysis, the sequester that went into effect on March 1 has the objective of reducing federal spending during 2013 by $85.4 billion from the baseline established by federal spending levels during 2012. DC is expected to lose more than 92,000 jobs from those cuts; Maryland nearly 85,000. For the commercial real estate industry, the Associated General Contractors of America estimated that the cuts could mean a $4-billion-plus reduction this year in federal construction spending.

DC, in short, is as much a company town as is Detroit or Hollywood. And as Auction.com's analysis makes clear, that "company's" tough times is translating into lower job creation. But the city has many more avenues for growth than just relying on the federal government, as two separate surveys show. DC is a growing high-tech hub, a Jones Lang LaSalle report reports, that holds nice potential for the longer term. DC also is a top global city for economic development, according to the Martin Prosperity Institute at the University of Toronto.

JLL's national ranking of top cities rates cities on high-tech employment; share of US venture capital funding; intellectual capital and innovation. What is interesting for DC is that while top five markets include longstanding high-technology industry meccas, emerging clusters such as DC are starting to make an appearance on the top 10. Indeed, New York is just outside the top 10, outranked by these "clusters" in DC, Atlanta, Raleigh-Durham and Denver.

JLL notes that for every new innovation job created in a community, five additional jobs are created in the same metropolitan area. "Given sequestration and continued political gridlock, Washington, DC's emerging high-tech industry has helped offset the slowdown in leasing activity we've seen from federal agencies and government contractors," says Scott Homa, Vice President Research at JLL, in a prepared statement. "We expect the continued expansion of tech incubator spaces, new start-up companies and growth of existing high-tech businesses across the city to boost tenant demand in the future, as the market evolves and works to break its dependence on federal spending."

The other data point comes the Martin Prosperity Institute at the University of Toronto. It has ranked the District of Columbia # 4 in the latest Global Cities for Economic Development index. Researchers scored 61 global cities on a wide range of criteria in such categories as talent, technology, tolerance, and quality of place. DC was one of just eight cities to receive an A grade, and its overall score of 85.5, above New York and London.

"A combination of factors help to differentiate DC and influence its reputation as a global city and as a top location for technology," says Keith Sellars, President/CEO of the Washington DC Economic Partnership. "Washington DC has one of the best educated workforces in the nation…it is the center of one of strongest economies worldwide; and boasts exceptional locational assets." Sellars also points to DC's tech scene, which he says has exploded in recent years. "DC is rich in talent that comes from a wealth of sources including foreign nationals, colleges and universities, think tanks, and entrepreneurs," he says.

Sellars says he tech sector has experienced a 50% job growth rate in the last 10 years. Today, it's home to more than 250 startups, with $979 million of capital invested in 146 tech companies.