By Brendan O'Hallarn
For 28 years, Old Dominion University economists have delivered an annual Economic Forecast to an audience of community leaders early in the new year. In just about every one of those years, the report has urged diversification in the Hampton Roads economy to decrease its reliance on federal defense spending.
However, in the 2023 report, delivered Jan. 25 to a sold-out audience in the Big Blue Room of the Ted Constant Convocation Center, Economic Forecasting Project Director Vinod Agarwal suggested the disproportionate share of Department of Defense spending in our local economy could spare Hampton Roads from a recession in 2023.
“Unless there are serious political issues in the U.S. Congress, I do not see a recession in Hampton Roads, largely because of the increase in defense spending,” said Agarwal, professor of economics in the Strome College of Business. The Hampton Roads economy is predicted to grow by 1.7% this year, according to ODU researchers.
The annual forecast, delivered by Agarwal and Robert M. McNab, professor and director of the Dragas Center for Economic Analysis and Policy, was not chock-full of good economic news, however. Inflationary pressures, political uncertainty and ongoing challenges encouraging workers to re-enter the labor force combined to see the federal economy shrink in the middle two quarters of 2022, before rebounding in the fourth quarter.
This, technically, met the definition of a recession, though public commentary about 2022 did not include much discussion
about the term. “The reality is recessions are like bad dates – you don’t know about them until they’re done,” McNab joked.
The national economic pressures – particularly inflation – are very noticeable. For much of his presentation on the national and Virginia economies, McNab explained how consumer behavior is influenced by perceived inflationary pressures. This helped convince the U.S. Federal Reserve to raise its key interest rate several times throughout the past 12 months, something which has recently begun to affect retail sales and cool the national housing market.
The slow pace of workers returning to the labor force acts as a drag on both the national and local economies. Early retirements, the effect of long COVID and social challenges like the opioid epidemic have reduced the pool of workers seeking employment.
The issue is particularly acute in Hampton Roads, where the labor force has not returned to pre-pandemic levels. “Our labor force has shrunk by about 40,000 individuals,” Agarwal said.
Nationally, the size of the labor market recently surpassed its February 2020, pre-COVID peak. McNab said there would be even more job growth if there were more workers seeking positions. “Employers are willing to hire. They can’t find the right people at the right time,” he said. “How do you have economic growth if we can’t get people back into the labor force?”
Because of these factors, the Dragas Center suggests there is the possibility of a modest U.S. recession in the second half of 2023. In the best case, the ODU economists said, the national economy “muddles through” 2023.
For access to the 2023 Economic Forecast, or any of its other research reports, visit Old Dominion's Dragas Center Website.
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