ODU Economic Forecasting Project Shares Predictions with Leaders on the Peninsula

Concern about the housing market, about planned reductions in military spending and about port activity in Hampton Roads colored the 2012 economic prediction for the Peninsula, presented Monday, April 30, by Old Dominion University's Economic Forecasting Project.

Vinod Agarwal, professor of economics and director of the Economic Forecasting Project, and Gary Wagner, professor of economics, made the presentation at the Newport News Marriott in City Center.

Building on the ODU economic forecasting team's prediction of economic growth of 1.97 percent for the Hampton Roads region in 2012, Monday's presentation focused on areas of particular interest to the Peninsula, including hotel room occupancy, planned cuts to military spending and the still-declining price of homes.

Agawal, who presented the forecast, said regional economic growth is predicted to be below its half-century annual average of 3.2 percent, and below that of the nation. He said the Port of Virginia, health care industries and tourism are likely to help the region's economic growth in 2012.

But Agarwal said prices of home sales in the region are likely to continue to decline for at least the first six months of this year. "The rate of decline is slowing, so that is a positive sign. But typically, there is an 18-month lag on home prices, meaning we may not have hit the bottom."

Agarwal added that since municipal governments depend on assessed value of homes in assessing property taxes, the decline in home values could result in reductions in municipal spending.

The breakfast presentation to community leaders on the Peninsula also featured a national component, presented by Wagner. The new Economic Forecasting Project member (Mohammad Najand, professor of finance is the third member of the College of Business and Public Administration team) said the national forecast is pertinent locally. "We're on the Peninsula, but it isn't an island," Wagner said. "What is happening nationally will affect this region."

National economic growth was a lower-than-expected 1.7 percent in 2011, affected by three factors, Wagner said: a rise in oil prices following the Arab Spring, disruptions to global supply chains caused by Japan's earthquake and tsunami, and the deepening debt crisis in Europe.

Wagner demonstrated, using a dramatic graph, just how significant the most recent recession was to the national economy, far surpassing the damage done by previous economic slowdowns. At its depth, the recession of 2007-09 caused payroll employment levels to drop by 6 percent from their pre-recession peak. Payroll employment levels nationally aren't forecast to return to that 2007 peak until 2015.

For 2012, the ODU economic forecasting team is predicting national U.S. GDP growth of 2.4 percent. But Wagner said there are risks to that assessment. The ongoing recession in the eurozone could dampen U.S. growth, and there could be a disruption in world oil supply. Also, the housing market continues to be a drag on the economy, and U.S. consumer and business confidence remains fragile.

Finally, economists have noted in previous presidential election years a "wait and see" behavior among large economic decision-makers, with major changes postponed until after the results of the election are known.

The ODU Economic Forecasting Project Annual Report, which is widely respected as an accurate harbinger of the year ahead for the region, is presented each January.

For information about the Economic Forecasting Project, see http://bpa.odu.edu/forecasting/.