The U.S. economy likely won't face a major threat from sequestration, but Virginia is among the states that stand to suffer the most from the $85 billion in automatic federal budget cuts scheduled to take effect March 1, an economist told a Richmond-area business gathering Monday.
"I don't think [sequestration] will be all that menacing for the economy, but we don't know," said Mark Vitner, a senior economist with Wells Fargo & Co.
Vitner spoke at a meeting organized by Virginia Commonwealth University's Real Estate Circle of Excellence. He predicted a continued, modest economic recovery and an increase in long-term interest rates sooner than expected.
The Washington and Norfolk regions are among the nation's metro areas that would suffer the most from the expected cuts in defense and nondefense spending, given the economic significance of federal contracts in those areas, Vitner wrote in a report this week.
"The potential impact from reduced federal outlays could affect everything from biomedical research to homeland security," Vitner and Wells Fargo economist Michael Brown wrote in the report. "Cuts in nondefense outlays would likely trigger significant furloughs, layoffs at civilian contractors and generally less business for supporting services, including law firms, caterers, airlines and hotels."
In his talk Tuesday, Vitner noted the budget cuts could undermine general confidence in the economy and jostle financial markets.
"I think the most likely outcome is we are going to find out that a lot of government agencies have already cut spending" in anticipation of sequestration, he said.
Virginia has had a "fairly broad-based" economic recovery since the recession, outpacing the recovery in most other states, but that boost has come in part from federal government spending, he said.
Job growth in the state slowed later in 2012, in part because of concerns about the impact of federal budget cuts.
Despite sequestration and other uncertainties such as Europe's ongoing economic woes, Vitner said he expects U.S. GDP this year to grow at a slightly better rate than the 2.1 percent average since the recession ended.
"We think it is going to actually ramp up a little bit more than that, mainly because housing has gone from being a drag on the economy to a modest positive," he said.
The surprise decline in GDP in the fourth quarter was mostly the result of a drop in defense spending, a drawdown in inventories and a widening trade deficit, Vitner said. Excluding those factors, "the private sector was growing pretty solid," he said.
He predicted a modest decline in the national unemployment rate this year, with more discouraged job seekers re-entering the labor market as job prospects slowly improve.
With the economy growing at a 2 to 2.5 percent annual rate, Vitner said interest rates cannot remain at their current lows, and the Federal Reserve Bank will soon "turn off the spigot" on quantitative easing.
"I think sometime in the spring of next year, the Fed will be raising interest rates," he said.
jblackwell@timesdispatch.com
(c)2013 the Richmond Times-Dispatch (Richmond, Va.)
Visit the Richmond Times-Dispatch (Richmond, Va.) at www.timesdispatch.com
Distributed by MCT Information Services
Our 2024 Coverage Needs You
It's Another Trump-Biden Showdown — And We Need Your Help
The Future Of Democracy Is At Stake
Our 2024 Coverage Needs You
Your Loyalty Means The World To Us
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
The 2024 election is heating up, and women's rights, health care, voting rights, and the very future of democracy are all at stake. Donald Trump will face Joe Biden in the most consequential vote of our time. And HuffPost will be there, covering every twist and turn. America's future hangs in the balance. Would you consider contributing to support our journalism and keep it free for all during this critical season?
HuffPost believes news should be accessible to everyone, regardless of their ability to pay for it. We rely on readers like you to help fund our work. Any contribution you can make — even as little as $2 — goes directly toward supporting the impactful journalism that we will continue to produce this year. Thank you for being part of our story.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
It's official: Donald Trump will face Joe Biden this fall in the presidential election. As we face the most consequential presidential election of our time, HuffPost is committed to bringing you up-to-date, accurate news about the 2024 race. While other outlets have retreated behind paywalls, you can trust our news will stay free.
But we can't do it without your help. Reader funding is one of the key ways we support our newsroom. Would you consider making a donation to help fund our news during this critical time? Your contributions are vital to supporting a free press.
Contribute as little as $2 to keep our journalism free and accessible to all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
As Americans head to the polls in 2024, the very future of our country is at stake. At HuffPost, we believe that a free press is critical to creating well-informed voters. That's why our journalism is free for everyone, even though other newsrooms retreat behind expensive paywalls.
Our journalists will continue to cover the twists and turns during this historic presidential election. With your help, we'll bring you hard-hitting investigations, well-researched analysis and timely takes you can't find elsewhere. Reporting in this current political climate is a responsibility we do not take lightly, and we thank you for your support.
Contribute as little as $2 to keep our news free for all.
Can't afford to donate? Support HuffPost by creating a free account and log in while you read.
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. Would you consider becoming a regular HuffPost contributor?
Dear HuffPost Reader
Thank you for your past contribution to HuffPost. We are sincerely grateful for readers like you who help us ensure that we can keep our journalism free for everyone.
The stakes are high this year, and our 2024 coverage could use continued support. If circumstances have changed since you last contributed, we hope you'll consider contributing to HuffPost once more.
Support HuffPostAlready contributed? Log in to hide these messages.