WASHINGTON — While recent national jobs and retail sales data have come in better than forecast, swing-state Virginia has been hurt in large part due to political uncertainty.
“We do hear that a lot of this from businesses we talked to and surveyed. It’s all about uncertainty. Things like federal government spending, tax rate and health-care reform,” said Ann Macheras, vice president of the Regional Research at Federal Reserve Bank of Richmond.
The uncertainty around the fiscal cliff impacts Virginia more than most.
Virginia has consistently been one of the top states for federal contract spending in the past decade, according to USASpending.gov. In fiscal year 2012, Virginia was number two with $41.5 billion in federal contracts.
According to a report from George Mason University, the automatic federal spending reduction may cost Virginia 207,571 total job losses in fiscal years 2012 and 2013, second largest in the country. And small businesses are wary of the ending of Bush-era tax cuts that are scheduled to take place.
“For small businesses, their personal tax situation depends on the tax rate. So this is a perfect storm and businesses are holding back because of the uncertainty,” Macheras said.
In Virginia, an auto supplier stated his firm had frozen hiring and would reduce staff through attrition, according to the most recent Beige Book publication. A grocer said that customer counts were up, but shoppers were spending less, according to the Beige Book.
“Employers have been holding back hiring. Our employment rate is slower than the nation,” Macheras said. “Normally we are pretty much on pace with the national trend, but more recently we are slowing down.”
According to regional jobs data released Friday by Bureau of Labor Statistics, September regional unemployment rate went down in 41 states and District of Columbia, yet in Virginia it remained unchanged. Read more on swing-state employment
The year-over-year payroll employment growth in Virginia is a little below 1% in September, compared with the national rate of 1.4%.
According to Federal Reserve Bank of Richmond, total month-over-month private building permits fell 10.3% in Virginia in August, while it grew 7.9% nationwide. The total private housing starts in Virginia fell 14.5% compared to July, while it grew 2.3% nationally. Read more on housing in swing states.
According to the Fifth District’s September Beige Book, merchants remained somewhat guarded in their outlook for spending during the holiday season. Small retailers were conservative with inventories.
“There is uncertainty about the recovery too. It’s been at a slow-enough pace that people legitimately feel anything may happen. So it would be interesting to see how the upcoming holiday season may play out,” Macheras said.
Jim Stimson, a professor of political science at the University of North Carolina at Chapel Hill, explained the theory behind the impact.
“Political uncertainty causes excessive caution in corporate investment decisions because one cannot effectively factor in the differing consequences of party regimes if one doesn’t know which party will be in charge,” he said. “That uncertainty effectively increases investment risk over what would be the case in a predictable political environment.”