THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, November 12, 1994 TAG: 9411120189
SECTION: BUSINESS PAGE: D01 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Medium: 75 lines
Hampton Roads' steady economic growth will continue through the end of the year, but it may slow down considerably in the new year, regional economists say.
Higher interest rates and other signs point to an impending economic slowdown. Consumers have yet to feel the full effect of successive increases in interest rates, which take as long as 12 months to show up in the economy. Coupled with higher consumer debt, less demand, less investment and slower U.S. growth, Hampton Roads may be in for a rude awakening in the new year.
In a recent report, John W. Whaley, an economist at the Hampton Roads Planning District Commission, estimated sustained quarterly increases in regional gross domestic product, the total dollar value of all the goods and services produced in Hampton Roads. He forecast local GDP to be 2.2 percent in the third quarter and 2.8 percent in the fourth. GDP shows how rapidly the economy is growing.
Nationally, the GDP grew at a 3.4 percent rate in the third quarter. Fourth-quarter figures won't be available until January.
``The economy in general surprised people all along with it being as robust as it's been,'' Whaley said. ``1994 is higher and better than predicted. It's the best year of the first half of the '90s.''
Hampton Roads' economy, growing at a 2.4 percent rate, lags behind the state and national rates. Virginia has been growing at a 4.1 percent rate and the country at a 3.4 percent rate, said David Garraty, a professor of economics and management at Virginia Wesleyan College, who released his Hampton Roads Economic Performance Index this week.
At the end of the year, the economy usually improves as consumer spending and jobs increase during the holiday season.
``It'll help employment numbers and drive the economic growth in the fourth quarter,''said Russel C. Deemer, an economist with Crestar Bank, of the approaching holidays.
But a majority of leading economic indicators, which forecast economic growth in the coming months, have decreased during the first half of 1994 compared with the second half of 1993, Whaley said.
According to his report, residential building permits have dropped by 17 percent and home sales by 21 percent. Initial unemployment claims and interest rates are up.
Higher interest rates make it more difficult for consumers to borrow money to buy cars, retail items and houses. Companies will face higher costs of doing business, which will cut into profits and prevent them from investing more money into the economy.
In fact, the impact of interest rates already has started to emerge. Mortgage refinancing has ended. Consumers have higher carrying charges on purchases and higher payments on adjustable loans. Homes sales have slowed slightly. And less construction and after-market purchasing has occurred.
Positive economic indicators outnumber negative indicators, but the positive signs reflect current or past conditions, not the future. Among the lagging and coincident indicators, which are positive, are auto sales, commercial building permits, retail sales, unemployment rate, payroll employment and household employment.
Roy Pearson, a professor at the College of William and Mary's School of Business Administration, remains more optimistic. ``It'll slow down a little, but we'll still see good job growth.''
He pointed out that consumer confidence is healthy. While people don't have illusions about the slowdown coming, the area has seen stable growth and job gains which make individuals feel reasonably secure, Pearson said. For instance, jobs have increased 2.8 percent in the retail sector from a year ago.
In addition, the entrance of national retailers into the market shows that ``they don't feel a declining market at all,'' he said.
``We're saying slowdown but not a turn down,'' Pearson said.
KEYWORDS: GROSS DOMESTIC PRODUCT ECONOMY
by CNB