THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, January 19, 1995 TAG: 9501190346
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MYLENE MANGALINDAN, STAFF WRITER
LENGTH: Short : 49 lines
Hampton Roads will experience slower economic growth in 1995 due primarily to the Federal Reserve's successive interest-rate hikes last year, a local economist predicted Wednesday.
John W. Whaley, director of economics at the Hampton Roads Planning District Commission, emphasized during his quarterly presentation to the commission that growth in output would continue this year, but at a much slower pace of 2.1 percent.
The local economy, measured by gross domestic product - or total goods and services produced by the region - lagged behind the national average of 3 percent last year. Moderate consumer demand and investment spending will contribute to the slack in the local economy.
The local economy grew at a 2.4 percent rate last year, according to local economists.
Slower growth is typical of years when defense spending is in decline, Whaley said.
``Higher interest rates are really the whole story,'' Whaley said. Increases in interest rates are not felt fully until 12 to 18 months after they are put into effect, he said.
Since October 1993 the prices of several raw materials have risen, signaling some impending inflation. Although national wages and earnings fell from 1986 to 1993, the average hourly wage in the country has increased since 1993. Two jobs are created for each entrant in the domestic job market because the labor force is growing slowly.
Civilian employment in Hampton Roads will increase 1.2 percent and the region's jobless rate will decline, Whaley said. The average unemployment rate for Hampton Roads will drop this year to 5 percent from 5.3 percent in 1994 because the size of the local labor force is growing more slowly than it did in past years, he said.
Locally, the rising interest rates should have the greatest effect on the housing and construction markets. Whaley predicted a 9 percent decline in home sales and a 15 percent drop in home construction. Pending home sales fell more than 6 percent in 1994, a substantial drop from 1993. Residential building permits were also below 1993 levels.
Automobile sales have already felt the pinch of interest rates as seasonally-adjusted sales fell from about 6,300 in July 1994 to about 4,200 in October 1994. by CNB