THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, January 23, 1995 TAG: 9501240470
SECTION: BUSINESS WEEKLY PAGE: 14 EDITION: FINAL
TYPE: Cover Story
SERIES: Forecast '95
SOURCE: BY TOM SHEAN
STAFF WRITER
LENGTH: Long : 170 lines
The blue glow of welding torches lights up a corner of the building as construction workers install pipes. Elsewhere in the sprawling structure, the floor vibrates as workers cut through concrete to make way for new machinery.
By October, this gray steel building on the edge of Ford Motor Co.'s Norfolk truck plant will house a new cab assembly line.
To handle the additional work, the plant will hire 400 workers during 1995, Ford said when it announced the $290 million expansion last fall.
For a region that has suffered a steady erosion of defense-related jobs in recent years, the automaker's hiring plans were good news.
But Ford isn't the only employer in the region adding workers. The region's jobless rate will probably drop in 1995.
In South Hampton Roads, 59 companies already in the area announced in 1994 that they will add 2,209 employees, said Forward Hampton Roads.
In its annual report of local business expansion, the development arm of the Hampton Roads Chamber of Commerce said 19 companies new to the region plan to hire 808 employees.
The Forward Hampton Roads report, released last week, also noted that the 78 companies expect to invest $441.17 million in local facilities.
Separately, the director of economics for the Hampton Roads Planning District Commission predicted last week that employment in the region will continue to grow this year, but at a slower rate than in 1994.
John W. Whaley, the economist, also predicted that the jobless rate for Hampton Roads will decline this year because fewer job seekers are entering the work force.
One reason for the continued increase in jobs has been the broader mix of employers attracted to Hampton Roads in recent years.
``You've had good growth in the service sector, especially in tourism, business services and health care,'' said William F. Mezger, senior economist at the Virginia Employment Commission in Richmond. ``That was enough to offset cutbacks in defense-related jobs.''
But the prospects for Hampton Roads in 1994, and again this year, have been clouded by the region's vulnerability to military base closings. The Defense Base Closure and Realignment Commission is scheduled to present its recommendations for base closings to President Clinton on July 1.
Although it might take four or five years for a targeted base to be closed, the announcement of a closing would have an immediate psychological impact, said Russel Deemer, an economist with Crestar Bank in Richmond.
If a base in Hampton Roads is designated for closing, ``some businesses may cut off any plans for future investment or consider moving,'' Deemer said. Those decisions ``could happen overnight.''
Deemer predicted continued expansion of the region's economy in 1995.
``Overall, Hampton Roads did a lot better in 1994 than everyone expected, and I think it should do pretty well this year,'' he said.
However, others familiar with business conditions in the region have more subdued expectations.
In a survey conducted by the Virginia Society of Certified Public Accountants in November, CPAs in Hampton Roads displayed less optimism about future business conditions than their counterparts elsewhere in the state.
Asked what they thought business conditions in their localities would be like in six months, only 17.3 percent of the Hampton Roads CPAs surveyed said conditions would improve.
Among all CPAs surveyed in Virginia, more than 33 percent said conditions in their regions would be better.
And only 19 percent of the Hampton Roads CPAs polled said they expected an increase in new-business starts this year. That compares with 26.3 percent of CPAs polled throughout Virginia.
Signs of a slower local economy are not hard to find. Sales of homes and automobiles in Hampton Roads have faltered in the wake of rising interest rates, which made credit more costly.
In the home-sales sector, ``there had been a downturn from August 1994 through November,'' Whaley said.
After a sharp rise in interest rates in November, pending home sales plunged in December to 1,100 from slightly more than 1,700 a month before, he noted.
Whaley said he expected home sales in the region to drop 9 percent in 1995 from their 1994 volume.
The full effects of rising interest rates have yet to be felt.
David G. Garraty, a economics professor at Virginia Wesleyan College, predicted a further slowdown in economic activity in the region during this year's second half. Many consumers, he said, will have to contend with higher payments on their adjustable-rate mortgages and variable-rate credit cards.
``If you have to pay an extra $100 or $200 a month, that is money that can't go for something else,'' Garraty said.
Because construction of commercial projects involves longer lead times than residential construction, the commercial part of the construction industry is likely to fare better this year than home-building.
The construction sector, which accounts for slightly more than 5 percent of employment in Hampton Roads, employed 3,500 last November. That was 3,000 more than in 1984 but 6,000 fewer than the industry's peak in 1987.
In recent years, businesses have been more inclined to invest in productivity-improving equipment like computers than in buildings, Whaley said. ``I don't see a lot of growth in structures,'' he said.
Yet some sectors of the Hampton Roads economy are likely to prosper in 1995, even with the burden of more costly credit.
Activity on Hampton Roads' docks will continue to expand because the North American Free Trade Agreement and the General Agreement on Tariffs and Trade will spur U.S. exports, Crestar's Deemer predicted.
``You won't necessarily see more jobs in the port because their activities are so highly automated,'' he said, ``but shipping lines and other port-related businesses may add employees to handle the additional paperwork.''
The greatest source of new jobs in recent years has been the service sector, a category that ranges from health care workers to accountants and consultants.
``The areas of service that are growing the fastest have involved computers and professional services, and these tend to be relatively high-wage jobs,'' said Mezger of the VEC.
Having generated more than 70,000 jobs during the past decade, the service sector accounts for 28 percent of employment in Hampton Roads, up sharply from 21 percent in 1994.
For years, a heavy reliance on defense spending insulated Hampton Roads from some of the economic downturns suffered elsewhere in the country.
Nationwide, the 1981-1982 recession proved to be one of the worst since the 1930s.
``But in Hampton Roads, several economic indicators were flat or up,'' said Whaley of the Hampton Roads Planning District Commission.
That shelter from nationwide trends has been disappearing with the falloff in defense spending. The change has forced painful readjustments at area shipyards, but the region has benefited from its reduced dependence on defense dollars, economists said.
In the midst of continued cutbacks in defense-related employment, ``there has been job growth in Hampton Roads,'' Mezger said.
The only year during the past decade when the region failed to register a gain in jobs was 1991, when the the Persian Gulf war pulled military personnel out of the region, and some of their dependents departed.
But job growth was slow to materialize in Hampton Roads after previous cutbacks in defense spending.
``After World War II, the Korean War and the Vietnam conflict, Hampton Roads went through a few years when it actually lost jobs,'' Mezger said. ``That happened in 1947 and 1948, in 1953, and in the late 1970s.''
With its broader mix of jobs, Deemer said, the Hampton Roads economy ``is much better prepared for a downturn in defense spending than it was a decade ago.'' ILLUSTRATION: STAFF Chart
New Jobs
Number of jobs added in Hampton Roads during the past decade.
Jobs Change
The changing mix of jobs in Hampton Roads since 1984.
SOURCE: Virginia Employment Commission
[For a copy of the chart, see microfilm for this date.]
[Color Photo]
MOTOYA NAKAMURA/Staff
A $290 million expansion at Ford Motor Co.'s truck plant in Norfolk
means the company will hire 400 workers this year. Other employers
in the region also are expected to add workers, sending the jobless
rate dropping.
KEYWORDS: ECONOMY HOME SALES HOUSING STARTS JOBLESS RATE
EMPLOYMENT by CNB