White House decisions weigh heavily on Va., Hampton Roads economies, experts say

While federal workers ponder taking a buyout offer from President Donald Trump and a now-rescinded federal funding freeze memo caused confusion and worry over the status of major economic development projects in Virginia, economists at Old Dominion University say uncertainty in Washington, D.C., is the major factor affecting the state’s and Hampton Roads’ economic futures right now.

“In the best-case scenario, not much changes in terms of trade, immigration, tax and spending policy in 2025, and the United States and Virginia economies continue to experience real gross domestic product growth around 2.5%,” said Bob McNab, director of ODU’s Dragas Center for Economic Analysis and Policy, which released its annual economic forecast for the state and the Hampton Roads region Wednesday. “In the worst-case scenario, higher tariffs coupled with immigration actions accelerate inflation, and the national and commonwealth economies could plunge us into recession in the latter half of 2025.”

Speaking about the Hampton Roads region’s economy, Dragas Center Deputy Director Vinod Agarwal said he expects defense spending to grow during the Trump administration, a boon for Hampton Roads, where it accounts for 40% of all economic activity. However, higher tariffs and fewer federal workers could hurt the region’s economy, Agarwal said.

“As of yesterday, there are incentives in place to entice federal workers to retire. The question is, how effective is it going to be? What effect it will have, especially in the commonwealth?” he said, referring to Trump’s announcement this week to offer buyouts of eight months’ salary to all federal employees who opt to leave their jobs by next week. However, some attorneys and federal employee unions, as well as U.S. Sen. Tim Kaine, are urging federal workers not to resign. 

Meanwhile, a memo sent Monday by the acting director of the federal Office of Management and Budget that would have frozen more than $3 trillion in federal funding led to widespread confusion among government agencies, businesses, nonprofits and citizens, as well as a flurry of lawsuits, a temporary court injunction and, ultimately, the Trump administration’s rescission of an executive order. Among other impacts, the freeze raised questions about what could happen to major economic development projects in Virginia that were awarded federal dollars under the Biden administration.

Trump’s actions of the past week aside, McNab said overall that the state’s outlook is positive. Job growth continued statewide in 2024, and job openings signal strong demand for labor this year. Continued job and income growth this year will likely make consumers feel more positively about the economy, although sentiment is lower than in 2019, McNab said.

He expects that the state’s GDP will increase by more than 2.5% in 2025, as long as federal spending increases in the commonwealth and if there are no “significant disruptions due to shifts in immigration, trade or fiscal policy,” and if the H5N1 bird flu continues to not pose a threat to public health.

However, if Trump pushes forward with threatened 10% or 25% tariff increases against China, Mexico and Canada — inviting retaliatory tariffs from those countries — McNab anticipates inflation will grow above 4% this year. Also, the narrowly Republican-controlled Congress may not be able to extend the debt ceiling and fully appropriate the fiscal 2025 budget. Previous standoffs, he notes, have “increased bond yields, lowered the U.S. credit rating and led to declines in equity markets.”

Another factor, McNab said, is that bond markets are anticipating higher inflation as a result of federal spending changes and tax policy, in addition to uncertainty over tariffs. Bird flu, and whether it becomes a major outbreak, is a “wild card” factor, he added.

Agarwal said that for Hampton Roads, existing home sales have decreased by 36% since 2021, and while he expects sales to stabilize this year, median prices are expected to continue increasing. Prices rose from $255,000 in 2020 to $336,000 in 2024, he reported. Also, “size and type of reduction in the federal workforce and increases in tariffs … will remain to be a major concern for the health and growth of the regional economy.”

In sum, said McNab, “any forecast would require heroic assumptions on what policies come into play in 2025.”