Federal employment, trade declined in 2025 in Virginia

Virginia saw some economic growth in 2025, but it was slow compared with 2024, and statewide unemployment is expected to rise in 2026, according to Old Dominion University’s State of the Commonwealth economic report released Tuesday.

Authored by Bob McNab, director of ODU’s Dragas Center for Economic Analysis and Policy, the 11th annual report predicts the state’s unemployment rate will hit 4% at the end of 2025. It will reflect the autumn departure of federal workers who took the “fork in the road” offered by world’s richest man Elon Musk and DOGE earlier this year.

While those employees received paychecks through the end of September, as of Oct. 1, most were no longer employed by the federal government, and some are out of work entirely, the report says, although national unemployment numbers were delayed by the October-November government shutdown, so for now, these are conjectures.

However, it is clear that the number of Virginia residents working for the federal government has declined in 2025, from a peak of 196,700 people in December 2024 to 185,200 in August.

Federal employees, the report says, “represent ‘fiscal gold’ for Virginia. Federal civilian employees tend to be older, more educated and relatively more experienced than their private sector counterparts.” They’re also better paid on average, with a federal employee making approximately 1.6 times that of a private sector employee based on 2023 numbers.

This ratio is likely to increase to 2.0 in 2026, the report says — essentially requiring the state to come up with two private sector jobs for every federal government job lost in order to keep up the amount of compensation made in Virginia.

Meanwhile, President Donald Trump‘s tariffs have led to a decline in the dollar value of international trade through the Port of Virginia in 2025, although other events — including 2024’s temporary closure of the Port of Baltimore and the subsequent increase in imports through Hampton Roads — make the decline appear more dramatic than in ordinary conditions. Trade decreased 12.6% between the first quarter of 2024 and the same quarter in 2025, and an 8.7% decline between the second quarter of 2024 and Q2 2025 at the Port of Virginia, according to the report.

However, the report notes, some exporters and importers did not pass along tariff costs to customers in the form of higher prices, primarily due to Trump’s “announcements, revisions and postponements,” which created uncertainty. “Since tariffs ‘cascade’ through the supply chain … it is likely that prices will rise. The open question is whether these price increases are transitory or structural,” the report concludes.

Overall, Virginia saw some growth in economic activity in 2025, but it was slower compared with 2024, and the civilian labor force and the number of people reporting that they are working in Virginia fell by 1.2% between January and August. One bit of good news was that the state reported $1.8 billion in surplus revenues over the past fiscal year — 6.1% in growth over fiscal 2024.

However, on the horizon is the impact of the federal “Big Beautiful Bill,” which the report says will “negatively impact funding for Medicaid, higher education and other functions across the commonwealth.”

McNab, chair of the Strome College of Business’ economic department, noted in a statement Tuesday that 2025 has been “a challenging year for many Virginians. Cuts to federal civilian employment and reductions in non-defense spending have rippled throughout the commonwealth of Virginia. Higher tariffs have negatively impacted the movement of goods through the Port of Virginia. Inflation remains elevated, and consumer sentiment remains near record lows.”