Va. economic growth will slow in 2022, ODU economists predict

Virginia’s economy is likely to grow at a slightly slower pace in 2022 than it did last year, with the COVID-19 pandemic continuing to make future predictions murky, according to the 2022 Annual Economic Forecast released Wednesday by Old Dominion University’s Dragas Center for Economic Analysis and Policy.

“If we can control COVID-19, the economy will do quite well. But as we’ve seen for two years, that’s a big if,” said Vinod Agarwal, deputy director of the Dragas Center and director of the ODU Economic Forecasting Project, in a statement.

The U.S. saw 5.2% growth in real GDP last year after a 3.7% decline in 2020. In 2022, the nation’s GDP is expected to grow 3%, and Virginia’s real GDP growth is also expected to be 3%, following 2021’s 3.8% growth.

Supply chain constraints are likely to ease in the second half of 2022 but will continue into 2023, Dragas Center Director Robert McNab said in the forecast presentation. “We’re seeing suppliers adapt [and] we’re seeing goods move through ports at a faster pace, so that suggests that producers will learn and that supply chain constraints will ease but not be entirely eliminated this year,” McNab said.

U.S. civilian job growth is expected to be 2.4%, slightly down from 2.7% in 2021, while the unemployment rate is expected to drop from 5.4% to 4%. For Virginia, civilian job growth is projected to be 2.2%, also slightly lower than the 2.5% seen by the commonwealth in 2021.

For 2023, the report forecasts that Virginia’s GDP will grow to 2.8% GDP but civilian job growth will shrink to 1.5%.

McNab predicts that labor shortages will remain as the Great Resignation continues and Baby Boomers continue to exit the workforce, with international migration potentially unable to keep up with industry demand.

On the good news front, the U.S. inflation rate is expected to be 3.8%, down from the 4.7% seen in 2021. The Federal Reserve is expected to begin raising interest rates in an effort to combat inflation, potentially as soon as March.

Political and global uncertainty lingers, including potential disruptions like a Russian invasion of Ukraine, but “even with all this, I would argue that the U.S. is poised for growth in 2022 and into the next year,” McNab said.

For Hampton Roads, Agarwal expects the region’s economic growth — as measured by GDP — to be lower this year than it was in 2021. The Dragas Center forecasts a 2022 real GDP growth of 2.4% in the region, following a 2021 rate of 3%. ODU predicts a civilian job growth of 2.1% for the region, while the regional unemployment rate will likely be around 3.3%.

Defense spending will boost the Hampton Roads economy. The Dragas Center predicts that the Department of Defense will spend $25.3 billion in Hampton Roads in 2022, an increase from the $24.5 billion spent in 2021.

The Port of Virginia should also contribute, with record-breaking cargo shipments expected this year. In 2021, the Port surpassed 3 million TEUs (20-foot equivalent container units) for the first time.

ODU further estimates that hotel revenues in the region will increase 6.4% this year.

Although mortgage rates are expected to increase by about a percentage point, Agarwal predicts that single-family home prices will continue to increase. The median sales price for the region increased 9.4% from 2020 to 2021, from $255,000 to $279,000.

Housing supply has trended lower, with demand increasing during the pandemic. During 2020 and 2021, the average days on the market for home listings in Hampton Roads dropped from 41 to 24. The number of existing residential homes sold rose from 29,895 in 2020 to 34,703 in 2021.

For 2022, there is only a supply of existing homes for 0.8 months in region, a big decrease from 2020, when there was enough regional supply of existing homes for 2.31 months. Near the end of 2010, there was an estimated 10.52-month supply.

In response to a question about offshore wind’s effect on the regional economy, McNab said it will depend on whether Hampton Roads can leverage its comparative advantages in advanced manufacturing, data analytics and shipbuilding to attract manufacturing. “What you want to do is look for those possibilities where you can manufacture and export,” he said, so that the region becomes a net exporter rather than importer of renewable energy goods.