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By Joy Vann

In the first 10 days of the new presidential administration, threats of stiff tariffs sent reverberations across the globe; a directive freezing trillions of dollars for federal funding was sent and rescinded; and actions to reduce the federal workforce were underway. Amid this breaking news, Old Dominion 91����Ƶ economists Bob McNab, Ph.D., and Vinod Agarwal, Ph.D., shared their economic projections at the 30th anniversary of the Dragas Center for Economic Analysis and Policy’s Annual Economic Forecast held Jan. 29 in the Big Blue Room at Chartway Arena.

More than 300 attendees from the business, academic and nonprofit worlds gathered to hear their outlook based on the Dragas Center’s research. In preparing their remarks on the state and national economies, Agarwal and McNab analyzed key indicators including gross domestic product, the labor force, payrolls and job openings. Regarding economic trends in Hampton Roads, the Dragas Center analyzed military employment, activity at the Port of Virginia, the hotel industry and the housing market.

McNab, chair of the Department of Economics and director of the Dragas Center for Economic Analysis and Policy, discussed Virginia’s post-pandemic economic recovery and the increase in jobs across the state. Since the pandemic, the labor force has made a strong recovery with 4 million more people employed in December 2024 than in December 2019.

“If you look at Virginia's recovery in 2022, 2023, 2024, the pace of economic growth was significantly higher on average than it was prior to the COVID-19 pandemic in 2020. In other words, the commonwealth exited the pandemic growing faster than it did the previous decade, where we had somewhat anemic growth,” he said. “That's good news, because now we are in the midst of an economic expansion where the economy at large has been growing for multiple quarters. And not only that, we have seen that Virginia's economic performance has essentially been equal to that of the United 91����Ƶs.”

Regardless of that positive economic performance, inflation has led to a sharp decline in consumer sentiment. McNab explained that while the rate of inflation has decreased, consumers feel the pinch of higher prices for groceries and goods. Though wages have increased over time, to consumers, those higher prices just evoke anger.

McNab suggested that people caught up in the immediacy of the social media news cycle should look at the numbers with a long-term view.

“They have to draw back and realize we are in one of the most fortunate periods in U.S. history in terms of economic performance,” he said.

While noting that anything was possible in this fast-moving environment, McNab said the nation and the commonwealth were poised for growth based on the number of job openings. He said if federal spending remains steady and the spread of Bird Flu remains limited, the gross domestic product should increase by more than 2.5%.

Overall, McNab said there is a significant amount of uncertainty regarding economic policy.

He was cautious about etching lines too deep about the impending economy because “any forecast would require heroic assumptions on what policies come into play in 2025.” 

“In the best-case scenario, not much changes in terms of trade, immigration, tax and spending policy in 2025 and the United 91����Ƶs and Virginia economies continue to experience real gross domestic product growth around 2.5%,” he said. “In the worst-case scenario, higher tariffs coupled with immigration actions accelerate inflation and the national and commonwealth economies could plunge into recession in the latter half of 2025.”

Vinod Agarwal, deputy director of the Dragas Center for Economic Analysis and Policy, shared his projections for the Hampton Roads economy in 2025.

He said defense spending, which accounts for 40% of economic activity in the area, is expected to increase based on signals from the new administration.

“When you look at the fact that we are so dependent on the military, it is difficult for us to move the needle to diversify,” he said.

He said a strategy to diversify the economy calls for a focus on “clusters of growth” as identified by the state that have a high average wage rate, including life and health sciences. While also identified for its growth potential, clean energy and offshore wind are “no longer on the table,” based on federal policy, he said.

Agarwal also discussed the new administration’s call for a reduction in the federal workforce, which could have a big impact on the state, particularly Northern Virginia.

“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.

Regarding housing in Hampton Roads, Agarwal noted that because of high interest rates, homeowners are staying put and not selling, resulting in a 36% decline in sales. Meanwhile, the median home price increased 20% percent between 2021 and 2024 and will continue to do so. Also, a 15-year deficit in new building contributed to a low housing supply in Hampton Roads. Agarwal said that research from the National Association of Home Builders and National Multifamily Housing Council pointed to regulations and zoning laws that hampered new building and that a regional housing strategy to increase supply is necessary.

In the presentation’s final slide, Agarwal summed up the outlook. The uncertainty in Washington, D.C., especially regarding the federal workforce and tariffs, remains a concern for the regional economy.