Editorial: Grim outlook for economy

Like most Americans, Hampton Roads residents expected some economic turbulence as the nation emerged from the darkest moments of the coronavirus pandemic. Yet the situation today — the empty store shelves and sharply higher prices — is worrisome, though there are a few reasons for regional optimism.

In January, economists from the Old Dominion University Dragas Center for Economic Analysis & Policy sounded a hopeful tone about the economy and predicted modest regional economic growth.

But the economists — Dragas Center Director Robert McNab and Deputy Director Vinod Agarwal — pointed to uncertainties that could affect those forecasts. McNab made the prescient prediction that, absent aggressive action by the Federal Reserve, inflation would continue to balloon, even as he argued that direct pandemic relief was the right move by Washington.

Fast forward five months. The Fed did not act aggressively and inflation continues to grow. Couple that with continued pandemic-related disruptions and Russia’s invasion of Ukraine, and suddenly all the ingredients are there for prolonged economic hardship.

McNab and Agarwal spelled all that out last week at a mid-year economic forecast event, which offered a grim outlook for the rest of 2022 but also included some bright spots amid so much gloom and doom.

First, the bad news: Everything is expensive and growing more so by the day. There’s plenty of blame to go around, including in Washington, but it’s important to remember that some are due to forces beyond our control.

A deadly virus killed nearly 6.5 million worldwide, including more than 20,000 Virginians. That pandemic created and exacerbated price shocks and supply chain problems. Now, a war in Europe is driving up costs for grain and gas, among other commodities.

All of these affect what Hampton Roads shoppers see on their shelves and what local motorists are paying for gas. They are driving up the cost of housing and vehicles, child care and construction.

Plenty of experts are blaming federal spending, rather than Fed policy, for these problems, but the view of federal spending is a little different in our corner of Virginia, where so much of the economy depends on Department of Defense spending.

Months before the start of the pandemic, Hampton Roads finally reached its employment plateau that preceded the Great Recession of 2007-08. It took more than 10 years to fully alleviate the pressures of the housing crisis and budget sequestration — far slower than Richmond, Northern Virginia or other peer population areas.

That underscores how federal budgeting has an outsized effect here. What Washington does next will influence whether inflation continues to spike or if the economy tips into recession, but there’s also only so much that can mitigate global waves crashing against our shores.

But here’s some good news: Thanks to the caution of state officials during the pandemic, Virginia entered the year with a record budget surplus. The recent bipartisan agreement on the state budget will return some of that money to taxpayers through a larger standard deduction and one-time rebate checks. The state will no longer collect its 1.5% share of the grocery tax. That will help.

And while the Great Recession saw unemployment jump as the job market contracted, the situation today is far different. Virginia’s unemployment rate remains astoundingly low, putting power in the hands of workers to find jobs with competitive pay and benefits. Still, the ODU economics believe the region will lag behind its peers for job growth into 2023.

Another bright spot: While the supply chain crisis is playing out in grocery markets and retail stores, the Port of Virginia is setting records for volume. Last month it was ranked the most efficient port in North America, according to the World Bank and S&P Global Market Intelligence’s 370-member Container Port Performance Index for 2021.

That shows the prudence of thoughtful investment in valuable resources with an eye toward the future. If Virginia can continue to act strategically, it may emerge from this crisis in a better position than most.