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National, State and Regional Economy
On October 21, the Federal Reserve issued the Beige Book, which surveys business conditions in the 12 Federal Reserve Districts around the country. According to the Beige Book, “reports from the 12 Federal Reserve Districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels.” The Richmond District which includes the Washington, DC metro area stated that, “Most sectors in the Fifth District reported either mixed or improving business conditions since our last assessment...Finance and real estate (both residential and commercial) firms reported improvements over the last four to six weeks, but weaknesses were noted especially in industrial real estate. In contrast, the retail sector tended to be either flat or down in recent weeks.”
As the economy improves, the positive effects on state and local revenues are likely to lag the real economy. On October 13, Staff advised Council that reductions in intergovernmental revenues from the Commonwealth of Virginia to the City are now expected to exceed $1.6 million, including at least $1.2 million in General Fund reductions. In October, the Weldon Cooper Center for Public Service issued a paper authored by James Regimbal, Jr. which analyzed the State’s August report on revenues. The report noted that FY 2009 revenues declined at the steepest rate in at least 50 years, including a 19.8% reduction in corporate income tax collections and a 6.3% decline in individual income tax collections. Regimbal also noted that according to official forecasts, the Commonwealth’s revenues are not expected to exceed their FY 2006 levels until FY 2012. At the same time, much of the shortfall in the FY 2008 - FY 2010 Biennium General Fund budget was covered by Rainy Day Fund withdrawals and federal stimulus funds, both of which will decrease in FY 2011. Since state aid to local government comprises 48 percent of the state general fund budget, local governments will likely experience some major additional reductions.
Alexandria's Economy and Revenues
While the national unemployment rate looks to be headed toward 10%, in August, the City’s unemployment rate dropped for a third straight month, to 4.7%. Alexandria’s peak unemployment rate to date during the current downturn was 5.3% in May. That compares to a peak rate of 3.7% during the 2001-2002 recession and 6.9% in the recession of the early 1990’s. Through the 1st quarter of 2009, the City had shed about 1,075 jobs compared to the year before. That’s 1.1% of the total number of jobs in the City.
A trailing three month average of sales tax collections ending in August was off by 3.5% in Alexandria compared to last year, while U.S. retail sales dropped 7.2% during that same period. The trend is improving though it is still below zero. Meals tax collections were down by 2.1% through July compared to last year. There is good news from Transient Lodging tax collections. Over the three month period ending in August, collections from the $1 room fee were up by 11.1% compared to last year. For the first time since April, total revenues from the lodging tax were positive year over year, by 1.8%. A comparison of room fee collections to tax collections shows that the average room rate in Alexandria dropped from $137 in August 2008 to $124 in August 2009.
Data continued to show a mixed to slightly negative picture in the residential real estate market. Real estate sales for the year to date through September increased by 1.6% compared to 2008. The average sales price for the year to date is 5.6% below last year’s average sales price through the end of September. According to data from Metropolitan Regional Information Systems (MRIS), for September, there were 4.7 months’ worth of condos and 4.6 months’ worth of single family homes on the market compared to 5.7 months’ and 4.7 months’ worth of condos and single family homes in September 2008. Another measure of turnover, the average number of days the average home remains on the market, decreased from 87 days in September 2008 to 65 days in September 2009. The three month trailing average of foreclosures, 27, is down slightly in September from the previous month and well below the peak of 42 in September, 2008.
The first time homebuyer’s tax credit, a major support to the lower end of the market, will expire at the end of November, unless extended by Congress.
The commercial real estate market is also trending downward. In the 3rd quarter, the office vacancy rate reached 16.2%, a level not seen in Alexandria in more than five years. As a comparison, during the last severe downturn in the commercial real estate market in the early 1990’s, the office vacancy rate peaked at over 21%. As previously noted, so far in this economic downturn, Alexandria’s unemployment rate has not reached the levels of the early 1990’s recession which may help to keep the vacancy rate under the level seen in previous recessions.