September 2024: Greater Washington Vibrancy Slides as Cracks Surface in Job Market and Real Estate Awaits Boost from Rate Cut

The Greater Washington REVIVE Index reached 70 in September, sliding 1.2% from the previous month as vulnerability in the labor market emerged and local procurement of federal government contracts dropped. In contrast, mobility throughout the region reached its highest level since the pandemic, and record stock prices boosted the resources of local Fortune 500 corporations and regional banks.

The index generally remains stable, having increased 1.2% over the last three months, and only down 1.1% over the last year.

The latest job market data, however, showed a sharp uptick in regional layoffs as well as higher unemployment. The region's unemployment rate has slowly increased over the past year; partially caused by the increase in the labor force pool triggered by favorable employment opportunities. Sizable gains in the nation’s foreign-born population, for which Greater Washington historically is a major destination, have helped drive the labor force expansion. However, the most recent uptick in layoffs and regional employment’s slowdown in the last two months cause more skepticism of the positive drivers behind the rising unemployment rate. There are still bright datapoints underpinning the region’s job market, such as higher job openings and favorable hiring rates.

Another source of weakness in the index is the lessening number of federal government contracts procured in Greater Washington. These contracts, whose work is undertaken within the region, have slowed over the past year after a historic multi-year rise.

Ongoing challenges in real estate continued to weigh on the index, but the first interest rate cut by the Federal Reserve will be a helpful stabilizing force for a recovery in transactions and values. Evidence of stabilizing commercial real estate values are already occurring. Expectations for a more robust rebound due to lower short-term interest rates should be managed, particularly in the face of possibly softer demand in the economy’s “soft landing” and longer-term issues related to office and multifamily distress.

The near-term outlook suggests the region’s vibrancy improving in measurable ways. Some current indicators may be signaling underlying strength, such as robust mobility data showing a Greater Washington populace that is out and about more than it has been in over four years.

In almost all “soft landing” economic scenarios, the region should exhibit more resilience than more volatile metropolitan cities. The trajectory of interest rates should be supportive to the ongoing recovery in both commercial and residential real estate, which will ultimately be highly conducive to the region’s vibrancy.