Q1 16 ECONOMIC OUTLOOK Washington Metro Area

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1 PARTNERS in YOUR VISION Q1 16 ECONOMIC OUTLOOK Washington Metro Area Dr. Stephen Fuller Published March 216 Capital Bank N.A. 1 Church Street, Suite 3 Rockville, MD

2 PARTNERS in YOUR VISION Capital Bank, N.A., presents this quarter s updated economic projections for the Washington, DC metropolitan area in reports prepared exclusively for our business clients by Stephen S. Fuller, PhD, noted expert in economic development, George Mason University faculty professor, and member of the Virginia Governor s Advisory Board of Economists during five different administrations. QUARTERLY OUTLOOK FOR THE WASHINGTON METROPOLITAN AREA ECONOMY REPORT SUMMARY The great magnitude and mix of job growth across area business sectors in 21 and the beginning of 216 have significant income implications, creating increased demand for housing, goods and services a promising sign of continuing economic growth. Early forecasts for 216 have the Washington, DC area Gross Regional Product (GRP) outperforming the national economy for the first time since 21. While federal spending continues to underpin the region s economy, it will no longer be the driver of its growth federal employment is expected to continue to slowly decline over the remainder of this decade. Washington Area Economy Rebounds in 21 and Is Positioned for Faster Growth in 216 The Washington region s economy pivoted in 214, shifting from its long domination and dependency on federal spending to an economy whose future growth will be driven by non-federally dependent businesses. The results of that shift became evident in 21 and established the foundation for the economy s performance going forward. While federal spending will continue to underpin the region s economy, it will no longer be the driver of its growth. Federal procurement spending appears to have stabilized in 214 and 21 at a level 13 percent below its 21 peak, while federal employment is expected to continue to slowly decline over the remainder of this decade. In spite of the decline in federal spending over the past five years, job growth during 21 accelerated, registering a gain of 1.9 percent for the year compared to a gain of only.6 percent in 214. In 214, the Washington area s job growth rate ranked 1th out of the 1 largest metropolitan areas; in 21, the Washington area ranked 12th. Gross regional product (GRP) gained an estimated 1.9 percent in 21, up sharply from.3 percent in 214 but still below the 2.4 percent gain registered nationally. However, forecasts for 216 have the region s GRP outperforming the national economy for the first time since 21. While these beginningof-the-year forecasts can be expected to 1 Largest Job Markets Job Change: Jan 214-Jan SF-Oakland Phoenix Atlanta Dallas Seattle Miami Los Angeles Washington +2.3 DC Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis Philadelphia New York Detroit Minneapolis Chicago Boston Houston Capital Bank N.A. 1 Church Street, Suite 3 Rockville, MD

3 4 2 U.S. GDP and Washington Area GRP: (Annual % Change) Washington U.S. be revised following the first quarter s uneven performance, the Washington region s economy is still expected to outperform the U.S. economy in 216 and again in 217, due to the following: a one-time increase in the federal budget (FY 216), continuing pent-up local demand especially for housing, the Presidential election and changes in the Executive Branch and the favorable local concentration of non-federal businesses in sectors projected to grow rapidly in the national and global economies Source: IHS Economics, GMU Center for Regional Anyalysis, Forcast: February 216 Job Growth Drives Area s Renewed Economy What is behind the Washington region s renewed economic growth? The strong recovery registered by the regional economy in 21 provides the answer. Two years ago (February 214), job growth for the region was negative. For the entire 214 year, a total of 18,6 net new jobs were generated within the region s economy. In 21, a total of 9,4 net new jobs were added in the area economy, the greatest number of new jobs since 2. This job growth reflected strength across the strength of the economy with the largest number of new jobs being generated by professional and business services (P&BS). P&BS is the largest employment sector in the Washington region with an average salary of just under $1,. In the past, this sector was dominated by federal contractor job growth, but in 21 this growth was generated by non-federal contractors. P&BS jobs are high-value added, export-based (serving non-local markets) and now are non-federally dependent. Additionally, the mix of P&BS jobs being added during 21 was concentrated in the scientific and technical services and management services, building on the region s well-educated workforce and technology-intensive business base. Other sectors that experienced strong job gains in 21 included education and health services, leisure and hospitality services and construction. Annual Job Change Washington Metropolitan Statistical Area, (s) Annual Data Annual Month Over Year Sources: Bureau of Labor Analysis (Not Seasonally Adjusted), GMU Center for Regional Analysis Capital Bank N.A. 1 Church Street, Suite 3 Rockville, MD

4 Job Change by Sector January 21 January 216 Washington Metropolitan Statistical Area (s) Total = 7,6 Professional & Business Services 18 Federal Govt 3 Education & Health Services 1 State & Local Govt Retail Trade Leisure & Hospitality 17 Construction 8 Other Services 4 Financial Activities 3 Information -3 Manufacturing Wholesale Trade 1 Transportation & Utilities Source: Bureau of Labor Statistics (Not Seasonally Adjusted), GMU Center for Regional Analysis Unemployment Rates Decline in All Jurisdictions Overall, the Washington area economy experienced diversified gains that spread the growth across the breadth of the workforce and region, as reflected in continuing declines in unemployment rates in all jurisdictions. This increase in employment across all jurisdictions, combined with an increase in the rate of labor force participation at the end of the year, reversed a long-term trend dating from the mid-2s. These strong performance trends from 21 have continued in February 216, with the region adding 68,8 new jobs compared to February 21. February s growth follows strong gains in January (7,4) in spite of the blizzard that shut down the region for the best part of a week. Job gains in January and February have continued the strong growth trend that began in the second quarter of 21. Unemployment Rates in the Washington Metropolitan Statistical Area by Sub-State Area, Northern Virginia Washington Region Suburban Maryland U.S. D.C. Suburban Maryland Source: BLS, GMU Center for Regional Analysis (Region - Not Seasonally Adjusted, US - Seasonally Adjusted) Economic Growth Looks Promising for 216 The magnitude and mix of job growth have significant income implications that will favorably impact the demand for both rental and ownership housing re-sales and new and support increased spending for retail and other consumer goods and services in the Washington area. This combination of economic growth across both export-based and local-serving businesses bodes well for continuing economic growth in 216. Capital Bank N.A. 1 Church Street, Suite 3 Rockville, MD

5 ABOUT CAPITAL BANK Capital Bank, N.A., is a leading private bank in the Washington, D.C. metropolitan area that offers a range of services encompassing cash management, commercial lending, consumer credit and residential mortgage/veterans Administration mortgage loans. Capital Bank s core commercial banking and lending business includes two rankings by the U.S. Small Business Administration (SBA), ranked number two among community lenders and in the top ten among all lenders in the Washington Metropolitan District for loan volume for Fiscal Year 21. With double-digit asset growth over the past three years, Capital Bank has more than $73 million in assets and is well positioned to fulfill its culture of collaborative partnerships and solutions for area businesses and consumers nationwide. For more information, visit Member FDIC. An Equal Housing Lender. CAPITAL BANK, PARTNERS IN YOUR VISION DISCLAIMER: The contents of this report reflect the view of the author, who is responsible for the opinions, assertions, facts and accuracy of the information presented herein. This document is being disseminated by Capital Bank, N.A., in the interest of information exchange. Capital Bank assumes no liability for the contents of the report or the use thereof. The reader acts on information in this report at his or her own risk. 216 Capital Bank N.A. 1 Church Street, Suite 3 Rockville, MD 28 NMLS #4199