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Flood of Wartime Spending Keeps Nation's Capital Flush With Capital

Economy: As much of the U.S. is mired in the downturn, Washington companies are on a hiring binge.


WASHINGTON — Tourism here was devastated by the Sept. 11 attacks, flattened to Depression-era levels. The anthrax scare made matters worse, as news accounts painted a picture of a city under siege. The only airport--a feared terrorist target--closed temporarily and even now is operating far below capacity.

Buffeted by a storm of terrorist-related problems, the nation's capital would seem to be ripe for economic meltdown.

Yet the Washington area is one of the few major metropolitan regions in the country that is not in recession. In fact, thanks to federal spending in wartime, it has proved to be remarkably resilient.

"Follow the money," said Stephen S. Fuller, an economist at George Mason University in Virginia, whose reports on regional forecasts are baseline reading for local governments. Even before the war on terrorism, federal spending in the Washington area was expected to increase to about $80 billion this year, up from $77 billion in 2001. Now, spending in 2002 is expected to reach at least $85 million.

Evidence of a wartime boom abounds. The office vacancy rate in the District of Columbia has fallen to 5.2%, about half the national average. Area home prices are rising, forecast to post the nation's highest increase--7.2%--this year. And the defense consultants and information technology companies, whose skyscrapers line the highway from Washington Dulles International Airport into town, are on a hiring binge.

TRW Inc., a $3-billion company based in Reston, Va., is so short-staffed it is contacting former employees and retirees--especially those with security clearances--asking them to return.

Historically, war has always been good for the economy of the nation's capital.

During the Civil War, poet Walt Whitman was one of a flood of office-seekers arriving in town (he lamented that the overflow had boosted the price of a beer to 38 cents). During World War II, an influx of government jobs produced a housing shortage so severe that President Franklin D. Roosevelt authorized temporary housing on the National Mall for the so-called Government Girls who came to work as typists and clerks while the men went off to fight.

The current war--despite its unique multi-front mobilization against a terrorist network rather than a sovereign nation--shows every sign of continuing the pattern. In November, the Washington region posted a 12-month gain of 40,800 new jobs--the highest number in the nation, according to the Labor Department. During the same period, other communities were hurting; the Los Angeles metropolitan area, for example, lost 11,500 jobs.

But if war has generally conferred an economic bounce locally, this one is different, dramatized by a profound redefinition of federal spending. This boom is driven not so much by the government creating jobs as by the private sector minting them with federal dollars. Thanks to President Reagan's campaigns for privatization in the 1980s and President Clinton's efforts to reinvent government in the 1990s, both political parties have embraced the principle that the private sector is more efficient, flexible and innovative than the sluggish federal bureaucracy.

The numbers tell the story. The federal work force here peaked in June 1993 at nearly 400,000 workers. By 2000, 66,000 of those jobs were eliminated. While spending on federal procurement--the purchase of goods and services--increased nearly 16% nationwide during the same period, in the Washington area it increased nearly 68%.

"There's been a remarkable increase in federal procurement of services, and a decrease in the purchase of goods," Fuller said.

The New Economy, federal style, is more technology-driven, less hardware-based. And Washington, which has no manufacturing base or hometown industry to call its own, no baseball team or strong local government, and few local heroes except transplants such as Michael Jordan imported from Chicago, is uniquely situated to benefit.

Mark Zandi, chief economist at, a consulting firm in West Chester, Pa., said federal spending is "flowing into the Washington, D.C., economy" in part because of the area's diversity. This war requires defense spending and appropriations for research in such areas as bioterrorism, tapping the resources not only of the technology firms in suburban Virginia but also the medical research companies clustered around the National Institutes of Health in Bethesda, Md.

Renewed public confidence in government, coupled with the dot-com collapse that left many young entrepreneurs eager for stable employment, has also increased the interest in the kind of jobs Washington is now generating.

"A year ago, there was nothing sexy about being a government contractor," said Charlene Wheeless, spokeswoman for DynCorp, a $1.8-billion-a-year, employee-owned consulting firm based in Reston that earns 98% of its revenue from government contracts. "Today, we're very sexy."

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