Our economy: The good, the bad and the ugly

As the nation struggles through a severe economic downturn, the state of the Charlottesville area’s economy is a bit of a mixed bag.

While the region has bounced back quickly from past recessions, this downturn appears likely to cut deeper and last longer, according to local economists, business leaders and economic development officials.

So how is the region faring? The most recently compiled economic indicators suggest that the Charlottesville region’s economy has aspects that are good, bad and ugly.

The Good

Thanks in large part to the area’s fairly stable mega-employers — such as the University of Virginia, Martha Jefferson Hospital, the National Ground Intelligence Center and the Defense Intelligence Agency — the local labor market has fared moderately well.

The unemployment rate in the Charlottesville Metropolitan Statistical Area — which includes Charlottesville and the counties of Albemarle, Greene, Fluvanna and Nelson — was 3.4 percent in September. While the jobless rate was higher than it was a year ago, the Charlottesville area has a lower rate than Roanoke, Richmond, Danville, Harrisonburg, Lynchburg, Winchester and the state and nation as a whole.

With the Charlottesville region’s steady work force and high quality of life, the local housing market has not been as devastated as elsewhere in Virginia. The local real estate market has undoubtedly taken a hit, but the Virginia Association of Realtors reported on Oct. 22 that sales were down across the state during the third quarter of 2008.

Some localities saw huge drops in sales: 81.4 percent for Danville; 43.4 percent for Williamsburg; and 26.4 percent in Roanoke.

The Charlottesville region’s sales fell by 21.7 percent in the third quarter to its lowest point in seven years, compared with the third quarter of 2007, according to a market report by the Charlottesville Area Association of Realtors.

Yet real estate industry professionals see some signs for optimism. Jeff Gaffney, chairman of the new homes division of Real Estate III, said the Charlottesville region’s glut of housing is beginning to be whittled away and the average number of days it takes to sell a home has decreased. The number of homes listed for sale has dropped from 3,530 last month to 3,427 on Thursday. The average number of days on market fell from 128 in October to 113 last week, according to CAAR.

“We’ve had a decline of inventory of housing for the last four months straight,” Gaffney said. “It’s still certainly a buyer’s market, but it’s headed toward balance. Maybe we’re turning a corner.”

Two bright spots of the area’s economy are the tourism and restaurant industries.

The latest lodging reports show Charlottesville-area hotel rooms are being booked at roughly the same rate as in 2007, bringing a steady number of business and leisure travelers to the region.

“We’re about where we were last year, which is pretty phenomenal in this economy,” said Allie Baer, interim executive director of the Charlottesville Albemarle Convention & Visitors Bureau. “Tougher days are probably ahead of us, but we’re about as good as good gets right now.”

Restaurants in Charlottesville and Albemarle County have continued to do brisk business, despite an overall decline of discretionary spending, according to a database of sales tax receipts compiled by The Daily Progress. The restaurants enjoyed roughly $180 million in sales between Jan. 1 and Sept. 30, marking a 6.5 percent jump over the previous year-to-date total.

Most Charlottesville-area businesses are being cautious during the downturn, but some start-up firms are beginning to emerge, said Susan Stimart, business development coordinator for Albemarle County. Stimart has been conducting interviews with CEOs and managers of existing companies, which have reported anecdotally that some longtime employees have left longtime firms such as Sperry Marine to form their own businesses.

“We’re seeing growth in our economy due to the talent and skill of our work force,” she said. “We’re growing our own, basically.”

Fuel prices are another happy sector of the Charlottesville region’s economy. Gas prices have plummeted locally and elsewhere over the past month, bringing the area’s average price to $1.97 per gallon on Thursday — down from $2.99 a month earlier and $3.07 a year ago, according to AAA Mid-Atlantic.

The Bad

Consumers in Charlottesville and Albemarle County have started to spend less in recent months, reversing several years of retail spending growth in the region. By the end of September, retailers in the two localities reported a 3.74 percent drop in sales over the same period of last year.

Some months saw huge sales declines. In September, sales at Albemarle County retailers fell by 10.43 percent year over year. Charlottesville retailers in July saw a drop of 15.34 percent from last July.

“The most anxiety-causing statistic that I’ve seen of late are those retail sales numbers,” said Timothy Hulbert, president and chief executive of the Charlottesville Regional Chamber of Commerce.

Sales tax receipts show that certain industries are faring particularly poorly compared with last year. Manufacturing sales in Charlottesville and Albemarle County declined by more than 13 percent. Home furnishings stores saw sales fall by 8 percent. Sporting goods, hobby, books and music stores experienced a 4 percent drop in sales. And building supply and gardening stores saw sales plummet by a whopping 70 percent.

The retail sector had hoped that strong holiday sales would help recoup this year’s losses, but that scenario is looking increasingly unlikely.

“I think it’s going to be a very weak holiday season,” said Bill Crutchfield, founder of Albemarle-based consumer electronics retailer Crutchfield Corp. “The economy is already in a recession. I see no reason for optimism. Consumer confidence is at a record low.”

Retailers are not expected to hire as many seasonal employees for the holiday rush this year, as they have in years past.

Area wages, meanwhile, have not kept pace with elsewhere in the state. The average household income in the Charlottesville metropolitan area in 2007 was $71,078 — marking a 3.89 percent drop from the previous year’s average of $72,951, according to U.S. Census estimates released last month.

Despite a few somewhat positive signs for the real estate market, the Charlottesville area’s home sales are unquestionably slow.

Yet home prices have not fallen, making homeownership a still out-of-reach dream for many residents. At the end of 2004, the median home sales price in the region was $247,250. So far in November, the median sales price has been $257,883.

At the same time, the financial industry meltdown has led to banks tightening lending requirements, making a mortgage loan significantly harder to obtain. As a result, many Charlottesville-area apartment companies are reporting a surge in interest among families opting to continue renting, rather than buy a home.

Along with the real estate slowdown, the pace of new home construction in the region has fallen to a level not seen in at least 16 years. Albemarle County issued only 360 residential building permits during the first nine months of 2008, down from 831 during the same period in 2007.

The estimated cost of these residential construction projects in Albemarle declined from $159.3 million in 2007 to $82.4 million in 2008, according to a building activity report by Albemarle County.

The slowdown has led to layoffs by companies in the homebuilding and overall construction industries, including firms such as Church Hill Homes and other prominent builders.

Charlottesville-area auto dealers are also struggling. Auto sales in Albemarle County fell from 352 in September 2007 to 293 in September 2008 — a decline of 16.8 percent, according to new registrations filed with the Virginia Department of Motor Vehicle and compiled by the Virginia Auto Dealers Association.

The Ugly

Over the past year, the Charlottesville region had the worst job growth performance out of Virginia’s nine metropolitan areas, according to the Virginia Employment Commission.

The Charlottesville economy suffered a net loss of 500 jobs between September 2007 and September 2008. Charlottesville was the only metropolitan area in the state that had a net loss of jobs. Every other area saw at least a bit of job growth.

The region’s job losses were primarily in the construction and manufacturing industries. The region saw limited job gains, however, in the business services, hospitality and transportation industries.

More layoffs are on the way. Luck Stone Corp., LexisNexis and Circuit City’s local store have all announced coming job cuts.

Along with the job losses, a growing number of Charlottesville-area families have defaulted on their mortgage loans.

Shelley Murphy, director of program services for the Piedmont Housing Alliance, said she has seen an average of 10 people facing home loan default or foreclosure each week.

“We are seeing an increase,” she said. “We used to just have one person handling the default calls. Now we’re all taking those calls. There are four of us. I’m the supervisor and I’m taking those calls too.”

The number of foreclosures in the Charlottesville area may be dwarfed by Northern Virginia, Richmond and Hampton Roads, but they are occurring at a pace not seen locally in recent memory. In October alone, there were 16 foreclosures in the region, according to a Virginia Association of Realtors report. In the same month, Roanoke had 20 foreclosures, Lynchburg had 16, Danville had 160 and Winchester had 510.

Michael Harvey, executive director of the Thomas Jefferson Partnership for Economic Development, said that while the Charlottesville area has traditionally been somewhat insulated during recessions — thanks in large part to UVa — this time appears different.

The region’s economy increasingly relies on retail and other service sector businesses. With consumers cutting back so much on spending, Harvey said, such companies certainly will not be hiring as much and may turn to additional layoffs. The Charlottesville-area workers most affected by such a move, he said, are those on the lower end of the wage scale.

“They’re going to be hit hard,” Harvey said.

The Charlottesville area economy will eventually recover, Harvey said, but it will be a painful ride.

“What doesn’t kill you, makes you stronger,” he said.