This month we take a look at MoCo’s share of the region’s large, publicly traded companies; celebrate the news that households overall are in a strong financial position; worry about declining real earnings; examine some indicators of local economic stagnation; and share some reflections on the state of democracy.
LARGE PUBLICLY TRADED COMPANIES IN THE DMV
I recently had a reason to go back and check out the Washington Business Journal’s Book of Lists for 2022. MoCo has only 2 of the top 25 companies, ranked by 2020 revenue; on the other hand, MoCo is home to 36 (by my hand count) of the top 100! That having been said, because these MoCo companies on the list skew small, MoCo’s total market cap represents only ~25% of the total.
There are some fun companies on the list (including a couple of my clients) but also some non-clients that we should all keep an eye on: United Therapeutics, Novavax, and Xometry. On the other hand, many of the MoCo companies on the list are in the hospitality industry and that industry faces some pretty strong headwinds generally in spite of the fact that 2022 promises to be a decent bounce back year…and then who knows how long some of the companies on the list will stay in MoCo – Lockheed Martin represents more than 40% of the County’s market cap on the list of the region’s top 100 publicly traded companies, and it isn’t hard to imagine that company calling somewhere else “home” by 2040.
THE GOOD NEWS IS THAT THE AGGREGATE FINANCIAL HEALTH OF THE HOUSEHOLD SECTOR IS ON THE UPSWING…
According to the Federal Reserve’s most recent survey of economic well-being, 78% of adult respondents report that they are “doing okay or living comfortably.” This marks the highest percentage of adults so responding since the survey began in 2013. More than two-thirds of adults (68%) responded that they have sufficient resources to cover a $400 emergency expense exclusively using cash or its equivalent, up from half (50%) who had sufficient cash/cash equivalent resources to cover such an expense when this survey began in 2013. This has to count as not only significant progress over the past decade, but also as a “win” for pandemic-era household support policies (many of which were passed with bi-partisan support).
The politics of social welfare spending in the age of the pandemic has been interesting to watch, though the headlines aren’t necessarily surprising. The two sides of the debate are generally correct when conservatives and moderates argue that the household sector is in the strongest financial position in recent memory, and when progressives argue that increasing inequality means that those who need government assistance need more than ever. But both sides lose the thread from there, with conservatives and moderates often arguing that the strong financial positions of the household sector generally mean that there isn’t a problem that the federal government should address, and when progressives argue for substantial expansions of the social safety net by any and all levels of government.
With respect to the progressives, I do think that one issue could be that when all you have is a hammer…everything looks like a nail… Progressivism is generally defined in such a way that it means a belief that all social ills must be addressed, and that government is capable of addressing them. As an insurgent or heterodox view within the left, progressivism has generally been a positive source of activism and energy. But as progressives have come to occupy the majority status in many coastal “blue state” locales, local democratic politicians have increasingly come to act as though every problem needs to be addressed now and at the local level, and more liberal or centrist candidates have difficulty fending off pressure from the left. I think this has made it difficult to have the real, tough conversations that folks need to have about the marginal costs of local social/economic policy initiatives. When you have to balance the budget, it may very well be that there is only so much that you can really do…for example, while I love the idea of eliminating pedestrian fatalities or homelessness, it may be that the cost of getting from where we are to where we want to go is just too high for us to ever get the rest of the way.
Of course, one way of looking at the new data about the strength of household finances is that they are evidence that many of the pandemic-era policies have really helped voters and have moved some households out of danger of financial catastrophe. On the other hand, my guess is that most on the left will focus on the 22% of adult respondents who do not report that they are “doing okay or living comfortably.” Lacking a national political consensus to address the needs of that group, progressives will push forward a state and local solutions. Probably the next 22% of adults are the ones whose situations will be the hardest to address, so not only will a portion of those needs be addressed by levels of government that have to balance their annual budgets, but they will be much more expensive on the margins than the sorts of federal expenditures that helped us make progress with households generally over the past decade.
There remains a danger that this brand of activist politics will contribute to widespread backlash against progressive overreach. With democracy hanging in the balance, the consequences of such overreach go well beyond simply failing to satisfy an activist base.
THE BAD NEWS IS THE DECLINING REAL EARNINGS…
This mid-cycle election year, one data set that I am keeping an eye on is real wages. While there are few electoral consequences for the party in charge locally – especially in areas that are very much dominated by one political party – there could be consequences for the party in power in the more competitive elections. I have to assume that Americans who feel that they are earning less than they were earning a year ago will punish the party in power, even if their bank accounts are healthier than they were a couple of years ago. Nationally, the 12-month decline is 2.6% from April 2021 to April 2022.
In terms of consumer inflation, March numbers show regional consumer prices up more than 7.0% (about 6.0% when food and energy are excluded). This is above the most recent 12-month change in private sector hourly earnings (5.5%), but shouldn’t pinch as much for County government employees.
Along those same lines, energy costs, and especially the price at the pump, are a political indicator worth watching. According to the Bureau of Labor Statistics Mid-Atlantic office, the current energy situation can be summarized like this:
Gasoline prices averaged $4.180 per gallon in the Washington-Arlington-Alexandria area in April 2022, the U.S. Bureau of Labor Statistics reported today. Regional Commissioner Alexandra Hall Bovee noted that area gasoline prices increased 48.1 percent from last April when they averaged $2.822 per gallon. Washington area households paid an average of 13.6 cents per kilowatt hour (kWh) of electricity in April 2022, 7.1 percent higher than the 12.7 cents in April 2021. The average price of utility (piped) gas at $1.703 per therm in April 2022 was up 16.2 percent from $1.465 per therm a year earlier. (Data in this release are not seasonally adjusted; accordingly, over-the-year-analysis is used throughout.)
IT’S THE ECONOMY, STUPID!!!
Over the last 3 full calendar years, the decline of Montgomery County’s economy has accelerated. The Quarterly Census of Employment and Wages (QCEW) shows a decline in both the number of business establishments and in the number of private sector workers for Montgomery County business establishments.
- MoCo lost (net) 46 business establishments over the 3-year period an average of 1.3 business establishments lost per month during that time.
- Employment for MoCo business establishments declined by 13,651 during that time, an average of 379 private sector jobs lost per month.
While I hear a lot of protests from folks who claim to be weary of comparisons to neighboring Fairfax County, I’m willing to take the risk that this turns off some folks. Here are the QCEW numbers for Fairfax County, which indicate both an increase in the number of business establishments and in the number of private sector workers for those establishments:
- Fairfax County gained (net) 1,588 business establishments during those 3 years, or an average of 44 new business establishments per month.
- Employment for Fairfax business establishments increased by 2,749 over the 3 years, or an average increase of 76 per month.
We’re not breaking new ground here, but I thought this was worth checking out now that the 4th quarter QCEW numbers are out. For anyone new to MoCo Economy Watch, you can check out a post from earlier this spring that highlights some evidence of MoCo’s divergence from the broader regional economy.
WE’RE WELL PAST THE PRELUDE TO STAGNATION
“The embarrassment of riches in an economy that is economizing on development of new work is temporary. It is a prelude to stagnation.” – Jane Jacobs, The Economy of Cities.
MoCo’s economy has progressed well beyond the “prelude to stagnation.” In fact, sometimes the economy seems to be asleep from the “quaaludes of stagnation.” As the numbers above indicate, the economy is (remarkably) losing businesses and has been doing so for most of the longest economic expansion in U.S. history.
Contrasting MoCo’s stagnation with Fairfax County or other nearby jurisdictions helps provide some context. But even that probably understates simply how remarkable this stagnation (nay contraction) is; for the United States as a whole, the number of new business establishments increased by more than 11% during this 3-year period.
|Change in Number of Private Business Establishments|
|2019 Q1||2021 Q4||Change||Change %|
I’ll just take a moment to remind folks that when the County Executive says things like “the growth is real, it is happening” or when a County Councilmember says that “we’re a victim of our own success,” numbers like these are the reason that I experience cognitive whiplash.
In any event, the number of business establishments and the number of applications for new business formation are often used as indicators of economic trajectory. This page from the Bureau of Labor Statistics is a useful starting point if you are interested in learning more about the number of establishments and what it says about the entrepreneurial environment and contains some links to other articles. For those interested in really nerding out on this topic, a recent paper by some folks at the Census Bureau and University of Maryland Professor John Haltiwanger is a useful addition to the literature and worth checking out.
FACING UNPLEASANT FACTS
George Orwell was one of the great essayists and thinkers of his time. And while his time and our time differ in key respects, there is a lot of timeless content woven throughout his body of work.
As I have watched the congressional hearings on January 6th, and reflected on the delusional political thinking that has come to permeate so much of the body politic and so many of the corridors of power, one quote has seemed especially germane to the moment:
“We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men. If liberty means anything at all, it means the right to tell people what they do not want to hear. In times of universal deceit, telling the truth will always be a revolutionary act.”
A hallmark of this moment in political history is the amount of personal and professional risk involved in simply stating and restating the truth. And many of the enduring images of this period will be the exasperation and exhaustion that is so apparent when talking to many public servants.
On a personal note, I will cop to the fact that exercising my liberty to tell people what they do not want to hear feels more disheartening than it did a few months ago. If my duty is simply to restate the obvious all the time, and to do so at personal and professional risk, then I need to weigh whether doing so is interesting enough to be worth the hassle.
I’d like to be breaking new ground in discussions about developing the County’s Metro sites. I’d like to be working to plan the infrastructure that will drive future growth. I’d like to partner with the County to build consensus around inclusive and sustainable neighborhood redevelopment strategies. Instead, we’re really just covering the same already well-trod ground…over and over again…For example, my work to advance really significant legislation that would make it feasible to develop mixed-income housing on WMATA owned sites was passed, 7 to 2…then vetoed and passed again…then in a bizarre bit of “legislating by definition” legerdemain, was nearly undone by an amendment to a bill that was ostensibly about procurement in County construction contracts. So, I spent a lot of time over the past couple of years getting the same legislation passed three times when once should have been enough.
All of which has me wanting to stomp my feet and shout at the heavens, or at least spend some time this summer thinking about the future of public policy and local governance. As Melville’s Ishmael says:
Whenever I find myself growing grim about the mouth; whenever it is a damp and drizzly November in my soul; whenever I find myself involuntarily pausing before coffin warehouses, and bringing up the rear of every funeral I meet; and especially whenever my hypos get such an upper hand of me that it requires a strong moral principle to prevent me from deliberately stepping into the street and methodically knocking people’s hats off – then, I account it high time to get to sea as soon as I can.
If you need to sleepwalk for a while just as a survival mechanism, I get it; it is hard to watch what is going on right now (locally, regionally, nationally, globally) without wanting to knock people’s hats off.
Stepping back to solid ground for a moment, there are some considerations relevant to the local economy worth pausing on at least briefly:
- First, most of us have assumed that the policy and economic environment in the future probably will be informed by facts and that future policy decisions will reflect some rationality on the part of the body politic and elected officials, and that both of those groups will be served by dedicated professionals with skills and experiences that will help guide the ship of state through whatever peril it faces. The basis for these assumptions seems weaker now that at any point in the last several decades of this nation’s history.
- Second, we have always imagined that the large public sector presence will provide a stable base for the MoCo economy. Watching the congressional hearings should be a reminder to all of us that our assumption of a stable economic base driven by substantial public sector economic activity is a result of our past experience and is not inevitable in the years to come. To wit, we keep citing our proximity to the nation’s capital as an asset…but we haven’t spent much time wondering what might happen if the nation divides, dissolves, or declines. And while such possibilities are beyond our control, it is likely that our assumptions about what level of current expenditure are affordable (as an example), are based on some assumed growth or at least stability in the level of federal government activity in the region’s economy.
Forgive me for dwelling on the congressional hearings just a bit more…but I do think that for everyone who loves democracy – and I truly do – there is an obligation to bear witness. There remains a very real possibility that the current GOP efforts to re-write history will be successful, and that all we will have as proof or as a touchstone are the memories of these hearings.
W.E.B. Du Bois’ entire oeuvre should be required reading in every civics and history course of study. Given that this is actually MoCo Economy Watch, I’ll just skip to my favorite passage of The Propaganda of History; here he makes the case for bearing witness and makes it in a way that few writers or thinkers could ever match:
War and especially civil strife leave terrible wounds. It is the duty of humanity to heal them. It was therefore soon conceived as neither wise nor patriotic to speak of all the causes of strife and the terrible results to which national differences in the United States had led. And so, first of all, we minimized the slavery controversy which convulsed the nation from the Missouri Compromise down to the Civil War. On top of that, we passed by Reconstruction with a phrase of regret or disgust.
But are these reasons of courtesy and philanthropy sufficient for denying Truth? If history is going to be scientific, if the record of human action is going to be set down with the accuracy and faithfulness of detail which will allow its use as a measuring rod and guidepost for the future of nations, there must be set some standards of ethics in research and interpretation.
If, on the other hand, we are going to use history for our pleasure and amusement, for inflating our national ego, and giving us a false but pleasurable sense of accomplishment, then we must give up the idea of history as a science or as an art using the results of science, and admit frankly that we are using a version of historic fact in order to influence and educate the new generation along the way we wish.
It is propaganda like this that has led men in the past to insist that history is “lies agreed upon”; and to point out the danger in such misinformation. It is indeed extremely doubtful if any permanent benefit comes to the world through such action. Nations reel and stagger on their way; they make hideous mistakes; they commit frightful wrongs; they do great and beautiful things. And shall we not best guide humanity by telling the truth about all this, so far as the truth is ascertainable?
Maybe this is too heavy. On the other hand, these are heavy times. As one of the Rolling Stones (Keith Richards?) once said “Sticky Fingers is no more a heavy drug album than the world is a heavy world.” Or something like that.