Heading into 2009, the Virginia Beach-Norfolk metropolitan area's economy continues to expand. This expansion is largely due to the sustained growth of hiring by the military and government agencies that make up 18 of the metro area's 25 largest employers.

Over the past 12 months, the metro area has added 16,800 new jobs, most of them in the service-producing industries. The leading sectors for employment growth have been: education services (+4,400 jobs); leisure and hospitality (+2,400); government services (+2,300); and professional and managerial services (+2,000).

At the same time, despite a 20% year-over-year drop in residential building permits, employment in the construction industry has been up by 3.9% year over year, due in part to sustained increases in retail and commercial building.

Looking forward, despite the ongoing support of sustained government spending, it appears likely that the effects of slower growth in the rest of the country will, as it did in 2001, eventually take some of the steam out of the Virginia Beach-Norfolk economy.

This view is supported by the most recent Manpower Employment Outlook Survey, which reported that net hiring plans in Virginia Beach-Norfolk were +10 in fourth-quarter 2008 compared to +20 in the final quarter of 2007.

However, given that house prices in the metro area have fallen by a relatively modest 4.4% (compared to -7.7% for the country as a whole) and assuming that the bank-rescue package contributes to an easing of credit conditions, housing demand should stabilize early in 2009 and gradually strengthen during the balance of the year.

According to >Property and Portfolio Research, the near-term outlook for commercial construction in Virginia Beach-Norfolk is guarded, thanks to a recent surge in supply and moderating growth of office-based employment.

High construction costs and weak demand mean many of the projects currently in the planning stage are unlikely to leave the drawing board.