US procurement cuts could hit Washington's economy hard

In 2010, bolstered by federal hiring and a boost in procurement, the US region of Washington DC recorded the nation's highest net number of jobs gained during a 12-month period. However economists are now concerned that the momentum may be threatened as the region's major industry -- the federal government -- prepares to face the budget ax. Many in Congress have expressed an interest in slowing federal spending in order to bring the $1 trillion or so deficit in line.

Federal spending and procurement still represent about one-third of the region's $443 billion economy. Some forecasts suggest that the growth of federal spending and procurement could plunge to 1 percent or below in 2011 from an average of about 8 percent annually during the past several years. That could hurt even if the local economy benefits from improvements this year in the U.S. economy.

"The days of Washington being the leader in terms of job growth and economic strength are really over," said Steven Cochrane, managing director of Moody's Analytics. Experts say federal spending reductions could cut in half the number of new jobs created in the area to 40,000 from 80,000. "I think there's no way that [the pace of job growth] could be kept up any longer, particularly now that the federal government is undergoing pretty strict scrutiny" of the budget.

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