One in seven jobs in Virginia is directly or indirectly linked to the federal government. Cuts to the federal workforce and government spending will mean a significant hit to Virginia’s economy this year, according a new economic forecast.
The University of Virginia’s Weldon Cooper Center for Public Service forecasts Virginia will lose 32,000 jobs this year because of federal government cuts, economic output will slow and the unemployment rate will rise to 3.9% this year and as high as 4.7% in 2026.
Virginia’s current unemployment rate is 3.2%.
Cuts directly tied to government jobs and spending will have an inevitable spillover effect, the report said.
“We have several hundred thousand people in Virginia who work for contractors with the federal government, so they are not federal employees,” said Eric Scorsone, executive director at the Cooper Center. “Those companies could potentially be laying people off. And ultimately that spills over to other industries like retail, restaurants.”
The report, one of several forecasting a slowing regional economy and job market, said policymakers need to address Virginia fallout from federal government actions now. One of the biggest risks, according to Scorsone, will be keeping those personally affected by cuts from leaving the region.
“That’s a real danger here, that people will leave the region entirely,” he said. “So it is important now to be looking at our assets and strengths beyond the federal government, looking at what opportunities we can seek out. And then providing for people who need help, because there certainly will be a lot of those.”
Even with a labor market strain, the report said Virginia’s gross domestic product — the total value of goods and services produced in the state — will remain in positive territory, driven by productivity gains and resilience in other industries shielded from federal cuts. And some industries directly tied to government spending will potentially still see growth.
“The military may do OK,” Scorsone said, adding there appears to be a potential increase in spending. “There is a potential focus on shipbuilding, which would favor Hampton Roads. So there are some positives like that, that will certainly offset some of the negatives.”
Even so, overall growth in Virginia will slow, and will be more pronounced than national trends. The report notes the 2025 outlook reflects a broad-based slowdown after several years of moderate expansion, with almost every major sector expected to shrink or stagnate.
The Cooper Center’s full quarterly economic forecast for the Commonwealth this year is online.
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