About this report
This report was prepared and produced by the D.C. Policy Center for the DC Chamber of Commerce. It was originally released by the DC Chamber of Commerce on October 1, 2021. This version has been adapted for web. View the original PDF.
About the DC Chamber of Commerce
The DC Chamber of Commerce is the voice of business in Washington, DC, the nation’s capital. It advocates on behalf of businesses and entrepreneurs, and provides services to improve the business climate and attract new companies to the District of Columbia. As a leading advocate for economic growth, the DC Chamber reflects the diversity and prosperity of the District’s robust business community, from tech startups to Fortune 500 corporations.
Washington, DC is a flourishing and diverse global city. Its leadership—including Mayor Muriel Bowser, the Council of the District of Columbia, and the DC Chamber of Commerce under the stewardship of President & CEO Angela Franco—are the catalysts for the production of the 2021 State of Business Report: Building Back.
The Office of the Deputy Mayor for Planning and Economic Development, under the leadership of Deputy Mayor for Planning and Economic Development John Falcicchio, and Sybongile Cook, Director of Business Development and Strategy, provided financial support for the production of this report.
Photo/Joe Flood (Source)
Message from the Chamber
One of the nation’s most resilient regions, Washington, DC, like the country itself, experienced unprecedented changes in its economy, workforce, and business community during the COVID-19 pandemic.
The 2021 State of Business Report provides both data and analysis of the impact of COVID-19 on the region, examining its devastating toll on critical sectors and government tax revenues, but it also offers hope. The DC Chamber of Commerce presents a clear vision for how to transcend this moment and move forward to recover the vitality of this city again.
The District’s economic strength leading up to the pandemic was due to a broad array of factors including its highly educated workforce, solid fiscal footing, world-class higher educational and research institutions, and opportunities created through smart economic development over the last decade.
However, both the strengths and the challenges faced by the District economy and its business community leading up to the pandemic have been reshaped by the crisis. Strengths were tested; challenges exaggerated. The report offers insights into how those shifts played out over the past 18 months, and what that could mean over the long term.
DC currently faces some of the highest regional housing prices in the country, and as a result, the region is experiencing an affordable housing crisis that has been deepened by the pandemic as prices exploded and left many wondering how to ensure affordable housing for low- and middle-income residents in the future.
A societal shift in attitudes about work remains a major threat to the District. The federal government and the business community are already grappling with how to convince employees to return to the office, particularly in downtown DC where office workers are the engine that drives economic activity.
There were bright spots in the report, though, such as the infusion of billions in new federal dollars for city recovery programs and the growth in personal income in high-wage sectors. The pace of business formation in the District also increased during the pandemic, reflecting the resilient entrepreneurs and business leaders who dared to open new businesses despite the often-crushing effects of the pandemic. It is a foundation to build from going forward.
As private- and public-sector leaders shape the economic recovery through business and policy decisions, those decisions must be informed by the reality of data and analysis. This report provides the vital details that can illuminate the breadth of the crisis and offer opportunities for the recovery. The State of Business Report provides data points that offer early insights into how the COVID-19 pandemic has impacted different aspects of the District’s economy, and to help plan for a strong and equitable economic recovery.
Today, the DC Chamber of Commerce and its members work toward a future where these economic shifts and threats are no longer reshaping the world, but rather contributing to a brighter future.
President & CEO
DC Chamber of Commerce
Photo/Ted Eytan (source)
Over the past year and a half, the COVID-19 pandemic has placed unprecedented burdens on the District’s residents, establishments, and economy.
As businesses were forced to adjust to a new way of operating under a rapid shutdown of the city and the nation, the pandemic induced a historic spike in unemployment, with an added challenge of many residents exiting the labor force altogether due to personal health concerns or lack of childcare. By May 2020, employment numbers had hit a low point with 43,747 residents out of work. Businesses continued to operate at a reduced capacity, and mobility patterns hit a low point of 30 percent below pre-pandemic levels.
Because of continued uncertainty, there has been a sluggish and uneven recovery since the city lifted its stay-at-home order in May 2020. While the full range of economic impacts of the pandemic and how it will change cities remains unknown, near-term data highlight some of the challenges to recovery, as well as new opportunities that the District might be able to seize to build back better.
The District’s dependence on commuter and visitor activity have made its economy particularly vulnerable to the pandemic.
Resident mobility, commuting, and tourist activity improved throughout the fall of 2020 and the first half of 2021, but remain below pre-pandemic levels. Recent data show that District residents’ time spent away from home remains 10 percent below pre-pandemic levels, most workers continue to work from home with only one in four workers showing up in their offices, and the tourism industry is not projected to recover until 2024. As a result, total consumer spending remains an estimated 6 percent below pre-pandemic levels and consumer spending in restaurants, hotels, and entertainment are an estimated 29 percent below pre-pandemic levels. Consequently, the sales tax revenue associated with that spending remained 40 percent below pre-pandemic levels as of June 2021.
The rate of recovery has been uneven across the city’s business establishments and industries.
Recovery across businesses in consumer-facing sectors, universities, businesses that support office workers, and small businesses continues to lag recovery in professional, scientific, and technical services. Grants and loans from the District of Columbia government and various federal programs have helped many businesses keep doors open and employees paid as they figured out how to adjust operations under shutdown. However, as economic activity remained slow for such a prolonged period, many small businesses had to close. As of June 2021, nearly half the small businesses that operated in January of 2020 were closed, and revenue was down by about 57 percent. These closures and the drop in revenue were concentrated in the leisure and hospitality industry, which still has about 82 percent of small businesses closed compared to pre-pandemic levels, with revenue down by 84 percent as of June 2021.
Similarly, job losses were also highly concentrated in consumer-facing industries such as leisure and hospitality, where employment as of June 2021 was 35 percent below February 2020 levels. Even as the industry begins to recover, hiring has been slow as workers have been unwilling to take open positions. Many workers have either moved on or cannot yet return to work due to heath concerns or lack of childcare.
In contrast, office-based jobs, such as those in the professional and business services industry, remain only 3 percent below February 2020 levels. Within this industry, it is the subsectors that primarily offer support to office workers, such as administrative services, that continue to lag, while employment in industries that were easily able to switch to remote work are recovering and, in some cases, expanding.
Many establishments have found ways to successfully adapt to new ways of doing business; thus, there has been a shift from focusing on near-term concerns to longer-term concerns.
In the earlier months of the pandemic, businesses were primarily concerned with finances and the safety of their employees and customers. However, by July 2021, have shifted their focus to finding talent, hiring new employees, and investing in the right infrastructure for future operations.
Higher-wage jobs, which tend to be in sectors where transition to remote work has been relatively easy, are recovering more quickly than lower-wage jobs.
As a result, higher-wage workers are replacing lower-wage workers, Despite a decline in total private sector jobs in the city compared to pre-pandemic levels, total wages and salaries earned in the city are 5 percent higher. While higher wages are good for income tax collections, this also indicates that job losses are concentrated in middle- and lower-wage jobs, hurting those who are further away from opportunity. This trend is exemplified by job posting data, which show that higher wage jobs that require a higher level of educational attainment are down 7.4 percent relative to pre-pandemic levels, while jobs that require little to no education are down 41.2 percent. Jobs in the latter category were hardest to begin with because of the customer-facing nature of many of these jobs, making recovery harder.
In the near term, it will remain a challenge for the city to maintain economic activity, support local businesses that are accustomed to greater foot traffic, and ensure that residents who can work remotely stay in the city.
The District’s workforce has been particularly capable of shifting to remote work, as a relatively high share of jobs can easily be performed at home—61 percent in the region compared to a national average of 37 percent. This, combined with an increasing preference for telework and a continuous surge in cases due to new COVID-19 variants, has made it challenging to retain economic activity in the District’s core employment, hospitality, and entertainment centers. There has been a weakening of already soft demand for office space. Further, a larger share of residents compared to previous years are relocating away from the District—some only temporarily, and others for good. These relocations increase revenue risk for the city as well as local businesses that depend on commuter and resident foot traffic.
One bright spot throughout an otherwise sluggish recovery is an uptick in entrepreneurial activity.
While many businesses closed, the total number of establishments in the District increased throughout the pandemic, suggesting that new business formation has been strong. Data on business applications show entrepreneurial activity with business applications that have a high likelihood in transitioning into a business with a payroll were up by 8 percent in 2020, compared to 2019. This trend continued into 2021 with applications up by 37 percent in June 2021 compared to June 2019. These businesses, if turned into brick-and-mortar businesses, would bring back vibrancy and create new opportunities for residents.
Further, there is an opportunity to support the District’s Black, brown, women, and immigrant entrepreneurs by eliminating existing barriers, such as the Clean Hands requirements or lack of access to high-speed internet or offering support to turn online businesses into brick-and-mortar businesses that are most likely to increase vibrancy across the city.
Continued support from the federal and District governments is essential for the recovery to achieve a new normal that is more equitable and inclusive while also strengthening the city’s competitive position.
Both the federal government and the District of Columbia’s elected officials were quick to respond to the unfolding economic crisis, enabling many businesses to stay afloat. US Census Bureau data suggest that nearly two-thirds of the District’s small businesses have accessed some form of financial assistance from the federal government or the DC government. Local and federal support continues to matter, especially as the pandemic drags on and the full return of consumer confidence remains uncertain. Moving forward, it will be especially important to focus on some of the unique needs of the District’s businesses.
Many establishments are now concerned about consumer and workforce confidence, the potential dampening of economic activity due to a more permanent shift to remote work, and the amplification of existing barriers such as the high cost of doing business in the District, accelerated inequalities, and workforce attraction and retention.
Importantly, the pandemic has highlighted existing inequalities and long-term recovery will depend on addressing these challenges, which include the need for better broadband infrastructure and connectivity, support for non-profits and community organizations, access to capital and opportunities in underserved communities, and access to childcare. Addressing these challenges and ensuring the District can recover to a new normal that is more equitable will rely on a close collaboration between the DC government and businesses. The District has already taken strong steps in meeting the needs of the city’s businesses within the fiscal year 2022 budget and by investing in workforce with multiple paths to credentialing and gaining work experience through apprenticeships. However, more work is needed to ensure the District’s business climate and competitive position continues to strengthen.
Photo/Bekah Richards (source)
The 18 months following the onset of the COVID-19 pandemic have been one of the most difficult and uncertain periods in the District of Columbia’s history.
While the economic recession that stemmed from the pandemic lasted only two months in official estimates, its impacts on the District of Columbia’s economy, businesses, workers, and residents have been long-lasting and uneven.
The impacts of the COVID-19 pandemic were immediately felt by “high contact” businesses that rely on in-person services. Through May 2020, when the city was largely closed, consumer spending plummeted to below 60 percent of where it was prior to the pandemic. Along with the impaired demand, the city lost nearly 79,000 private sector jobs, and small business revenue declined
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