Newly-named to the Washington Business Journal’s Power 100 Most Influential Business Leaders, Dr. Terry Clower joined us on January 21 for our annual peek at economic trends for the new year.
Titled “Weathering the Storm, Preparing for the Future,” Dr. Clower’s presentation began with an observation that while we are weathering an economic storm at this point, there is sunlight on the horizon. However, he cautioned, it is still a matter of choice as to whether we, as business leaders, elected officials and community members, will see more stormy weather in our future.
Regarding the national economy, Dr. Clower summarized that it is growing, describing it as “decent but not great growth.” Much of the growth of the economy is being tied to AI, spurred by tremendous investments and spending. Is there an AI bubble? Dr. Clower cautioned that though there is not cause for panic at this time, this is definitely something to watch.
Regarding government spending, defense spending is creating economic growth, but no one in Congress seems to be focused on the level of national debt we have, and that is an ongoing concern.
Speaking to job growth, he cautioned that there is a softening job market. Eighty percent of the job growth we’ve had in 2025 in the US can be attributed to what is going on in the healthcare services sector, (senior care, home health aids, and similar roles). Though these are important jobs, they are not “high value added” jobs. Immigration policies are also affecting the job market; the reality is we are seeing impacts in the workforce because so many people are afraid to show up for work.
Overall Dr. Clower sees a growing economy but softening labor market; businesses are not comfortable hiring. He questioned, “Are we getting mixed or false signals out of the economy?” The stock market is doing well, GDP is growing, but there is weakness in the labor market. College graduates, for example are not getting job offers. Consumer spending is critical; if people don’t have good paying jobs and job opportunities, that will negatively impact consumer spending.
Regarding mortgage rates and the housing market, Dr. Clower predicts they will hover around 6%; historically that is good, and even a bit lower than normal. “If we get back to 3% mortgage rates, the economy is in really bad shape, so let’s hope that does not happen,” he said. We are seeing activity in the housing market pick up, but concern about the economy is still causing people to be cautious about large investments and purchases.
In summarizing the national economic outlook, Dr. Clower anticipates real GDP growth to be at about 2.1%. He does not see a “burst” of the AI bubble, but does expect that investment will slow. He also anticipates some “social backlash” when it comes to AI, due to the slowing job market and concerns that AI is taking jobs. He noted that federal defense and security spending will accelerate. Regarding job growth, there will be a positive year of growth, but not a great year (we will continue in a “no hire, no fire” scenario from business leaders). He does see two or three interest rates cuts, and noted that it will be interesting to watch what happens with the future of Federal Reserve Chair Jerome Powell’s role.
With respect to the Washington, D.C. metro area, this region for many years got very used to outperforming the national economy in growth. This simply has not been true for over two decades. There are many reasons for this, including the cost of living and cost of doing business here. For our region, the best performance sector is data centers in Loudon County, but there is much public opposition, leading to challenges in continued growth.
Our region has suffered significant job loss due to reductions in federal spending for certain types of contracting and reduction in the federal workforce. There has also been job loss in professional and business services. Young families are leaving our area in droves, frustrated by the lack of opportunities and high cost of housing.
“This is not weathering the storm for six months or even twelve months, this is us weathering the storm while we look at transitioning the economy. It’s going to take a while to work through,” cautioned Dr. Clower. How long will it take? Some of it depends on our actions, legislatively, politically and from a regulatory perspective. The region must pursue opportunities that exist, and do so in a smart and strategic fashion, he emphasized.
Dr. Clower’s overall outlook for our region? We should see by year end a slight uptick in jobs, but it will not be significant. ”We will not recover from job losses in 2026,” he firmly predicts. He does see federal employment possibly rising slightly because DOGE cuts were not performed strategically, and we are seeing some re-hiring as a result. Additionally, he sees federal spending continuing to grow, supporting defense and AI contracting. Again, data centers in our region are a distinct competitive advantage.
AI, quantum computing, and space technology are industries that are critical for us to nurture, and we have them here to an extent. “We must grow these areas,” Dr. Clower said.
Another issue in the area that is impacting the economy: presence of the National Guard. It has had a negative impact on tourism, and Dr. Clower is concerned how it may affect the World Cup events that are scheduled here.
The bottom line: The way we practice economic development in this region needs to change. “It’s not all doom and gloom, but the reality is we are in a storm situation,” Dr. Clower emphasized. “We can be competitive, we have the underlying strengths to compete effectively in terms of the industries that are emerging and will drive future growth.”
He added, “We cannot do things that make it harder to do business in our region.”
For a copy of Dr. Clower’s presentation from our virtual event, contact [email protected]. For more information on future events, stay in touch with MCB!
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