Northern Virginia’s slowdown weighs on state economy, amid federal workforce shifts

Virginia’s economy faces another slowdown and the loss of more than 10,000 jobs this year, University of Virginia researchers said in a new report, and Northern Virginia could once again play an outsized role in the downturn.

The University of Virginia’s Weldon Cooper Center for Public Service released its latest quarterly economic forecast, outlining what lies ahead for the Commonwealth in 2026.

The report projects that Virginia’s growth will slow to 0.3% in 2026, after growing 1.5% last year, with a rebound of 1.6% expected in 2027.

After outperforming the national economy for three years, Virginia struggled to keep up in 2025, João Ferreira, acting director of The University of Virginia’s Center for Economic and Policy Studies, said during a media briefing.

“There were several months in 2025 that was not the case; months like January, February, June, and particularly October, the month of the shutdown, we see that the economy of Virginia underperformed the national economy,” he said.

Ferreira said Virginia’s dependence on the federal government, particularly in Northern Virginia, where federal workers and federal contractors make up a significant share of the workforce, continues to be a major factor. That reliance means shifts in federal staffing and spending quickly ripple through the state.

“Virginia is more exposed to, first, the federal workforce reduction given the high share of local residents that work for the federal government,” he said.

While federal job cuts are not expected to pack the same punch this year, the Commonwealth is projected to lose 10,300 jobs, and the unemployment rate could rise before easing in 2027.

“Part of the stagnation that we might be seeing, and even the decline on the housing market, is also influenced by what we have seen in Northern Virginia,” Ferreira said.

The region was one of the first in Virginia to see the housing market cool, and that trend may continue this year.

The mix of a slowing housing market, ongoing federal workforce shifts and weaker job growth points to a tough year ahead, Ferreira said. But the forecast also shows the economy should begin to stabilize later in the year.

Northern Virginia is expected to play a major role in helping the state bounce back, he said.

Ferreira also said the outlook isn’t set in stone, saying that “this will change as policies change,” and that shifts in decisions at the state or federal level could have a big impact on projections.

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