We have some good news and we have some bad news.
And then we have lots of questions.
That’s the short version of the latest quarterly economic forecast from the Weldon Cooper Center for Public Service at the University of Virginia, which may raise more questions for state policymakers than it answers, particularly about data centers and artificial intelligence.
A teaser on both:
Much of the state’s economic growth is tied to data centers, so any slowdown in data centers — which is already happening in the form of piecemeal moratoriums — could also reduce Virginia’s already-weak economic growth.
As for artificial intelligence, we’re seeing some key economic sectors post unusually low economic growth, but it’s unclear yet if this is a result of AI or some other factor that is restructuring those fields.
Now, onto the highlights.
Virginia’s economy is growing faster than previously thought
In May, the Weldon Cooper Center projected that the state’s gross domestic product would shrink this year by 0.2%. Now the center says that the GDP this year will grow by 0.5%. That’s not much, but expanding is always better than contracting. This is a big headline out of the forecast, but it comes with caveats. One of those was voiced by João Ferreira, acting director of the Center for Economic and Policy Studies: “There’s probably more GDP going to profits than wages.” That means the slight economic growth may misstate its actual impact on the general public. In fact, this very modest economic growth is coming at the same time as …
Virginia is losing more jobs in 2026 than in 2025
Virginia is still on track for two straight years of job losses, with job losses this year likely to come in at 18,050. That’s a little higher than the 17,800 losses forecast in May, and definitely higher than the 10,400 that the Bureau of Labor Statistics says it lost last year. What should we make of an economy where the GDP is growing but fewer people are employed? First, see what Ferreira said above: Workers are not necessarily the ones benefiting yet from this economic recovery. Second, they may not for a while yet. “The combination of positive GDP growth and job losses suggests that the initial recovery will be driven more by productivity and output gains than by broad-based hiring,” the official forecast says. “Employment is expected to grow in 2027, but only gradually.”
Where are these job losses coming from? Let’s take a look.
The biggest job losses are in professional services and manufacturing
The two categories with the most job losses are professional services (9,500 so far this year) and manufacturing (4,400). The professional services losses reflect how the federal funding cutbacks have hit Virginia’s consulting industry hard. The losses in manufacturing show how difficult it’s been to sustain, much less, grow manufacturing jobs. The economists who prepared the report said it’s difficult to gauge the impact that the Trump administration’s tariffs (and retaliatory tariffs imposed by other countries) have had on manufacturing since manufacturing has been shrinking anyway. What is certain is that the Trump administration policies haven’t reduced this decline. We’ll come back to this later as we look at the political implications in this forecast.
The job sector adding the most jobs is government
Yes, this sounds completely contradictory to what we’ve heard about federal cuts, but the government job growth is coming at the local and state levels (especially the former). Overall, Virginia has added 8,200 government jobs this year. Many of the federal cuts took place in 2025. From December of last year through June of this year, “local government added approximately 9,400 jobs and state government added 1,700, while federal employment declined by about 2,900,” the report said.
A philosophical question: Are we really cutting the size of government if we’re just pushing jobs from the federal level to the local level? A practical question: Is that why local government jobs are growing or is there some other reason? That’s not addressed here but bears some investigation. One of Virginia’s goals over several gubernatorial administrations now has been to grow the number of private sector jobs so we aren’t as dependent on the federal government. The Trump administration has made sure that Virginia is not as dependent on the federal government as we once were, but overall, we’re becoming more dependent on government jobs, not less. This seems a questionable direction.
The growth in healthcare jobs is slowing
Healthcare jobs continue to grow but not as fast as they once were. In 2025, Virginia added 9,100 healthcare jobs, according to the Bureau of Labor Statistics. Through the first six months of this year, Virginia’s added only 2,800 jobs in that sector. We added more retail jobs (4,500) than healthcare jobs. This is concerning, since healthcare jobs typically pay more than retail jobs — growth in a high-wage sector is slowing while growth in a low-wage sector is growing. It’s not immediately clear why this slowdown in healthcare jobs is happening, when the demands on the healthcare industry are growing as the population ages. Regional economist Terance Rephann says this might reflect Trump administration policies. “There’s been pullback on the federal level, with funding for the ACA [Affordable Care Act] and other programs,” he said during a media briefing on the forecast.
The number of available workers is declining
The general public often focuses on the unemployment rate, but economists tend to focus on another metric: labor participation rates. What’s the total number of people working and seeking work? One reason Virginia’s unemployment rate has remained fairly low and stable is that many people who are out of work have simply stopped looking — and therefore don’t count in the unemployment rate. They’ve simply left the overall labor force. Over the past two and a half years, about 75,000 people have left the Virginia labor force, this report says. (That’s about the population of Augusta County or, for our Northern Virginia readers, Fauquier County.) “The decline has accelerated more recently: between January and June 2026 alone, Virginia’s labor force contracted by approximately 38,000 people,” the report says. In all, that’s 113,000 people who have exited the labor force and not been replaced — that’s about the size of the total population of Montgomery County and Radford combined.
The economists who prepared this report flag the falling labor force participation rate as something to be concerned about. “The resulting picture therefore points to greater labor-market weakness than the unemployment rate alone suggests,” they write. “Virginia is experiencing both employment losses and a shrinking pool of workers participating in the state’s labor market. Although the available data do not identify the precise reasons for this decline, its scale and persistence are unusual relative to Virginia’s recent pre-pandemic experience. It may reflect a combination of population aging and retirement, migration to other states, and reduced participation among individuals facing limited employment opportunities. Additional demographic and migration data would be needed to distinguish among these explanations.”
That seems pretty clear but if anyone needs a further simplification, here what really matters: We have fewer people available to work. We’ve seen other reports — such as this one — that highlight the number of healthcare jobs available that are going unfilled. (That report late last year said there were 3,400 healthcare jobs going unfilled in Southside Virginia). The declining labor force participation numbers mean that many of those jobs will stay unfilled because there simply aren’t people available. In another time, we might have said one solution to those unfilled positions is increased immigration, but we’re not in those times.
We don’t know the impact yet of artificial intelligence
We know generally that AI is eliminating some jobs, but also creating others. We’re nowhere close to a full accounting. “Hopefully we can provide some insight in the near future,” Ferreira said. “We’re trying to do our homework. It’s a mixed bag right now.” For instance, the professional services sector where Virginia has seen big declines is also considered one of the most exposed to AI. There’s some “restructuring” taking place in that sector, Ferreira said, but it’s unclear how much of that is due to AI. We also don’t know the impact of AI on manufacturing or healthcare — or anything else, for that matter. Any mention of AI brings us closer to talking about the controversial subject of data centers, so let’s go ahead and stick our finger into that socket, metaphorically speaking.
A lot of our economic growth depends on data centers
Virginia’s economic outlook has improved partly because the national economic outlook has improved — and it’s improved to a large extent because of the economic activity around data center construction. Here’s the specific language in the forecast: “The stronger outlook reflects increased artificial intelligence-related investment, particularly in information technology, software, and data centers.”
For those clamoring for data center moratoriums, this is a very inconvenient point because it means they’re indirectly clamoring for an economic slowdown. That may not be their goal (it isn’t) but that could be the result. Virginia is developing a piecemeal moratorium on data centers as various localities declare they’re not interested. We don’t know if that’s why Virginia has lost 2,000 construction jobs this year, but we do know that if data centers aren’t being built, there won’t be a need for construction jobs related to them. Of course, the loss of construction jobs also is a warning sign for those who want to see more housing built. With 2,000 fewer construction jobs, all we can say for certain is that something isn’t being built — be it data centers, houses or anything else.
This forecast could be uncomfortable across the political spectrum
Numbers aren’t partisan, which can be a problem for those who are partisan. Virginia Republicans can point to the improved GDP growth in the state as evidence that Trump policies are working. Virginia Democrats can claim this is the doing of Gov. Abigail Spanberger and a Democratic General Assembly. Both assessments would be wrong if what’s driving economic growth is data center construction. That’s inconvenient for state Sen. Louise Lucas, D-Portsmouth, who has led the campaign to do away with the tax breaks for data centers — if such a move were to curtail their growth, we’re slowing down the whole economy. On the other hand, there’s now growing opposition to data centers in both parties — with a fair amount of conversation about how data centers stress the electric grid and the water supply but without much talk about the economic payouts.
The declining number of manufacturing jobs isn’t good news for Republicans; Trump has long vowed to revive manufacturing. He’s not. For that matter, Democrats haven’t either but they now have the luxury of pointing to these numbers when Republicans are in charge in Washington.
The declining labor force participation rates mean that Virginia may face slower economic growth no matter which party is in charge. For now, Democrats are in charge in Richmond, so these aren’t happy numbers for them because these labor force participation rates may constrain just how much economic growth can be produced.
These numbers, taken together, do underscore that Spanberger needs to be an economic development governor. That’s part of the job description for every governor, but these trends make that role even more important for her over the coming years.
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