2025 was a year of federal policy shifts and pronounced economic uncertainty. Despite these changes, the national economy remained remarkably resilient. Economic activity and consumer spending stayed strong. Labor market conditions slowed considerably, but remained positive. So far, tariffs introduced in 2025 have not had the impact on inflation many expected, largely because many businesses appear to be absorbing the added costs rather than passing them on to consumers. The full effect, however, is likely to be delayed. At the same time, there is growing evidence of an increasingly K shaped economy; much of the income growth and spend ing has been concentrated among higher income households, while the bottom half of households have experienced slower gains and greater financial strain.
That national resilience, however, has been less true for Hampton Roads, where federal cuts have had an outsized impact. Hampton Roads is home to the third largest federal civilian workforce in the country. As shown in Figure 1, the region lost more than 6,000 federal civilian jobs in 2025. Overall, Hampton Roads lost nearly 12,000 civilian jobs in 2025. Labor market conditions have also weakened considerably. The number of residents employed in the region fell below levels observed before the pandemic in 2019. The unemployment rate rose to 4.1% in November 2025, nearly a full percentage point higher than at the start of the year. A key question for 2026 is how many displaced federal workers will find employment locally versus leaving the region. Federal civilian workers tend to be older, have higher levels of educational attainment, and thus earn significantly higher compensation than private sector workers. The average compensation of a federal civilian employee is nearly twice that of a private sector worker. In practical terms, for every federal job lost, the region would need to add roughly two private sector jobs to maintain the same level of total compensation. While federal cuts were a major drag on the regional economy, defense spending remained a bright spot. Defense contract spending grew considerably in 2025. The $900 billion defense budget passed for fiscal year 2026 includes pay increases for service members and expanded investments in shipbuilding. Together, these should provide a meaningful anchor for the Hampton Roads economy in 2026.
Source: HRPDC, Port of Virginia, Bureau of Labor Statistics CES. Hampton Roads reflects the Virginia Beach-Chesapeake-Norfolk, VA-NC MSA. Excludes workers in national security roles.
However, the region’s other major pillars have softened. Container volumes at the Port of Virginia slowed in 2025 following trade policy shifts. As shown in Figure 2, twenty foot equivalent units moving through the port fell to their lowest level since 2020. Tourism has also cooled from its post pandemic surge, as middle and lower tier hospitality markets have seen weakening demand.
The forecast for 2026 reflects that balance. Growth is expected to continue, but at a modest pace. Defense spending should provide stability, but federal workforce uncertainty and weaker demand among the region’s other two pillars remain key risks. Hampton Roads remains highly dependent on a handful of industries, and the lesson is familiar. When Washington changes course, Hampton Roads feels it first, and often feels it most.