Year-to-date economic data through June 2008 indicate that the Hampton Roads gross product grew at an annualized real growth rate of roughly 1.4 to 1.9 percent over the same period in 2007. Regional employment rose by 1.05 percent, or by 8,100 new jobs, and personal income is estimated to have increased by 4 to 5 percent.  The port's general cargo tonnage increased by 7.1 percent through June.  Despite these positive growth figures, particularly in regional income and employment, some areas within the region's economy struggled.  For example, taxable sales declined by 3 percent;  the areas of  taxable sales experiencing the most difficulty were the region's furniture and home furnishing stores, electronics and appliance stores and building materials stores. Hotel revenue was down 4.4 percent, single family housing permits fell by 28.1 percent and the value of these permits declined by 29.9 percent.  In addition new car sales in Hampton Roads over the first six months of 2008 fell by 23.6 percent when compared with the first half of 2007.

The 2008 year-to-date June data indicated that despite rising household income, Hampton Roads households are reallocating and reprioritizing their spending.  For example, we estimate that the average regional household spent about $80 per household per month extra on gasoline purchases when compared with the same period in 2007. Taxable sales as defined by the Virginia Department of Taxation do not include gasoline purchases.    If taxable sales were adjusted to reflect the increased household spending on gasoline they would have been flat over the period.

The tourism industry's year-to-date problems are likely the result of many of the same types of reallocation decisions by households in the region's market area.  Most importantly, the strong increase in gasoline prices not only affects the cost of traveling from say New York to Hampton Roads but also, over the course of time as monthly fuel costs add-up, major budgetary decisions such as whether or not to even take a vacation.  Preliminary data indicate that this issue will

especially influence the travel decisions of lower to middle income households and will have

a disproportionate impact on the sales of budget and economy hotels.

The most important area of weakness in the Hampton Roads economy continues to be single family home construction. The 30 percent year-to-date decline through June 2008 in the value of new homes adds to the recent malaise in the industry.  The region's residential construction value in June 2008 has dropped by about 60 percent from its high in June 2005.

Employment (Non-Agricultural Civilian Employment +0.9%)

Unemployment (Civilian Labor Force 4.2%)

Employment is expected to grow in the third quarter as rising regional income, created by growth in virtually all sectors of the economy, with the exception of housing and manufacturing, generate spending within the region's economy. The region's unemployment rate will continue to remain considerably below the national level.

Retail Sales (Taxable Sales -0.5%)

During the first six months of this year, retail sales declined by 3 percent. These sales do not include gasoline sales.  This decline is primarily due to an increase in gasoline prices, about eighty cents, during first six months of 2008 compared to same time period in 2007 and a substantially higher growth rate in taxable sales observed during first quarter of 2007. Accounting for these two factors would have resulted in flat taxable sales over the 2008 year-to-date June period. Federal tax rebates, rising regional income, considerable port growth and expanding education and health services sector will keep retail sales at about the same level as those observed during third quarter in 2007.

Tourism (Hotel Room Revenue -2.9%)

During the first six months of 2008, room revenues decreased by 4.4 percent.  However, there were significant variations observed among regions of Hampton Roads. For example, hotel revenues in Williamsburg area declined by 13.7 percent but revenues increased by 0.6 percent in Virginia Beach.  Substantially higher gasoline prices will adversely affect the industry. Higher gasoline prices are expected to influence the travel decisions of lower to middle income households and would disproportionately affect performance of budget and economy hotels. However, rising incomes in region's tourist market areas and a strong Canadian dollar will help offset some of the effects resulting from higher gasoline prices.

Port (General Cargo Tonnage +4.2%)

The strong  performance of the port during the first six months of 2008, during which cargo tonnage increased by 7.1 percent, provides continued good news for the regions' economy.  Depreciating dollar had significant impact on both the volume of cargo tonnage as well as its composition. Export tonnage during first six months of 2008 increased by 17.1 percent over the same period in 2007. On the other hand import tonnage decreased by 3.3 percent.  We expect this trend in composition of cargo to continue during the third quarter but at a reduced rate.

Housing (Value of Single-Family Housing Permits -29.4%)