Virginia drops in America's Top States for Business rankings. Federal job cuts are a big reason

CNBC

2 days ago

Six months into his second term in office, President Trump has begun to fundamentally change the relationship between the federal government and the states. In the process, he has shaken up CNBC's annual competitiveness ranking, America's Top States for Business.
Virginia, last year's No. 1 state and a top three finisher in each of the last five years, slips to fourth place in 2025 — its worst showing since 2018 — and cedes the No. 1 spot to North Carolina.
A major reason is a drop in the state's Economy ranking, to No. 14 in 2025 from No. 11 last year. Economy is the heaviest weighted category in the study under this year's methodology as more states pitch themselves as safe havens in a potential downturn.
Virginia is already seeing a small downturn of sorts, as the Trump administration sets out to slash the federal workforce. That hits The Old Dominion where it lives.
The federal government accounted for more than 144,000 jobs in Virginia last year, according to the Congressional Research Service. That is a larger percentage of the workforce than any state except Maryland and Hawaii. And that doesn't include Virginians who work for federal contractors, or commute to federal jobs elsewhere in the D.C. metro area. Include all of those, and the number approaches 300,000.
In May, Virginia was one of only three states whose unemployment rate rose from the prior month, according to the U.S. Bureau of Labor Statistics. The state is still adding jobs each month, albeit at a slower pace than last year, and Virginia's 3.4% unemployment rate in May was still below the national average. But the slowdown — and the fact that many of the federal job cuts have yet to be reflected in the official numbers — concerns University of Virginia economist Eric Scorsone, Executive Director of the Weldon Cooper Center for Public Service.
"Virginia has been an economy, historically, that is pretty resilient," he said. "But now, we're seeing something quite different, where Virginia is seeing some job losses, or at least job stagnation, whereas the nation as a whole is still creating jobs."
The Center's most recent forecast, published in April, calls for the state to lose 32,000 jobs this year, with the job losses accelerating as the year goes on.
While Scorsone said those job losses will occur primarily in the federal sector, he also sees a ripple effect.
"Things like leisure and accommodations," he said. "As people lose jobs, they're going to spend less on those things, [and] maybe in retail," he added.
Gov. Glenn Youngkin, a Republican, says the state can absorb those federal job cuts.
In February, the state launched a web site, VirginiaHasJobs.com, targeting displaced workers with job listings and other resources from across the state.
"We have 250,000 open jobs posted that are unfilled. And so, there's a great opportunity for folks to find a new opportunity, new job, new career," Youngkin said on CNBC's "Squawk Box" on April 15.
A recent check of the site showed that the number of openings has shrunk to 199,000 as jobs have been filled and private sector hiring has slowed. That still would appear to be more than enough for the federal workers likely to be displaced. But Scorsone said it is not that simple.
"Virginia's federal workforce is different than, say, other states. Our workforce tends to be highly educated, professional executive level," he said. "Many of the jobs that are open may be in different sectors, like health care. You can't just easily move into a health care job if that's not your area of expertise," he added.
In his CNBC appearance in April, Youngkin acknowledged the likelihood that the state will lose jobs, and that the private sector alternatives will not be an exact fit for many displaced government employees.
"Listen, they're not perfect matches," he said. "They're high paying, good jobs that require someone to possibly get some retraining or re-skilling, or go into a new field, but they're really good jobs."
Youngkin said the budget cuts, and job losses, are necessary. "We need to rein in spending and re-establish fiscal reality back into the federal government," he said, adding that Virginia goes into the upheaval from a position of strength. "We're seeing record surpluses in our budgets. We're able to use those surpluses to reduce taxes and invest in education and law enforcement and other investments in business development," Youngkin said.
Indeed, Virginia is still a business powerhouse, with the top Education ranking in the CNBC study, and the second best rating for Infrastructure.
Over time, no state has performed better than Virginia in the CNBC rankings. The state has taken top honors six times since the project began in 2007.
But in 2025, with economic anxiety rising, Virginia's economic situation is just shaky enough to take it down a few pegs.