Virginia Economy: Federal Government, Defense, and Data Centers

Virginia has one of the larger state economies in the United States, usually ranked in the top fifteen by GDP — the dollar value of everything a place makes and sells in a year. The Virginia economy is unusually shaped by its proximity to Washington, D.C., which makes federal spending, defense contracting, and data centers central to how the state earns its living.

This is a plain-English tour. For the national picture, see The State of the U.S. Economy and the Economy hub.

How big is the Virginia economy?

For example, recent state GDP for Virginia has run around $670 billion, according to the Bureau of Economic Analysis. Population is roughly 8.7 million, per the U.S. Census Bureau. Northern Virginia, around the D.C. suburbs, accounts for a large share of the state's economy, with Hampton Roads (Norfolk-Virginia Beach) and Richmond as the next-largest centers.

The biggest industries

Virginia's economy leans heavily on a small number of very large sectors:

• Federal government and contracting — northern Virginia hosts a huge cluster of federal contractors, intelligence agencies, and defense firms.
• Defense — Hampton Roads is home to the largest naval base in the world (Naval Station Norfolk) and a long list of related contractors.
• Data centers — Loudoun County, in northern Virginia, hosts the largest concentration of data centers on Earth, handling a significant share of global internet traffic.
• Technology — Amazon's HQ2 in Arlington and a long list of cybersecurity and IT firms anchor a large tech workforce in northern Virginia.
• Agriculture — tobacco, poultry, and cattle are still meaningful, especially in the south and west.
• Tourism — Colonial Williamsburg, Virginia Beach, and Shenandoah National Park drive a notable tourism sector.
• Manufacturing — shipbuilding in Newport News and chemical and food processing across the state add to the mix.

Jobs and wages

Virginia labor data is published by the Virginia Employment Commission, with national-level numbers from the Bureau of Labor Statistics. For example, Virginia unemployment has typically run a bit below the national average, partly because federal-related employment is more stable than many private-sector industries.

Virginia has been raising its minimum wage on a scheduled path above the federal floor of $7.25 per hour. Tipped workers have a separate, lower minimum.

Taxes in Virginia

Virginia has a graduated state income tax with a relatively low top rate and brackets that are flat above modest incomes. Some Virginia cities and counties charge meal taxes and other targeted local taxes, but there is no separate local income tax.

The state sales tax rate is 5.3% in most areas, with regional add-ons in northern Virginia and Hampton Roads pushing the combined rate to about 6% to 7%. Groceries are taxed at a lower rate.

State tax forms and rules live at the Virginia Department of Taxation. You can read more about how sales tax works in our glossary.

Cost of living

Cost of living in Virginia varies dramatically by region. Northern Virginia (Arlington, Alexandria, Fairfax, Loudoun) has among the highest housing costs in the country, driven by federal-related employment and proximity to Washington, D.C. Richmond and Hampton Roads are roughly average. Southwestern Virginia and parts of the Shenandoah Valley are well below the national average.

The federal government tracks region-specific Consumer Price Index data through the BLS Mid-Atlantic region, and HUD publishes Fair Market Rents for every county at HUD User.

Federal government, defense, and data centers

The three biggest distinguishing features of Virginia's economy are federal spending, defense, and data centers. Federal civilian and military payrolls flow heavily into northern Virginia and Hampton Roads. Defense contractors employ tens of thousands of workers in both regions. Loudoun County's data center cluster grew partly because of cheap electricity, available land, and proximity to the federal contracts and intelligence work in northern Virginia. Federal agency budgets and procurement run through the General Services Administration.

How does the Virginia economy fit into the national picture?

Virginia is one of the wealthier states by median household income, especially in the northern Virginia counties. Federal spending makes the state's economy somewhat more stable in normal recessions, but more sensitive to federal budget fights and government shutdowns than most states.

A state of distinct regions

Virginia is essentially several different economies stitched together. Northern Virginia looks like a wealthy tech-and-government metro. Hampton Roads looks like a defense and shipbuilding hub centered on the Navy. Richmond, the state capital, has a more balanced mix of finance, government, and healthcare. Southwestern Virginia has historically been coal and tobacco country and is now working through a long economic transition. The Shenandoah Valley combines tourism, agriculture, and small-scale manufacturing. Each region's job picture moves on its own schedule.

A note on the numbers

Numbers in this article change every quarter — always check the latest from BEA, BLS, and the Virginia Department of Taxation for the most current data.