Economist: As Maryland grows, slow pace could lead to recession

The Maryland and U.S. economies appear to be improving, but the pace of growth is so slow that Towson University economist Daraius Irani said he expects them to slide back into recession in 2018.

The United States is experiencing one of the longest expansions since the end of World War II, with falling unemployment rates, cheap gas, many months of job creation and expectations of strong Christmas sales.

Maryland's labor market, after lagging behind the United States last year because of the federal shutdown and government spending constraints, also has seemed to gain steam.

But the growth has been moderate compared to historic norms, and nagging signs of unease remain, including depressed levels of consumer spending, limited wage growth, relatively scarce housing starts, and lower labor force participation rates.

"There are numerous factors that make this economy seem like, 'Wow! We are really in recovery. We should be happy. We should be doing cartwheels,'" said Irani, who spoke Tuesday at the 20th annual economic outlook conference organized by Towson University's Regional Economic Studies Institute. "It looks great from a distance, but once you get really close … it doesn't look so good."

Consumer spending — the traditional driver of U.S. growth — remains below pre-recession levels, as wage growth remains tepid. And with many of the new jobs offering low wages or part-time work, there is little sign that household spending will surge forward, Irani said.

At the same time, weakness in the global economy, coupled with a rising dollar, is likely to hurt U.S. exports, which have played a key role in the recovery so far, Irani said.

"If we're not selling to ourselves and we're not selling to the rest of the world, it becomes very difficult to sustain the economy," Irani said. "If we're not growing, we're not creating new jobs and opportunities and wages aren't growing, the economy is going to slow down, just from inertia."

Irani said he expects Maryland's labor market to grow less than 2 percent in 2016 and 2017, slipping below 1 percent the following year.

Irani said he does not expect the coming recession to be as dramatic as the downturn that accompanied the housing crash and financial crisis of 2008, but predicted it will be longer because the government appears to have exhausted its tools to stimulate growth.

The Federal Reserve has kept interest rates at record lows for years, in an effort to stoke the economic engine. Fed officials have hinted at plans to raise rates next month, but even if interest rates increase a bit, that leaves little recourse in the future, Irani said.

Politics is likely to constrain any chance of a government stimulus program, he added.

"The challenge will be, when the next president comes in, as we enter into a downturn — likely given the cyclical nature of our economy — that there are no policy tools," he said. "Our recession will likely be deeper, longer than it was in prior years."

Audience members greeted Irani's forecast with dismay — as well as some skepticism.

Christopher Kreeger, president of Kreeger Consulting, said the moderate pace of the economic recovery is partly due to the fact that businesses are not taking the kinds of risks that can lead to economic problems.

"It seems like collectively we've decided on slow growth. It's not an accident," Kreeger said, "Business leaders are more sober about the kind of risks they're willing to take."

Irani has made gloomy predictions in the past. Last year, he forecast less than 1 percent job growth in 2015. As of September, the number of jobs in Maryland had increased 1.7 percent year-over-year and about 1.1 percent since January.

His prediction for next year is in line with other forecasts, if slightly more pessimistic.

In October, economist Anirban Basu of the Sage Policy Group said he expects Maryland's economy to grow about 2 percent next year, as slow wage growth continues to hold back improvement. Basu also said historic economic patterns point to another slowdown on the horizon.

nsherman@baltsun.com