Local economist says Howard, state too dependent on federal spending

The American economy is prospering -- though the average citizen might not know it.

That was one of the takeaways from local economist Anirban Basu's annual forecast to the Howard County Chamber of Commerce, held Wednesday at the Columbia lakefront Sheraton.

"I think we are at the peak of the business cycle," Basu, the chairman and CEO of Baltimore-based Sage Policy Group and a recent appointee to governor-elect Larry Hogan's transition team, told the group of Howard business leaders. "This year will be about as good as it gets for the economy."

In Howard County, business owners who responded to a chamber poll were markedly more optimistic about their economic prospects than they were last year. Nearly 78 percent of the 54 chamber members who responded to this year's survey were optimistic that the economy would improve in 2015, compared with about 44 percent who had high hopes at the end of 2013.

Nearly all of the survey respondents said they expected to either maintain current staffing levels or hire new employees in 2015, whereas about 10 percent of last year's respondents expected to have to downsize staff.

And just 5 percent of last year's respondents said they had avoided furloughs and layoffs in 2013, while 94 percent said they didn't have to resort to either measure in 2014.

Low gas prices, the strength of the U.S. dollar in comparison with other currencies and strong energy export numbers have all played a positive role in expanding the national economy, which grew by 2.2 percent this year, Basu said.

But those gains have been reflected in corporate profits and stock prices, rather than being translated into tangible improvements -- such as wage increases -- for most American workers, he added.

Basu pointed to a recent NBC poll that found 57 percent of Americans still believe the country is in recession.

"The gains from the economic recovery have been very much concentrated in the hands of the few," he said. "That's the reason a lot of people don't feel excited about this recovery."

And while the national economy may be on the move, Maryland and Howard County have some repositioning to do, in Basu's view.

Recent American economic growth has been in energy production -- primarily in oil-rich states such as Texas and the Dakotas -- and manufacturing. "But that's not Maryland's story," Basu said.

The state, which is home to large numbers of federal workers and government contracting businesses, has traditionally been dependent on government spending -- which means the economy might find itself caught up in political tussles, such as last year's federal shutdown, or at the mercy of a cycle that sees times of spending succeeded by periods of cutting back.

"This is a structural issue; this is a secular issue," Basu said. "This is going to continue, this cycle of federal downsizing" -- particularly in the face of an accumulated $17.7 trillion national debt, which the economist said is "probably the greatest risk to this country's future."

In Howard County, where 70 percent of the chamber's survey respondents classified themselves as professional business services -- a category that includes government contractors -- there were zero respondents who said they are manufacturers. The second and third most common business categories among chamber members, according to the survey, are "other" and non-profits.

Despite Howard's unemployment rate of 4.4 percent -- the lowest in the state -- the county "is very much affected by Washington dynamics, because so many people who work in Washington live in Howard County," Basu said.

In the near future, the "need to cut spending at a federal level, and not just for political points, but for an actual need... is what Howard County needs to be thinking about when it repositions itself economically," he said.

He also predicted that the state government, which this year reported a more than $400 million revenue shortfall, could become the biggest drag on Maryland's economy.

Basu said the state should work on creating a more hospitable climate for attracting and retaining new businesses.

"I think we have, in our state, really damaged the value proposition," he said. "We've made it harder for business to do business, and we had to attract that private capital because federal government has been sitting here growing like a weed."

Local economist says Howard, state too dependent on federal spending

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