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Economists say recovery will be patchy Maryland likely to lag behind other regions


Washington -- Economic recovery will come in varying shapes, sizes and speeds to regions of the United States, analysts predict. What's hot: computers, machinery and the Sun Belt. What's not: the defense industry, office construction and the Northeast.

Maryland will be among the likely laggards during the recovery. And Baltimore, with its auto and steel plants, will be slow to revive, says Charles Renfro, chief economist of Alpha Metrix, a widely respected Pennsylvania forecasting and consulting group.

Identifying regions for early liftoff, he added, "From Baltimore I would certainly head south or west. I would not go north."

His reason for heading south: Home sales, driven by low interest rates, will spark a demand for new furniture, curtains, rugs -- items made in the Carolinas and Georgia. Out west? There's a concentration manufacturers of computers and related telecommunications equipment.

The nation's economy, measured by the gross domestic product -- the total of goods and services produced in the United States -- rose at an annual rate of 2 percent in the first quarter, creating confidence that a sustainable recovery is under way.

Most economists see the growth rate rising to an annual rate of 3 percent or more in the last two quarters of the year. An annual growth rate of 2.25 percent is considered the requirement for starting to reduce unemployment, which is at a six-year high of 7.3 percent.

The recovery is being molded by some fundamental shifts in the nation's economy. Many industrial sectors that boosted growth after previous recessions aren't expected to have the same impact this time.

Massive spending on the Reagan administration's arms buildup

helped power the nation out of the recession of the early 1980s. Now there are severe defense cuts, layoffs by defense contractors and base closings.

In the hard-hit Northeast, two bases -- Fort Devens in Ayer, Mass., and Loring Air Force Base in Limestone, Maine -- will be closed. Layoffs already have occurred at United Technologies in Connecticut and at General Electric Co. and Raytheon Co. in Massachusetts.

Locally, Martin Marietta Corp. and Westinghouse Electric Corp. have laid off defense workers. And at Fort Meade, contingency plans are being worked out for the expected impact of defense economics. Don McClow, a Fort Meade spokesman, said, "The assumption is there will be some sort of impact. We don't know the volume, quantity or amount or the impact."

The construction industry usually does its share to reverse downturns, too. But it won't have as much impact this year.

There already is a glut of office and retail space. In Baltimore, the office vacancy rate is 20.02 percent, and there is 250,000 square feet of surplus retail space, according to the Baltimore Development Corp. The housing market is more active, but an aging population promises fewer overall buyers.

And the auto industry, a mainstay of past recoveries, is still hurt by such factors as consumer reluctance to take on new debt.

"What are you left with when you have taken all these things away? You are left with a very narrowly based recovery, which really features business equipment investment," said economist Chris Probyn of Data Resources in Lexington, Mass.

Computers, office machinery and telecommunications will lead the current recovery, he said.

Meanwhile, the housing revival already is producing some spinoff for building materials and furniture, said Donald Ratajczak, director of the Economic Forecasting Center at Georgia State University. That activity eventually should spread to other sectors, starting with such consumer durable goods as washers, dryers and refrigerators, helping manufacturers concentrated in the Midwest and Northeast.

Exports have been the economy's one bright spot during the recession. Last year, they totaled $421.6 billion, up 7 percent from 1990's $393.9 billion, according to the Commerce Department.

Economic slowdowns in Germany and Japan might restrain export growth but will not reverse it, said Stephen Cooney, analyst for the National Association of Manufacturers.

Recoveries in the United Kingdom and Canada, and strong demand in Mexico, Latin America and Southeast Asia for U.S. products, would underpin the export market. And demand in Eastern Europe, currently almost a non-existent market for U.S. companies, can only grow as free-market reforms take hold.

Mr. Cooney sees capital goods -- computers, airliners, chemicals, machinery, instruments -- leading the way abroad as an undervalued dollar gives U.S. manufacturers an advantage and streamlined companies become more efficient.

How will various regions fare during the recovery? Sara Johnson, managing economist with DRI/McGraw-Hill, offers this view:

* The Northeast -- Worst hit by the recession. Confidence is now returning, producing a rebound in home sales and homebuilding. Retail sales picking up. Recovery will be sluggish. But "clearly the worst is over."

* The Mid-Atlantic region -- Hit second-hardest. Prospects of recovery not as bright as in the Northeast because of corporate restructuring and work force reductions. The region, which includes Maryland, will run last in employment growth over the next two years.

* The South -- Mildly affected by the recession. Recovery now well under way. Influx of new residents and comparatively low labor costs are expected to boost economic activity, including the real estate market.

* The Midwest -- Except for Michigan and Missouri, the region outperformed the nation during the recession. Benefited from foreign demand for its products. Service industries will lead local employment recovery, with manufacturing industry kicking in during the summer.

* The West -- Recession stalled the regional economy, and it is not expected to rebound to its 1980s vitality. California, buffeted by defense cuts and weak real estate market, is its weakest link. The Pacific Northwest is in better shape. Prospects rest on Pacific Rim expansion and attraction of regional lifestyle.

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