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MARYLAND'S FIRST QUARTER The State's economy shows signs of life, but the recovery is still patchy and modest

THE BALTIMORE SUN

Marylanders stepped up consumer purchases and went shopping for big ticket items such as cars and houses in the first quarter of this year, enlivening the state's economy but not enough to catch up with the national growth rate.

Battered by the vicious winter, the state's overall economic recovery remained patchy and weak, moving at less than half the U.S. pace, as it did in much of the Northeast, an analysis of key economic indicators and interviews with economists, business leaders and consumers shows.

Job hunting was still tough for many, especially in the flagging defense and manufacturing sectors, and the already-depressed commercial construction industry sank into even deeper doldrums as crosswinds continued to buffet the state's recovery.

"Maryland began to recover only last year, later than the rest of the country, and at least for the rest of this year the state's employment picture will be recovering more slowly than the nation's," said Mahlon Straszheim, the University of Maryland economist who is Gov. William Donald Schaefer's chief economic adviser.

Despite very weak employment growth, job hunters did find work a bit more easily for a fifth straight quarter.

"In the Baltimore area, first-quarter jobs growth was actually more than most people forecast, but not much more," said Charles W. McMillion, president of MBG Information Services, a Washington firm that tracks the Maryland economy.

"The second quarter should be better than the first," if only because spring weather is unlikely to disrupt life as much as last winter did, Mr. McMillion said.

Mr. Straszheim agreed. "Job growth slowed in the first quarter," largely due to the bitter winter, "but by the end of the first half Maryland will be back to the one-percent growth rate it has experienced since early 1993," though that will leave Maryland still well behind the national growth rate, he said.

Growing consumer confidence fueled a spending surge once the weather broke in March.

For Michael Levitt, a Reisterstown insurance agent, and his wife, Karis, the improving economy made it easier to decide to purchase a one-bedroom condo at Ocean City and a new vehicle.

Those purchases gave the Levitts pieces of the two brightest spots in Maryland's first-quarter economy:

* Automobile sales, stronger throughout the quarter than a year ago despite the brutal winter, went into orbit in March and continued strong through April.

* Home sales were up 7.5 percent over the first quarter of 1993. In the Baltimore area, the leap was 10 percent. The overall gains in Maryland were healthy compared to year-ago figures, but still trailed most of the nation. The number of home-sale settlements in the quarter was boosted largely by the surge in buying in the fourth quarter of last year. They dropped off sharply in the first quarter of 1994 mainly because of the bitter winter months of January and February. But home sales shot up again in March and many agents reported their best sales ever.

Even with interest rates rising, "My sense is that the improvement in home sales will continue," said Charles F. Reid 3d, president of the Maryland Mortgage Bankers Association. "At rates around 8.5 percent, people are still aware how much higher mortgage interest was in recent memory, and the usual spring buying pattern seems to be back with us this year."

Rising home sales are important because they usually lead to increased consumer purchases for home repairs as well, economists say. As the first quarter ended, consumer goods had risen only moderately faster in Maryland than a year earlier.

Also pointing to a reviving state economy were the biggest quarterly drops since the 1980s in both business and individual bankruptcy filings, a surge in help-wanted advertisements, healthy growth in most sales tax categories, and modest increases in March weekly manufacturing pay and hours compared with a year earlier.

Soaring passenger traffic at Baltimore-Washington International Airport also provided a boost, though freight tonnage was clobbered by the winter and no one wanted to guess how long BWI would benefit from the airline fare wars that have made it the country's fastest-growing passenger terminal.

Another boost came from the Port of Baltimore, where freight tonnage showed its biggest quarterly gain in a decade.

Still lagging badly, as they have been since just before the recession began in 1991, were three former mainstays of Maryland's jobs growth: defense, civilian government and manufacturing.

Several other vital indicators also showed weakness:

* Commercial construction, including retail, wholesale, office and factory buildings, was already in the tank a year ago and took a further 33-percent nosedive in the first three months of this year.

"There is still much too much unused commercial and office space left over from the overbuilding of the late 1980s, and any improvement is probably years away, not months," Mr. Straszheim said. "Residential construction, though we had some growth in Maryland, also lags the national increases, and given what's happening with interest rates, the best growth may already be behind us."

* Jobs growth, hit by the vicious winter, still was less than half of 1993's 1-percent-a-year pace by the end of March. But the slowdown, "is most likely a result of the extreme weather situation, rather than the beginning of a downward trend in employment," said Bruce Grindy, who compiles the University of Baltimore's Maryland Index of Leading Economic Indicators.

The areas providing the most new jobs were in the service sector -- especially business services -- and in the high-tech industry.

"The recent behavior of other components in the leading index is pointing toward continued growth in Maryland employment," Mr. Grindy said.

* Tourism, never at its best in January and February, took body blows from the winter weather. Visits to Maryland tourist information centers dropped off sharply in the first two months. Visits turned substantially upward in March, and hotel room-tax collections were on the rise by the end of the quarter.

Also hard hit by the winter were new electrical service installations, especially to commercial and industrial customers, which in normal weather are much-watched indicators of household growth and general business activity.

Baltimore-area prices rose in the quarter, after being slower than the national rate since soon after the recession began.

"Inflation in Baltimore had been so low for the past three years, no more than 1.5 to 1.8 percent a year, and what may be starting to happen is some making up for lost ground," Mr. McMillion said.

"To some extent, it just reflects the fact that the Maryland economy is starting to pick up a bit and merchants are getting some room to increase prices for the first time in at least three years," he said.

Despite the first-quarter increase, the Baltimore consumer price index ended March barely 1.7 percent higher than a year earlier, mainly because the area had seen almost no inflation in the middle months of last year.

How well Maryland is doing depends on what you compare it with, many economists say.

"Maryland may well go on trailing the national growth rate in employment for a couple more years, and it certainly doesn't look very good if you compare it with states to the south, such as Virginia," Mr. Straszheim said. "But if you compare it with states to the north, it's doing significantly better than most of the Northeast."

Neighbors to the south may outperform Maryland for years, Mr. Straszheim said, because stagnant government payrolls and declining defense budgets will make albatrosses of sectors that used to be two of the state's fast tracks, while low pay and the absence or weakness of unions will go on pulling factories and businesses into the South.

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