The mid-Atlantic economy is among the slowest in the nation, as manufacturing companies continue to move out in search of cheaper labor, land and taxes. And with a Republican Congress drafting budget cuts aimed at wiping out the federal deficit, the WEFA Group, a Philadelphia-based consultancy, has forecast that reduced U.S. government spending could cost Maryland 100,000 jobs over the next decade.
That scenario comes at a time that a slowing national economy prompted the Federal Reserve last week to trim interest rates a quarter point in the hope of preserving its "soft landing" strategy -- heading off inflation without precipitating a recession.
As the national economy softens, what is in store in the region's job market? Will jobs be harder to find in the rest of 1995 and early 1996?
For the mid-Atlantic area, the jobs outlook will certainly remain well below the national average. Even assuming that we do accomplish the long-sought "soft landing," and things do not accumulate into a recession, employment growth in the region will be very weak, certainly below 1 percent in 1995 and probably not much better in 1996.
We have very high labor costs compared with the mountain states. Costs in terms of taxes and land also are high, and many manufacturers continue to move out to the mountain states. So the underlying growth in the area is very weak in comparison with many other parts of the country, and slower national economic growth will only make it harder to find a job in this area.
In addition, the area is more dependent on financial servicesthan most parts of the country. Financial services employment peaked in July of last year and has deteriorated ever since. It hasn't been disastrous, but financial services has a very high multiplier effect in the rest of the economy, so it adds to the overall weakness. We see a state like New York having only about half a percentage point of annual growth this year and again next. Maryland is likely to have about 1.5 percent growth this year and next, above the average for the region but still a relatively hard place to find a job.
If people are not already findingjobs harder to get, they certainly will begin feeling it very soon. We have already begun to see layoffs. It appears that this economic cycle has more or less skipped over one entire step, in that businesses did not wait for their inventories to build up and went directly to production cutbacks as soon as orders slowed, which of course means more layoffs and less hiring, which explains the big loss of 101,000 jobs in May.
The mid-Atlantic area was already one of the slower areas in the country, and the slowing of the national economy is only exacerbating that effect. The recent declines that we have seen in consumer confidence, I think, reflect the softness in the job market. And of course declines in consumerconfidence feed back into the economy in the form of reduced spending, which in turn means reduced production, which means still fewer jobs.
This is a classic circular effect, and it means the economy is at a very important turn. This issue surely must have been one of the things the Federal Reserve Board's Open Market Committee had in front of it when it met, and it will be on their minds again in their August meeting. They have to think about job losses and the possibility of a recession on the one hand, and on the other, the possibility that if they ease too much now, then some time next year the inherent strength of the economy might assert itself and they would have to tighten even beyond what they've done up to now.
Michael A. Funk
Regional Economic Studies,
University of Baltimore
The prospect for Maryland isthat jobs growth will be somewhat tighter over the next few quarters than it has been over recent quarters. We expect growth of about 1 to 1.5 percent over the 12 months ended next March, compared with 2 percent in 1994.
If you're looking for a job in Maryland, the place to be looking certainly is not in the trade sectors or in construction, because those will grow relatively more slowly than they have in recent quarters. The growth will be in the trucking and warehousing business, and in service businesses, although many of the jobs in services will not be particularly well paid.
In health services, I think that while hospitals will be either flat or down somewhat, we can expect growth in the 2 or 3 percent range for other parts of the sector such as health maintenance organizations and offices and clinics of medical doctors.