Maryland's economy lags nation's Citizens are worried about job picture, not spending freely; Better days ahead?; Some companies plan to hire next year

THE BALTIMORE SUN

Maryland's economy crept last summer, failing again to keep up with the nation's and casting uncertainty on the upcoming holiday buying season, newly available statistics show.

The state hasn't been in recession, and some analysts believe that its economy will heat up again next year. Low interest rates are helping many area businesses to continue booking solid sales and earnings, and some say they plan to hire next year, according to surveys and interviews with managers and analysts.

But Marylanders, still worried about federal downsizing and more defense-industry shrinkage, have been cautious about job prospects and conservative about spending, analysts report.

Area companies served by Naden-Lean, a large accounting firm based in Lutherville, "seem to be kind of entrenched," said Allan Cohen, managing partner of the firm. "There's no real growth in their businesses. Business isn't bad. It's just that nobody's willing to take the chance to put money into an expansion."

The torpor "is due largely to the severe decline in government contracts" from Washington, said Charles W. McMillion, president of MBG Information Services, a Washington-based business analysis and forecasting service.

"It's not just the direct loss of government jobs which has had an impact, but the squeezing of companies that rely on government contracts."

It's unclear, however, just how weak Maryland's economy has become.

According to preliminary figures from the U.S. Department of Labor, the state hasn't added any employment in five months -- the poorest performance since the recession ended here three years ago. But one prominent analyst thinks those results sell Maryland short.

The Labor Department said the state had 2.162 million jobs in September, the same as in April after adjusting for seasonal variations.

"We don't believe that," said Michael Conte, director of the Regional Economic Studies Program at the University of Baltimore. "We don't believe the economy's been sterling, either. There are lots of reasons to believe it has slowed down."

But Mr. Conte thinks the government has missed thousands of new jobs that won't show up in indicators until next year, when precise job counts emerge from records on unemployment insurance.

One reason for skepticism is the Labor Department's track record in Maryland.

The agency's initial survey often fails to account for jobs at small, new companies. For example, preliminary figures for 1995's first three months undercounted Maryland's true annual employment growth by nearly a full percentage point.

More evidence, Mr. Conte said, comes from utility records.

New residential phone hookups in Maryland have been relatively flat this year, compared with 1994. But business connections are up. In June, the most recent month for which figures are available, business phone hookups popped by 4,400 over June of last year -- a 26 percent increase.

New electricity accounts set up for businesses by Baltimore Gas and Electric Co. rose by about the same amount in the July-September quarter, compared with the same period last year.

That suggests that startup companies are still adding to Maryland's job inventory.

But even allowing for undercounting, analysts still believe that Maryland's job-growth rate for June through September was less than 1 percent, on an annualized basis. The expectation is that growth for all 1995 will be less than 1 percent, too.

That's slower than the 2.0 percent growth for 1994.

It's also far slower than the reported 4.6 percent increase for the third quarter in the gross domestic product -- the country's total output of goods and services.

Last year "was probably the strongest year of Maryland's recovery," said Ann O'Brien Franklin, chief economist for the state Board of Revenue Estimates. "We had pretty solid job growth. People were feeling more confident about job prospects."

Now, she added, "consumers are pretty much tapped out."

Metropolitan Baltimore has been faring worse than the state as a whole and may actually be losing jobs, according to the Labor Department. Employment in the Baltimore region was 1.122 million in September -- 1,200 jobs fewer than in the same month last year.

But if the government is undercounting jobs statewide, it's also missing jobs in the Baltimore area. So the region may not be getting enough credit. Mr. McMillion of MBG acknowledges that the preliminary regional employment data is "goosy."

Still, he adds, "it certainly seems clear that greater Baltimore month to month has been losing jobs since May and maybe earlier than that."

What's noteworthy is that Baltimore's suburbs, not the city, have been the main source of employment weakness.

In September, 411,500 people were working in the city -- several hundred more than in September of 1994, the Labor Department said. If Baltimore's results hold up, it will have stanched a decline that began six years and about 60,000 lost jobs ago.

Statewide, several other indicators point to economic lassitude.

Maryland bankruptcy filings rose 8.8 percent in the year ended in September, setting a record. New-car sales fell 7.6 percent in the third quarter. Help-wanted ads were off.

Not every industry has been struggling. Underneath Maryland's flat employment surface, different kinds of businesses are reporting markedly different results.

The strongest growth has come in service jobs. Temporary office-help companies, nursing homes and health maintenance organizations have all been hiring, government figures show.

Stores continued to add jobs in the July-September quarter, but the prospects for continued retail growth are weak. Retail sales tax collections in Maryland increased by just 2.7 percent in the quarter after rising 7.5 percent for the 12 months ended in June, according to state Comptroller Louis L. Goldstein

Maryland's service-sector job growth isn't especially encouraging, economists said. Service jobs generally pay less than those in other industries.

But construction employment also has been relatively strong, supported by homebuilding as well as projects such as Baltimore's Convention Center expansion and work at BWI Airport. The pending construction of an NFL football stadium next to Camden Yards could boost construction jobs substantially next year and later, Mr. McMillion said.

Home sales rose slightly for the quarter.

The transportation and warehouse trades continued to add jobs, too, as Maryland took advantage of a revitalized port and airport and proximity to half the nation's consumers.

State factories have slowed down, as indicated by a decline in hours worked. Procter & Gamble Co.'s Baltimore plant, which once provided work for more than 200, closed in September.

But, again, there were pockets of strength.

Helped in part by the cheap dollar and exports by its customers, business has been healthy at Ray V. Watson Co. a Baltimore-based maker of custom gears.

"If you talk to a number of people in the machine business, you'll find that they're busy, making shafts, gears or whatever," said Bob Link, the company's president. "But on a local basis, I do have concerns about the generation of good jobs in Maryland."

Maryland banks, several of which have merged with out-of-state rivals, have turned in the worst employment showing this year. Thanks to layoffs at NationsBank, First Fidelity and others, Maryland banking employment plunged by 2,000 jobs -- 5.2 percent -- in the third quarter, compared with the same period last year.

"For this year to date, the major loser has clearly been the banking sector," Mr. Conte said. "They've inflicted the most harm, both in terms of the number of jobs and in terms of the quality of jobs."

The major loser of 1996 could be the federal government. Congress has promised to balance the budget, and Gov. Parris N. Glendening said this month that the state could lose 20,000 federal jobs as a result.

Private-sector growth could make up some of the difference. In a recent survey of state companies conducted by the Maryland Business Research Partnership, 25 percent said they would probably hire next year. Another 30 percent said chances were "50-50" that they would add jobs.

James Brady, the state's economic development secretary, is optimistic. The number of companies talking to his department about expanding or moving to Maryland has tripled from this time last year to about 140, he said.

"I see that as a positive sign that some relief is ahead of us," he said.

Mr. Conte is also relatively optimistic. Although the federal government may be shrinking, he said, much of the work will still have to be done and many of the jobs will end up in private Maryland companies.

"A large part of what's going on is not downsizing but outsourcing," he said. "I would say for each two jobs that the government reduces, they're probably going to have to create one job on the outside at a minimum. And maybe two."

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